You are browsing the archive for Economic Development.

Pennsylvania Tax Giveaways and an Island in the Sun

9:01 am in Uncategorized by ThirdandState

This is Oracle's headquarters.

By Jamar Thrasher, Third and State

A few weeks ago, the Pennsylvania General Assembly fast-tracked a bill in the waning days of the legislative session to allow certain private companies to keep most of the state income taxes of new employees. News reports to follow indicated the new tax giveaway was designed to lure California-based software firm Oracle to State College.

Well, it turns out the CEO of Oracle, which will benefit from the largess of Pennsylvania taxpayers, recently bought his very own Hawaiian island, as CNN reported back in June.

Oracle CEO Larry Ellison, the third richest man in the U.S., purchased about 98% of Lana’i, the sixth largest of the Hawaiian islands. Forbes reported that the deal was rumored to be worth $500 million.

As CNN tells us:

The island includes two luxury resorts, two golf courses, two club houses and 88,000 acres of land, according to a document filed with the Public Utilities Commission.

Which bring us back to Pennsylvania, where Governor Corbett recently signed House Bill 2626, allowing qualifying companies that create at least 250 new jobs within five years to pocket 95% of the personal income taxes paid by the new employees.

Legislative sources told The Philadelphia Inquirer that “the bill was designed to lure California-based Oracle, the world’s third-largest software maker with $37 billion in revenue last year, to open a facility in the Penn State region, which would provide a pool of highly educated job seekers.”

We’ve already blogged about why this bill is a bad deal for Pennsylvanians, but Larry Ellison’s island provides us with yet another reason.

Oracle should not be pocketing the withholding taxes of new employees in State College, especially at a time when the state is cutting investments in schools and underfunding infrastructure.

And especially when the boss is doing well enough to afford an island in the sun.

Photo by Alamagordo under Creative Commons license.

A Rare Victory In The Endless Fight Against Corporate Welfare

1:52 pm in Uncategorized by ThirdandState

By Mark Price, Third and State

In a rare victory against corporate welfare in Pennsylvania, Ahold USA has withdrawn its request for property tax breaks for a meat-packaging facility it is building in Lower Allen Township, Cumberland County.

As Michael Wood explained before the request was withdrawn:

Ahold is the poster child for a system that is costly, lacks real accountability and leaves the taxpayers paying more…

Paying a profitable corporation for something it was already planning to do makes no sense at all…

Lower Allen Twp. officials decided wisely to put the Ahold tax break on hold. It’s time more public officials followed their lead to stop playing the economic development game and direct tax dollars where they should be spent: on schools, public safety and other vital services. 

In some more mixed news, The Associated Press reports that both the House and Senate have approved House Bill 2626, which allows certain companies to keep new employees’ personal income tax withholdings.

The Pennsylvania Budget and Policy Center came out last week with a Top 10 List of concerns with this plan, laying the foundation for some improvements to the bill made in the Senate this week. They include capping the cost of the program at $5 million per year (the original version could have cost hundreds of millions), and requiring that a qualifying company create at least 250 jobs within five years (100 within the first two years).

The bill still reflects a flawed approach to economic development, but the Senate’s more cautious approach is much better than the initial House version.

Sen. John Blake, D-Lackawanna, said the bill “crosses a line” in smart economic development by diverting tax revenue to a handful of private companies, and it duplicates existing programs in law that offer tax credits to companies that hire people.

The bill, he said, is “essentially an employee paying their boss for the privilege of having a job.”

As Greg LeRoy and Leigh McIlvaine of Good Jobs First explained in an op-ed this week, the “pay your boss to work” approach to economic development is deeply problematic.

It’s one thing to reduce a company’s income tax, property tax or sales tax in hopes of jobs. It’s another to give companies other people’s money.

The name and idea are imported from Kansas, where they have caused enormous controversy. HB 2626 is modeled on the identically named “Promoting Employment Across Kansas,” or PEAK program, which was enacted in 2009.

