Budget Solution of the Week: Reduce Special Interest Spending
In our budget solutions blog series, we’ve covered the benefits of a government efficiency review, the need to modernize the commonwealth’s corrections system, and the importance of school choice. This week, we shift attention to special interest spending.
In Embracing Innovation in State Government, we recommend reducing spending on corporate welfare and in funds outside the General Fund Budget. Combined, these programs cost more than $2.6 billion.
If lawmakers reduced this spending by half—through program elimination or structural reforms—it would save approximately $1.3 billion. This savings could then be used to close a projected $1.7 billion shortfall in the 2017-18 budget.
All the corporate welfare programs and funds identified above deserve a thorough review, but a few stand out either for their extravagance or futility. Pennsylvania’s Film Tax Credit falls into the latter category. The Independent Fiscal Office analyzed the tax credit in 2013 and found most of the production-related wages went to nonresidents. And the return on investment was just 14 cents for every dollar in tax credits.
The credit is little more than an ineffective handout to the wealthy. According to a recent investigation by PublicSource, film production companies have sold off 99 percent of all credits redeemed. Effectively, the credit transfers wealth from taxpayers to corporations like Apple, Comcast, and Exelon.
Pennsylvania First is another corporate welfare program with a record of failure. In 2013, the Department of Community and Economic Development gave a Lehigh Valley Kraft plant almost $340,000 in subsidies to expand its operations. The plant eventually closed its doors late last year. After the announcement, the state vowed to recoup the subsidies—a move that could have been avoided had the state not taken on the role of an economic development agency.
In addition to corporate welfare, Harrisburg funds a collection of programs best described as nonessential. The most prominent example is the Keystone Recreation, Park, and Conservation Fund. Its past projects include pool feasibility studies, golf course acquisitions, and sports complex rehabilitations. Funding these types of projects while the state taxes businesses out of existence is indefensible.
For reformers looking to redesign government, eliminating ineffective and nonessential government programs would be a great place to start. Reducing special interest spending would shrink the budget deficit in the short-term and allow time for larger, long-term reforms to take effect.