pa budget corporate welfare

Corporate Welfare in the 2024–25 Budget

Summary

  • Pennsylvania’s economy is largely uncompetitive, with the state routinely losing businesses and residents to more economically competitive states like Florida, North Carolina, and Texas.
  • Gov. Josh Shapiro’s budget proposes $1.49 billion in corporate welfare spending.
  • Corporate welfare programs do not improve the business climate, and most tax credits return less than 25 cents per dollar spent.
  • Rather than ineffective targeted handouts, Pennsylvania’s economic development strategy should focus on broad-based tax and regulatory reform.

The Problem

  • Pennsylvania’s economy consistently rates among the worst in the country. According to the 2023 ALEC-Laffer State Economic Competitiveness Index, Pennsylvania ranks 46th in economic performance.[1] WalletHub recently ranked Pennsylvania as the fifth-worst state to find a job.[2]
    • The uncompetitive economy drives Pennsylvanians away to economically competitive, low-tax states like Florida, North Carolina, and Texas, which saw significant population growth in 2023. Outmigration has hit the Keystone State hard, close to 65,000 have left over the last two years, according to the U.S. Census Bureau.[3]
    • Despite numerous tax credits and grant programs, Pennsylvania’s antiquated regulatory and permitting regime forfeits business opportunities to other states. The state recently missed out on two major deals: U.S. Steel’s decision to build a $3 billion mill and, for Coca-Cola, the new Fairlife milk processing plant, projected as the largest in the Northeast.[4]
    • While big investments make headlines, more than 45 percent of Pennsylvania employees work for small businesses that do not have the bandwidth to navigate the dozens of grant, loan, and tax credit programs managed by the Department of Community and Economic Development.[5]

Corporate Welfare

  • Shapiro proposes a total of $1.49 billion in corporate welfare spending, or government funds directed at specific industries, down from $1.58 billion last year.[6] Of this, his 2024–25 budget plan allocates $892 million to programs, while it directs $600 million to tax credits. Though overall spending is down, Shapiro adds funding for several new corporate welfare programs with higher long-term costs.
    • The largest is the Pennsylvania Strategic Investments to Enhance Sites (PA SITES) Program, a business infrastructure development grant initiated in September 2023. Shapiro’s budget proposes borrowing $500 million for the new program.
      •  PA SITES debt service is projected to cost $15.4 million in fiscal year (FY) 2024–25 and $45.2 million annually in the following fiscal years.
    • The budget seeks $25 million in funding for the new Main Street Matters program, which aims to revitalize communities.
    • Shapiro also wants to end the funding for Keystone Communities and decrease the funding for Keystone Opportunity Zones and the Redevelopment Capital Assistance Program.
      • Grants made through these corporate welfare programs have a record of failure. Recently, a Pittsburgh company’s attempt at landing on the moon failed after receiving $4 million in state funds.[7]
      • In 2012, the state awarded one of the state’s largest subsidy packages to Shell for the construction of a plastics plant. In May 2023, Shell agreed to pay nearly $10 million for violations of air emissions limits,[8] underlining expectations it will be the last of its kind due to economic, and regulatory forces.[9]
    • Tax credits accounted for $600 million of corporate welfare spending, down from $634.1 million in FY 2023–24. This is mainly due to cuts in the Keystone Opportunity Zone tax credit program.
      • In October 2023, the Pennsylvania Independent Fiscal Office (IFO) released a comprehensive review of all state tax credit programs.[10] The review found that most tax credit programs had a net return on investment of less than 25 cents per dollar spent.

Solutions

  • To address Pennsylvania’s uncompetitive business environment, lawmakers should enact broad-based reform to the state’s corporate net income tax (CNIT) and net operating loss provisions.
    • Pennsylvania’s 2024 CNIT is 8.49 percent (after a yearly prescribed half-point drop to reach 4.99 percent in 2031).[11] Eliminating all corporate welfare spending could provide for a revenue-neutral 3.19 percentage point CNIT reduction to 5.3 percent, the 19th lowest in the country.[12]
    • Pennsylvania is one of two states with a cap on the amount of net operating loss businesses can claim in a year. Increasing the net operating loss carryover limit would protect startups and help cyclical businesses weather difficult times.[13]
    • Pennsylvania is 22 percent more regulated than the average state. Reducing state regulations by 36 percent would yield a $9.2 billion increase in state GDP and create 180,000 new jobs.[14]

[1]Arthur Laffer, Stephen Moore, and Jonathan Williams, “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, 16th Edition,” (Arlington, VA: American Legislative Exchange Council, April 4, 2023), 46, https://www.richstatespoorstates.org/app/uploads/2023/04/2023-16th-RSPS.pdf.