In the wealthy Kansas City suburb of Overland Park, MIQ Logistics and Dex One Service Inc. — two of the city’s largest employers — have so far received a total of $730,000 of their workers’ taxes through PEAK.

Former Overland Park Chamber of Commerce executive Vern Squier, who worked with Kansas lawmakers to enact PEAK, is now CEO of the Chamber of Business and Industry of Centre County (State College), where he is pushing the copycat HB 2626.

HB 2626’s sponsors say it would bring new jobs to the state. But PEAK in Kansas cannot be called a success. It is plagued by transparency problems and is fueling a bitter zero-sum jobs war with Missouri in the Kansas City metro area.

In the last three years, media-reported deals alone there have moved about 1,900 jobs from Missouri to Kansas and about 2,200 from Kansas to Missouri. Most of the moves were subsidized, often with the personal income taxes of workers (Missouri has a similar personal income tax giveaway).

The costly Kansas City-area jobs war has gotten so bad that 17 prominent business leaders there issued a public appeal last year to Kansas Gov. Sam Brownback and Missouri Gov. Jay Nixon, saying: “At a time of severe fiscal constraint the effect to the states is that one state loses tax revenue while the other forgives it.

“The states are being pitted against each other and the only real winner is the business who is ‘incentive shopping’ to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.”

‘How ’bout No, You Crazy Dutch….’

1:40 pm in Uncategorized by ThirdandState

By Mark Price, Third and State

The Only Proper Villian We Could Find From the NetherlandsOn Monday night, the Lower Allen Township commissioners in Cumberland County considered a proposal from Ahold USA, the corporate parent of Giant Food Stores, for a $400,000 property tax abatement on a meat repackaging plant on which the company has already broken ground. (Ahold USA is itself the subsidiary of the Netherlands-based Ahold.)

The company has neglected a basic principle of the economic development game through which companies extract subsidies and tax breaks from states and localities where they were going to build anyway: until you have the subsidy in hand, don’t give away that it will not impact your location decision.

But since the company made this error, the title of this blog post, taken from the Austin Powers movie Goldmember, should suffice for the township’s answer. (It is pure coincidence that Goldmember, a Dutchman pictured to the right, has a gold G on his velvet sweatsuit.)

Here are two stories on this issue.

The Lower Allen commissioners should continue to say no to Ahold’s request because it is a simple giveaway that diverts needed tax revenue from the township. It would be that much costlier if the West Shore School District (which has absorbed $2.2 million in state budget cuts since 2010-11) and Cumberland County (where property taxes for most homeowners and businesses may rise by 22% next year) follow suit.

The repackaging plant will consolidate meat cutting operations for Ahold USA’s stores in the mid-Atlantic region. Customers will no longer get their meat freshly cut in the store, instead, the meat cutting and packaging function is being moved to a central location with easy access to the interstate. Some meat cutters will lose their jobs in the process, while others might be offered jobs at the new facility, at a lower wage.

For its $400,000, Lower Allen Township is being promised between 450 and 800 jobs; there is no word on how many jobs will be lost at Giant Food Stores in the region or at the company’s Maryland division.

Read the rest of this entry →

Fact Checking PA Governor Corbett’s Jobs Record…and Some Unsolicited Advice

2:07 pm in Uncategorized by ThirdandState

By Stephen Herzenberg, Third and State

Governor Tom Corbett’s administration has a new summary of Pennsylvania’s recent job performance. Today’s news that Pennsylvania’s unemployment rate is as high as the national unemployment rate underscores, however, that the state’s recent jobs record is not  good. Let’s take a closer look.

PA vs. U.S.: The Corbett jobs summary notes that Pennsylvania’s unemployment rate is below the national rate — and it was when the summary was first released. This was not a new trend: the Pennsylvania rate was a point or a point-and-a-half below the national rate for most of the four years before Governor Corbett took office. A year ago, the gap between the Pennsylvania and U.S. unemployment rate was still statistically significant. (See Table A.) But the gap between the two rates — the “Pennsylvania advantage” — has been shrinking steadily since 2010 until the Pennsylvania rate finally climbed to the U.S. level in August 2012, both equaling 8.1%.

