Two stories published in the past week offer perfect examples of questionable returns from economic development spending, otherwise known as corporate welfare.
In the first story, Keystone Crossroads examined the City Revitalization & Improvement Zones (CRIZ) program. The program is designed to fund development and improvement projects with state and local tax revenue generated inside the zone. State officials designate CRIZ areas, which has proved controversial among local lawmakers:
The state picked Bethlehem and Lancaster, prompting officials elsewhere to cry foul. They complained that other municipalities, like Altoona, needed the revenue injection more than places where revitalization efforts already seemed fruitful, self-catalyzing, even exemplary compared to other small cities in the Commonwealth.
The arbitrary nature of the CRIZ program isn’t its only downside. In Lancaster, the program generated well below the cost of the zone’s planned projects:
The businesses in Lancaster's CRIZ generated nearly $127,000 more in local income and services taxes last year than in 2013. State tax revenue grew by $2,870, according to the Department of Revenue.
That's far less than the $500,000 in annual repayment obligations expected to be tied to a borrowing planned by Lancaster CRIZ's authority.
Scholars at the Cato Institute and Lincoln Institute of Land Policy caution against using CRIZ-type programs (also known as tax increment financing (TIF) tools) because they are subject to political manipulation and do not contribute to overall economic growth.
The latter finding is consistent with Commonwealth Foundation research. From 2003 until 2013, Pennsylvania was a leader in corporate welfare handouts, but our job growth lagged states with less corporate welfare. Overall, 10 states with the highest total subsidies saw slower growth than states with the lowest amount of handouts.
Another example of failed corporate welfare is horse racing. Nearly 36 percent of the $700 million in state corporate welfare subsidies is dedicated to the Race Horse Development Fund, which subsidizes racetrack prizes for wealthy horse owners. Horse racing made the news last week after the governor noted the fund used to regulate racing is in shaky fiscal condition.
This raises some obvious questions. Why is the state subsidizing horse racing? And secondly, if corporate welfare is so effective why is the industry struggling to raise enough money for drug testing and other safety procedures?
Corporate welfare’s poor track record is one reason why CF has called for eliminating the nearly $700 million of special subsidies to help balance the state budget. Rather than proposing massive tax increases on the middle class, it's time to cut subsidies designed to benefit a select few.