Hunting for Taxpayers: Pennsylvania’s Big Game Sport

This fall, the newest Cabela’s outdoor superstore—described by a company marketing specialist as “a retail store wrapped up in a museum wrapped up in a restaurant”—opened in Berks County, Pennsylvania. The 250,000-square-foot complex includes a 55,000-gallon walk-through aquarium, a Deer Country museum, an indoor archery range, a man-made lake and walking path, and a 30-foot, two-story “Conservation Mountain” replica complete with waterfalls, streams, and a trout pond.

However, not everyone is eagerly anticipating Cabela’s opening day—complete with a ribbon-cutting ceremony attended by Gov. Ed Rendell. A number of much smaller sporting goods and outdoor store owners in the area are concerned about their gigantic new neighbor’s impact on them. But it isn’t the competition itself that many of these small business owners are most upset about—it’s the fact that they will be forced to subsidize a new competitor with their own tax dollars. That’s because the state, along with local municipalities, promised Cabela’s $27 million in taxpayer funding—nearly half the $59 million cost of the facility.

Randy Campbell, owner of Triple Creek Rod & Gun in Perry County, summed up the fundamental problem with the Cabela’s deal in a recent newspaper article: “I don’t have a problem with the competitive aspects of business. I don’t begrudge anyone going into business.” But, he argues, the small entrepreneur is “never put on a level playing field. The deck is stacked against us”—and big companies (like Cabela’s) “have the money to pay lobbyists.” In other words, the squeakiest—and biggest—business “wheels” get the taxpayer-funded “grease,” while the smaller, less-politically connected firms are expected to keep quiet while they pay their taxes—taxes, as in the Cabela’s deal, that are redistributed to competing businesses.

Nevertheless, supporters of the Cabela’s deal—primarily politicians—argue that the store will be an economic generator that will easily recoup any “investment” made by taxpayers, and that the ultimate winner in any competition that results will be the customer.

But in calculating the economic impact of such taxpayer-subsidized projects, a number of hidden costs are often ignored—and the benefits of such projects are therefore overstated. Rarely considered are factors such as the impact of subsidized development on existing businesses, the tax burden required to pay for the subsidies, the lobbying and other costs of obtaining the subsidies for the recipient business, and the fact that Pennsylvania and many of its local governments have also, at times, lost out when attempting to use subsidies and other inducements to lure companies. Once all of these costs are considered, it is highly questionable as to whether or not subsidizing Cabela’s—or other private, profit-seeking businesses—will be a “winning” proposition for the people of Pennsylvania.

A look at this larger, more complete picture would yield a more realistic, less rosy assessment of whether or not a taxpayer-funded economic development strategy is a wise one for Pennsylvania. Unfortunately, governments engaged in these projects do not usually conduct a rigorous analysis of whether or not the development that does occur would have happened in the absence of their intervention. In fact, contrary to the conventional economic development wisdom, studies do show that incentives are generally not the deciding factor in business location decisions. This means that many of the scarce tax dollars that are supposedly helping wavering companies make up their minds about where to locate simply allow private investors to make an even greater return on investments that they would have undertaken in any case. By offering taxpayer-funded subsidies to companies that do not “need” them, states feed a vicious cycle of corporate welfare.

Still, development officials often claim that they have no other choice but to offer subsidies—especially in states, like Pennsylvania, that have generally poor overall business climates characterized by high business taxes. That is the attitude of the Rendell Administration, which continues to tout a $2 billion “economic stimulus” plan that relies heavily on taxpayer-backed bonds to provide “venture capital” to private businesses.

However, forcing Pennsylvania families and businesses to pay for the incentive packages used to attract competing companies—from inside or outside the state—only serves to move the state’s business climate from bad to worse. This is borne out by the fact that despite Pennsylvania’s generous recent economic development expenditures, which as recently as 1998 ranked first overall among the states and 5th on a per capita basis, the Commonwealth still lags its competitors in terms of employment, population, and income growth.

As a visitor and shopper experience, the new Cabela’s will likely be all that its promoters promise. But hunting for taxpayer subsidies will never be a successful strategy for reviving the business and economic climate of Pennsylvania. Instead, policymakers should level their sights on the “big game” of high taxes and burdensome regulations that keep jobs out of the Commonwealth.

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Grant R. Gulibon is senior policy analyst at The Commonwealth Foundation, a free-market public policy research and educational institute based in Harrisburg.