[2]Adam McCann, “Best and Worst States for Jobs,” Wallethub, November 29, 2023, https://wallethub.com/edu/best-states-for-jobs/35641.

[3]Commonwealth Foundation, “Pa.’s Population Continues Its Troubling Decline,” news release, December 20, 2023, https://www.commonwealthfoundation.org/2023/12/20/pa-population-decline/.

[4]Troy Lynch, “Stealing the Show,” Fox16 Little Rock, May 2, 2022, https://www.fox16.com/news/special-reports/stealing-the-show-arkansas-becoming-the-steel-state/; Pennsylvania Farm Bureau, “Shapiro Visits Reinford Farms in Mifflintown to Celebrate Dairy Month,” June 2023, https://pfb.com/shapiro-visits-reinford-farms-in-mifflintown-to-celebrate-dairy-month/.

[5]Office of Advocacy, “2023 Small Business Profile: Pennsylvania,” U.S. Small Business Administration, November 14, 2023, https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-PA.pdf.

[6]Pennsylvania Office of the Governor, “2024-2025 Executive Budget Book,” (Harrisburg, PA: Pennsylvania Office of the Budget, February 2024), https://www.budget.pa.gov/Publications%20and%20Reports/CommonwealthBudget/Documents/2024-25%20Budget%20Documents/Budget%20Book%202024-25%20-%20Web%20Version.2.pdf; Veronique de Rugy and Tad DeHaven, “Corporate Welfare: Beyond the Budgetary Cost,” Mercatus Center, March 31, 2020, https://www.mercatus.org/research/policy-briefs/corporate-welfare-beyond-budgetary-cost.

[7]Marcia Dunn, “Pa. Company Lunar Lander Will Burn Up after Failed Moonshoot,” PennLive, January 15, 2024, https://www.pennlive.com/news/2024/01/pa-companys-lunar-lander-will-burn-up-after-failed-moonshoot.html; Neena Hagen, “Gov. Shapiro Announces $4 million Investment in Astrobotic Technology to Send Pittsburgh to the Moon,” Pittsburgh Post Gazette, November 14, 2023, https://www.post-gazette.com/business/tech-news/2023/11/14/shapiro-investment-astrobotic-pittsburgh-lunar-lander/stories/202311140103.

[8]Chrissy Suttles, “Shell to Pay $10 Million for Air Violations and Restart Cracker Plant Production,” Beaver County Times, May 24, 2023, https://www.timesonline.com/story/news/local/2023/05/24/shell-to-pay-10-million-for-air-violations-and-restart-cracker-plant-production-beaver-county/70252674007/.

[9]Tom Sanzillo, “Shell Pennsylvania Likely to Be Last Hurrah for Big Petrochemical Complexes,” Institute for Energy Economics and Financial Analysis, March 1, 2022, https://ieefa.org/resources/ieefa-us-shell-pennsylvania-likely-be-last-hurrah-big-petrochemical-complexes.

[10]Independent Fiscal Office, “Summary of Tax Credit Reviews,” (Harrisburg, PA: October 2023), http://www.ifo.state.pa.us/download.cfm?file=Resources/Documents/Summary_Tax_Credit_Reviews_Oct_2023.pdf.

[11]Rep. Jack Rader Jr., 2022 Act 53, P.L. 513 (House Bill 1342), Pennsylvania General Assembly, Regular Session 2021–22, July 8, 2022, https://www.legis.state.pa.us/cfdocs/legis/li/uconsCheck.cfm?yr=2022&sessInd=0&act=53.

[12]Katherine Loughead, “State Corporate Income Tax Rates and Brackets, 2024,” Tax Foundation, January 23, 2024, https://taxfoundation.org/data/all/state/state-corporate-income-tax-rates-brackets-2024/.

[13]Sen. Greg Rothman, Senate Bill 346, Pennsylvania General Assembly. Regular Session 2023-24, https://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2023&sind=0&body=S&type=B&bn=346.

[14]Commonwealth Foundation, “New Study: Pennsylvania’s Overregulation Harms Economy and Costs Jobs,” September 19, 2023, https://www.commonwealthfoundation.org/2023/09/19/study-pennsylvania-overregulation/.