JANUARY 31, 2012

Corporate Welfare Not Needed to Get a Cracker

The Pittsburgh Tribune-Review reports that Pennsylvania lawmakers are pushing a special tax deal to attract a "cracker" plant to the state. The proposed Shell cracker—which breaks down natural gas into ethylene, used in plastics—has been much talked about, with the Keystone State reportedly a finalist with Ohio and West Virginia. The plant would create thousands of jobs, at least by internal estimates.

The proposal would expand Keystone Opportunity Zones, exempting certain businesses from taxes (primarily targeted to the cracker). What's wrong with a KOZ? Well for one thing, tax breaks for a few require higher taxes, spending being equal, on all other businesses. Further, a Legislative Budget and Finance Committee report finds that the KOZ program has little accountability, and the promised jobs often failed to materialize. Most importantly, tax breaks and corporate welfare don't actually generate economic growth, they simply shift resources.

Rather than expanding corporate welfare, here is what lawmakers need to do to make Pennsylvania more attractive:

• Enact a natural gas policy that removes the political uncertainty stemming from the Frack Attack, and provides predictability for the gas industry.
  
• Improve Pennsylvania's business climate for all businesses. Indeed, lawmakers should take the lesson from the Keystone Opportunity Zones—that businesses are attracted to lower taxes—and apply it statewide.

posted by NATHAN BENEFIELD | 01:31 PM | 0 comment

JANUARY 20, 2012

Fiscal Outlook for Pennsylvania: Not Too Rosy

This week the new Pennsylvania Independent Fiscal Office held its first annual seminar on the state economy and revenue. After a series of presentations on the state of the economy and state budgeting/revenue from a national perspective—all with the perspective that robust growth is unlikely and risks to the economy persist—the IFO presented on future budget trends and released its five-year fiscal outlook.

Here are some highlights (or lowlights, to be accurate):

• Pennsylvania's population will continue to age, with an estimated 25 percent increase in senior citizens, and a 1.8 percent decline in working-age population.
  
• This translates into slow revenue growth: Estimated annual growth in General Fund Revenue is projected to average 1.6 percent annually for 2011-14, and 4 percent annually from 2015-17.
  
• This is in contrast to General Fund expenditures, which are expected to grow absent significant policy changes. The big categories of growth are Public Welfare (driven by Medicaid), Corrections, Pensions, and Debt.
  
  • General Fund Public Welfare spending is expected to go up by 8 percent per year from 2011-14. As noted, federal policy (stimulus and Affordable Care Act) is driving this growth—increasing Medicaid eligibility and preventing state reform through the "Maintenance of Effort" requirement.
  • Commonwealth debt payments will grow by 7.3 percent per year from 2011-14.
  • Pennsylvania's corrections spending is expected to grow 6.9 percent per year from 2011-14.
  • Commonwealth pension contributions will skyrocket by 40 percent per year over the next three years. As a share of General Fund spending, pension payments will rise from 4.2 percent for FY 2011-12 to 11.6 percent for FY 2016-17.
  • The IFO projects education spending will decline by 1 percent per year from 2011-14—this forecast is based on expected enrollment declines, rather than anticipation of legislative priorities.

All these forecasts are based on current policy, i.e., no changes to current programs. But it should be blatantly obvious that reform must occur. Lawmakers must tackle the big cost drivers. Pension reform, Medicaid and welfare reform, criminal justice reform, and reducing our debt burden must be budgetary priorities. Moreover, to improve the revenue picture lawmakers must focus on policies that promote prosperity.

posted by NATHAN BENEFIELD | 04:34 PM | 0 comment