Private-sector Job Growth: While the administration touts private-sector job growth in 2011, the numbers reflect a national trend, rather than a unique Pennsylvania story.

The U.S. economy has had 30 consecutive months of private-sector job growth. In fact, Pennsylvania’s rank for the percent growth in private-sector job growth has fallen from 8th in 2010 to 36th in the 12 months ending in July 2012. One of the reasons that Pennsylvania’s private-sector job-growth ranking is down is the deeper cuts in public employment in Pennsylvania compared to other states. Deep cuts to Pennsylvania public schools and colleges led to a loss of 14,000 education jobs alone in 2011.

These layoffs impact the classroom and Main Street too. Unemployed teachers, like unemployed factory workers, don’t have money to spend, which affects the broader economy.

Manufacturing Job Growth: Manufacturing jobs growth improved in 2011, but again reflects national trends. In fact, Pennsylvania’s manufacturing job growth since early 2010 is slightly below half the national increase. (See The State of Working Pennsylvania 2012.)

New Hires in Marcellus Shale: Not this one again. The administration is touting natural gas industry growth by citing the number of new hires. As we’ve explained repeatedly, new hires are not new jobs (most new hires replace people who quit or are fired). In fact, the number of new hires is basically a meaningless number. Statewide there were 580,400 new hires during the 2nd quarter in Pennsylvania, while total non-farm employment rose between the 1st and 2nd quarter by less than 300 jobs. In other words, the only reason to cite new hires is to make the job gain seem substantially larger than it really is.

The gas industry has led to some job growth in Pennsylvania, just not on the scale claimed by the industry. Between the 4th quarter of 2008 and the 4th quarter of 2011, employment in the core Marcellus Shale industries grew by 18,000. That gain was largely wiped out by the loss of 14,000 education jobs in just one year. Even using the most generous estimates, employment in the Marcellus Shale in direct and ancillary industries in the 4th quarter of 2011 (as published by the Pennsylvania Department of Labor and industry) was 238,400 – about 4.2% of total state employment.

Here’s the unsolicited advice: Twenty months into Governor Corbett’s first term, there is still time for the Governor to pursue policies that will improve Pennsylvania’s job performance. There are multiple options that have strong bipartisan and business support. For example, investing in transportation infrastructure as recommended by the Governor’s own transportation commission.

In manufacturing and workforce development, the administration is also saying some of the right things. But talk is cheap: we need actual investment in skills and innovation if our job performance is going to improve relative to other states and the nation.

PA Must Reads: Predicting School Districts In Distress, Privatization and Hello Düsseldorf!

7:17 am in Uncategorized by ThirdandState

A blog post by Mark Price, originally published at Third and State.

The Harrisburg Patriot-News reports this morning on a new study that predicts fiscal distress in Pennsylvania school districts thanks to state budget cuts.

In a report titled “Sounding the Alarm,” the Pennsylvania State Education Association describes the impact that state funding cuts and policies are having on school districts’ ability to meet the educational needs of students.

In it, the union calls on the Legislature and Gov. Tom Corbett to put more money into public schools and remove the limitations on property tax increases required by the state law known as Act 1.

But the Corbett administration suggests there’s no reason for alarm.

In a cringe-inducing moment from that Patriot-News story, a spokesman for the Corbett administration chose not to read the study before reaching into his trusty public relations rapid-response handbook:

Tim Eller, Department of Education press secretary, said having only one or two districts out of 747 public school entities encountering severe fiscal distress is no reason to sound the alarm.

From the study:

The authors of a study published recently in the refereed Journal of Education Finance conclude that districts that are relatively small, rely heavily on a single source of revenue, have little buffer within their budgets, and have relatively high amounts of debt are more likely than other districts to cut classroom expenditures by at least five percent in a given year (Trussel and Patrick, 2012). The strongest of these indicators of underlying fiscal weakness is heavy reliance on a single source of revenue.

