Governor Rendell Strikes Out With Economic Development Bonds

Governor Ed Rendell moonlights as a cable television sports commentator. So when Pennsylvanians recently saw headlines reading “Rendell Wants $2 Billion for Bonds,” many of them could be forgiven for concluding that the governor thinks the San Francisco Giants’ Barry Bonds—the 5-time MVP and single-season home run king—should get a hefty pay raise.

Unfortunately, Governor Rendell wasn’t talking baseball, but economic development policy. And if he gets his way, Pennsylvania taxpayers will be on the hook for a 20-year “contract” guaranteeing higher taxes and likely delivering very little in terms of new statewide economic growth.

The governor’s “Plan for a New Pennsylvania” calls for borrowing nearly $2 billion in taxpayer-funded bonds, which will subsidize politically chosen economic development projects. In short, every current and future taxpayer in Pennsylvania will become an “investor” in Governor Rendell’s plan to use tax dollars as venture capital for projects he deems worthy of your support. He promises, however, that the new development these funds spur will more than compensate for the additional costs they will impose on your family.

But such a plan isn’t new or innovative at all. Rather, it continues and amplifies the same failed approach to economic development that Pennsylvania has used far too often in the past.

One of the few areas in which Pennsylvania has led the nation is in the use of taxpayer money for “economic development.” As recently as 1998, Pennsylvania outpaced every other state in terms of economic development funding. However, the Commonwealth’s economic results have been at the opposite end of the spectrum. Indeed, the ten states that spent the most per capita on government-directed economic development in 1997-98 experienced cumulative personal income, population and employment growth rates respectively 28.6, 124.4 and 166.7 percent lower than the 10 lowest-spending states between 1997 and 2002. The bulk of the Rendell plan ignores this conomic evidence.

Nowhere is that ignorance better exemplified than in the governor’s proposal to earmark $500 million to a “Pennsylvania Opportunity Fund.” This fund would use taxpayer money as—in the administration’s own words—venture capital for growth companies.” Governor Rendell claims that such a fund is necessary because “young ntrepreneurs struggle to find financing to turn their dreams to reality. They are forced to move to where their capital ackers believe there is a better environment for growth.”

Governor Rendell understands Pennsylvania’s problem—a lack of business investment in our state’s economy—but completely misunderstands the reason why it exists.

Pennsylvania entrepreneurs struggle to find financing because the state’s business climate—characterized by high taxes on income and capital, still-onerous regulations, and the lack of a voluntary union law—is far less attractive to private investment than those of many of our competitor states. These are the issues—not a lack of government “investments” of taxpayer money—that have forced young entrepreneurs to move to “a better environment for growth.”

Some of the areas targeted for new spending—such as infrastructure that can be used by all taxpayers (including water and sewer facilities, road, bridge and street improvements)—are worthy of support. However, new borrowing or taxes are not needed to fund them. Pennsylvania’s existing programs and taxation (including the substantial increase just six years ago on the state’s gasoline tax) can and should be refocused toward these critical priorities.

Since taking office, Governor Rendell has often quoted Robert F. Kennedy. But when it comes to his economic development plans, he ought to heed the words of another Democrat, the late U.S. Senator Daniel Patrick Moynihan:

Wishing so many things so, we all too readily come to think them not only possible, which likely they are, but also near at hand, which is seldom the case. We constantly underestimate difficulties, over promise results, and avoid any evidence of incompatibility and conflict, thus repeatedly creating the conditions of failure out of a desperate desire for success. … I believe that this danger has been compounded by the increasing introduction into politics and government of ideas originating in the social sciences which promise to bring about social change through the manipulation of what might be termed the hidden processes of society.

The free-enterprise system in Pennsylvania is one of those “hidden processes of society” which has suffered endless “manipulation” throughout history in the name of “social change.” Governor Rendell is just the latest politician to try to improve the market’s performance through government intervention. Unfortunately, his “Bonds” are unlikely to be a “home run” for Pennsylvania’s economy. In fact, Governor Rendell’s bonds have a better chance of becoming an embarrassing “strikeout.”

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Grant R. Gulibon is senior policy analyst at the Commonwealth Foundation, an independent, non-profit public policy research and educational institute based in Harrisburg, Pa.