For the past three and one-half years, the ostensible premise of Gov. Ed Rendell’s “economic stimulus” plan has been that by making “targeted investments” in politically chosen companies and industries, state government can give Pennsylvania’s economy the jump-start it needs to compete with states that have regularly outperformed the Commonwealth over the past several decades. This proposition is questionable at best, given Pennsylvania’s anemic employment growth statistics during the Rendell Administration.
However, the very idea that state government has the ability to “stimulate” the private sector economy is not just economically fallacious, but also rhetorically misleading. A “stimulus” is usually thought of as a temporary measure that provokes activity, then fades away once its purpose has been served. But Gov. Rendell’s “economic stimulus” plan is far from temporary in nature. Rather than providing Pennsylvania businesses with short-term assistance, the “stimulus” program will instead induce more and more companies to become dependent on taxpayers for their long-term survival. In this manner, “corporate welfare” has the same effect on many businesses that traditional public welfare programs have had on individual citizens.
For an example of how even the largest, well-established companies become eager clients of the corporate welfare state, consider a recent stop on Gov. Rendell’s ongoing statewide re-election tour—a visit to the Delaware County plant of Boeing, the Chicago-based aerospace behemoth. After announcing that he considers it “a pleasure to deliver checks and good news,” the governor handed Boeing officials $2 million in taxpayer-funded incentives that he claimed would help the company create 350 new jobs over the next three years and “preserve” the plant’s 4,700 existing jobs in Delaware County. Gov. Rendell further stated that his generosity with state taxpayers’ money would “finally and emphatically” move the Boeing plant “off the endangered list.”
But the governor’s pronouncement wasn’t the whole story on the Delaware County Boeing plant. It turns out that far from being the deciding factor in creating and preserving jobs at the company, the Boeing incentive package will likely just add an additional $2 million to the corporation’s bottom line. According to a report by the Delaware County Times, Boeing “was already planning to add hundreds of jobs” in response to increased Pentagon demands for Chinook and Osprey helicopters—and “probably would have moved ahead with those hires regardless of whether it received state assistance.”
This doesn’t mean that Boeing was going to turn down the $2 million check from Gov. Rendell, which included $1.05 million in job creation tax credits, a $750,000 “Opportunity Grant,” and $245,000 in job training funds. Indeed, the company announced plans to use the job training funds—thus saving Boeing the cost of training that would (and should) have otherwise been its full responsibility—and, in the words of a Boeing spokesman, “$1 million in tax credits are always beneficial.”
The Boeing deal is a perfect illustration of the futility of trying to use state government as an instrument to create economic growth—and of how taxpayers lose regardless of the situation. In Boeing’s case, all Gov. Rendell’s check did was allow a profitable company to increase its profits at taxpayer expense, as some of those tax dollars probably came from smaller Pennsylvania firms without the time, resources, or political connections necessary to obtain such an incentive package. At the same time, even if the state’s intervention had been the primary reason for Boeing’s expansion, taxpayers still would have been worse off, for any jobs created as a result would have not been grounded in economic reality, and would have required additional subsidy to maintain them in the future.
Fortunately, it appears that some Pennsylvania legislators are beginning to see Gov. Rendell’s “stimulus” plan for the costly, ineffective, redistributionist gimmick that it is. On June 28, three state senators—Jane Orie (R-Allegheny), Pat Vance (R-Cumberland-York), and Pat Browne (R-Lehigh)—announced their intention to bring about some “corporate welfare reform” in Pennsylvania by moving away from the strategy of subsidizing individual businesses and toward one that concentrates on improving the state’s overall business climate. Specifically, they intend to introduce legislation repealing the ability of one of the cornerstones of Gov. Rendell’s “economic stimulus” plan—the Commonwealth Financing Authority—to incur additional debt to make grants and loans.
The only thing that Gov. Rendell’s “economic stimulus” plan has stimulated is a mad scramble for taxpayer largesse on the part of many large, politically connected companies. It is long past time for state government to end these “corporate welfare” programs. If Gov. Rendell spent his energy fixing the Commonwealth’s overall tax, fiscal, and regulatory climate, there would be no need to fly around the state delivering Boeing-sized welfare checks.
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Grant R. Gulibon is a Fellow with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, non-profit public policy research and educational institute located in Harrisburg, PA.