Districts entered 2011-12 in varied financial shapes. Applying the model from the Trussel and Patrick study to Pennsylvania school districts, and combining those results with trend data from districts’ General Fund balances over the last few years, strongly suggests that many districts across the state faced elevated risks for making severe cuts to classroom services, even before the other cost and revenue pressures reviewed below are taken into account. Read the rest of this entry →

Business Subsidies 101: Take The Money and Run

9:48 am in Uncategorized by ThirdandState

A blog post by Mark Price, originally published at Third and State.

The Allentown Morning Call reports that a plant operated by International Battery in the Lehigh Valley has closed its doors. The facility opened in 2008 with $4 million in incentives from the commonwealth.

International Battery, which opened an Upper Macungie plant in 2008 that was expected to create hundreds of jobs, has abruptly closed without explanation, workers said, surprising local officials who worked for years to attract the company to the Valley…

Phone messages left with various company representatives were not immediately returned. A message left with Wexford Capital, a Greenwich, Conn., hedge fund that invested $35 million in International Battery in 2010, was not immediately returned.

International Battery, which makes rechargeable lithium-ion cells and batteries for the military and industrial uses, was seen as a recruiting win in 2008 when it decided to invest millions of dollars in the Lehigh Valley and create manufacturing jobs.

Philadelphia City Paper reviews the effort to sell the Philadelphia Gas Works.

In 2007, the massive Texas utility company TXU was sold to a private-equity firm, on the advice of George Bilicic of mega-firm Lazard. It was the biggest leveraged buyout in history. Lazard made a tidy $13.5 million fee; Bilicic went on to work for the bankers who bought the utility. As for the utility itself? Energy Future Holdings (as TXU is now called) is now spiraling into debt so deep that Warren Buffett recently apologized for investing in it.

Now the same consultant (Bilicic) at the same company (Lazard) is advising Mayor Michael Nutter on a plan for a similar sale, this time of Philadelphia Gas Works (PGW), the city-owned utility. Potential conflicts of interest aside, consumer advocates contend a sale could hurt ratepayers and the 109,000 poor and elderly that rely on subsidized gas heat. But Nutter, citing a report by Lazard, says it could free the city from major financial liabilities, including costly pensions.

Since it is Friday, I will leave you with the Steve Miller Band.

PA Must Reads: Unemployment Benefits Extended, Prevailing Wage Change Stalls and Running Government Like a Business

7:48 am in Uncategorized by ThirdandState

A blog post by Mark Price, originally published at Third and State.

What a difference an election year makes. Last year was full of pointless brinksmanship over federal policy issues that will take several decades to solve. Those battles at times looked like they threatened the near term health of the economy.

The New Year is shaping up to be very different. The New York Times reports this morning that a deal has been struck to extend the payroll tax reduction and extended unemployment benefits through the end of the year. Tentatively, it looks as if efforts to weaken the unemployment insurance system have been blocked. Both the payroll tax reduction and extended unemployment benefits were set to expire at the end of February, and the failure to extend them was on most economists’ lists of things that could weaken the economy in 2012.

The Allentown Morning Call reports that an effort to weaken Pennsylvania’s prevailing wage law appears to have stalled. There is little evidence that the presence or absence of prevailing wage laws raise public construction costs. There is, however, abundant evidence that repeal of these laws lowers the wages of construction workers. Read more here.

So why the effort to weaken the law? It is about catering to owners and executives of contractors who pad their pockets by paying workers’ poorly.

Governor Tom Corbett, meanwhile, is touring the state to promote his 2012-13 budget.

Corbett insisted to reporters during his tour of the high-tech Siemens Medical Solutions plant that his 2012-13 plan for a steep new cuts in state aid to higher education — including 30 percent less money to state-backed schools such as Pennsylvania State and Temple Universities — could be dealt with by reducing campus operating costs, not by raising tuition…

“A lot of people are upset at spending at that level, but that’s all the money that we have,” he said, reiterating his vow not to raise taxes…

He argued that the state had to be run more like a private business — like Siemens, in fact — to create more jobs and cut costs.

“We can’t continue to raise our prices,” he said, referring to college costs. “If Siemens kept increasing prices, they would make themselves uncompetitive.”

Speaking of “all the money that we have” and running the government like a “private business” that gives away its services for free even when it has no idea whether the benefits of that policy exceed the costs … Governor Corbett has signed into law an extension of Keystone Opportunity Zones.

Gov. Tom Corbett on Monday signed a bill extending for 13 years the Keystone Opportunity Zones program that exempts businesses from paying many state and local taxes.

Exemptions run for up to 10 years, but the bill lets companies enroll through the end of 2015 so the program now will run through 2025…

While KOZs started in 1999 to promote the use of distressed lands and run-down properties, lawmakers and observers noted instances in the early years of the program where companies enjoyed the tax benefits without investing in properties or creating jobs.

Finally this morning, we have lots of news on the impact of economic austerity around the state. For starters, school districts in Cumberland County are moving to balance their budgets by raising fees, and the Lancaster School District faces a budget shortfall.

The Philadelphia City Controller has issued a grim warning about the Philadelphia School District’s financial future.

As expected, City Controller Alan Butkovitz included a warning Tuesday about the Philadelphia School District’s finances in a report that could result in higher borrowing costs for the district.

The comprehensive annual report, sent to bond-rating agencies and bondholders, includes a paragraph expressing reservations about the district’s financial viability.

The school district, the controller’s office said, “has experienced continued operating funds losses, is projecting significant budget shortfalls for fiscal years 2012 and 2013, and is uncertain about its ability to achieve cost savings and obtain additional funding to overcome these budget shortfalls. These conditions raise substantial doubt about its ability to continue as a going concern.”

And social service agencies in Northeastern Pennsylvania are bracing for cuts.

The week that area social services agencies have had to chew on the cuts in Gov. Tom Corbett’s proposed 2012-13 budget has not made them any easier to swallow.

Amid still-unanswered questions over how a 20 percent smaller pool of funding within a revamped Human Services Development Fund will be distributed at the local level, critics say the one certainty is children and people with disabilities will be among those bearing the brunt of the cuts.

“It’s going to take through the year to find out who really are going to be the victims here,” Michael Hanley, executive director of United Neighborhood Centers of Northeastern Pennsylvania, said Tuesday. “Certainly, what we do know is it is going to be the most vulnerable. That is a given.”

PA Must Reads: The Payroll Tax Cut, Cuts in Block Grants for Local Gov and the State Use Tax

11:08 am in Uncategorized by ThirdandState

A blog post by Mark Price, originally published at Third and State.

The economic news in the past couple of weeks has been relatively positive so that must mean it is time for another down to the wire battle in Washington to help restore pessimism! At the end of the month, temporary extensions to the payroll tax credit and extended unemployment benefits will expire. With unemployment high, both measures should be extended through the end of the year.

Extending the Social Security payroll tax cut through 2012 would save a typical Northeast Pennsylvania worker at least $410 and probably more depending on where the worker lives, according to statistics released Tuesday…

The tax cut would cost about $10 billion a month, or $100 billion through the end of the year. Preventing the Medicare cut will require another $20 billion and extending unemployment benefits $45 billion, the Associated Press reported. The failure to extend the tax cut would cost the state 19,000 jobs, economist Mark Zandi has estimated, [Senator Robert] Casey said.

The Scranton Times-Tribune also reports on cuts in federal funding which are forcing local governments to cut back or delay infrastructure projects.

Boroughs and townships in Lackawanna County will find federal Community Development Block Grant funding harder to come by in 2012.

The county Department of Planning and Economic Development is anticipating another 10 to 15 percent cut in the CDBG funding available for projects ranging from sewer improvements to handicapped-accessible curb cuts in the 38 municipalities where it administers the money, said Michelle Giovagnoli, CDBG contract manager…

Ms. Giovagnoli said the county received just under $1.56 million last year, down about 15 percent from 2010. A similar cut this year would slash the 2012 allocation to less than $1.33 million. Fewer grant dollars means more projects, especially larger ones, will likely have to be funded over multiple years, she said. “We have to go into future years to fund the project, so it gets delayed because we don’t have the money to do it right away,” she said, citing a storm sewer project in the Nebraska section of Archbald and a sanitary sewer project along Main Street in Dickson City as examples.

The Patriot-News this morning reports the Commonwealth has given Amazon more time to “get their software up to par” in order that they might collect Pennsylvania’s sales tax. In the meantime, the Corbett administration is providing a handy table for consumers to figure out how much sales tax they might owe if they failed to keep track of their online purchases.

Amazon, which has a distribution center in the Carlisle area, is one of the largest online retailers that have resisted collecting sales tax. The Department of Revenue said Internet companies with facilities in the state will get a seven-month reprieve in collecting the tax…

There’s no such clemency for the common taxpayer. This year’s tax form includes a special line — line 25 — requiring citizens to pay “use tax” on items they purchased over the Internet for which no sales tax was charged.

The Corbett administration didn’t announce it would be aggressively collecting use tax until November. If the taxpayer failed to keep receipts for all purchases, the new tax booklet offers a handy table of estimated tax based on income.

A curious feature of that table is that the wealthiest pay a rate 25 percent lower than the poorest of Pennsylvanians. The sales tax is 6 percent. The estimates in the table assume a person making $30,000 a year would buy $200 in goods over the Internet; it therefore suggests $12 be paid in tax. For people who make over $200,000, however, the table offers a choice: use a percentage of income or $71, whichever is lower. If the rich-folks rate (0.03 percent of income) were applied to the person making only $30,000 a year, he’d pay $9 in use tax, instead of the suggested $12.

PA Must Reads: Perfectly Legal Forms of Wage Theft and Build Baby Build!

9:04 am in Uncategorized by ThirdandState

A blog post by Mark Price, originally published at Third and State.

When you tip your server at a restaurant, you probably assume that all of that money goes to the server. If you use a credit card to pay, you would be wrong.

It is very common for restaurant owners to use a portion of those tips to pay credit card processing fees.

The Philadelphia Daily News reports this morning that Philadelphia City Council has passed a law that stops restaurant owners from stealing from servers in this way.

The cost of doing business in Philadelphia crept a little higher for restaurant owners yesterday, when City Council passed a law barring restaurateurs from using a portion of credit-card tips to pay for transaction fees.

Credit-card companies charge businesses a convenience fee ranging from 2 and 4 percent on all credit-card transactions.

The companies also charge the fee when patrons use a credit card to leave a tip for their server.

A portion of that money is typically used to pay the transaction fee, and Councilman Jim Kenney said a few bucks here and there could add up over the course of a year and make a difference for a server who is struggling to make ends meet.

Construction costs continue to fall as private-sector demand for new construction remains weak. This is why now is the best time for the public sector to build new schools and repair bridges. The Pittsburgh Post-Gazette reports this morning that the winning bids on Mt. Lebanon High School renovation came in 3% below expectations.

The Mt. Lebanon school board Monday night accepted a total of $109.6 million in bids — $3.7 million below estimates — to complete the project in 3 1/2 years.

A bill increasing state borrowing by $1.6 billion to finance new construction is headed to Governor Corbett’s office for his signature. The table below presents estimates of the number of jobs created by a billion dollars of spending by type of infrastructure investment.

A bill authorizing state officials to borrow more than $1.6 billion for construction and economic development projects is headed to the governor’s desk, with lawmakers pledging to overhaul the system for doling out those dollars.

That measure, the Capital Budget Act, is approved annually to fund public highway and bridge repairs, flood-control projects and other similar construction. It also includes funds for private projects selected by the governor and Legislature through the Redevelopment Assistance Capital Program.

PA Economic Development Programs Rank 40th on Job Creation, Job Quality Standards

8:14 am in Uncategorized by ThirdandState

A blog post originally published at Third and State.

A new national study sizing up hundreds of state-level tax credit, cash grant and other economic development subsidies has some bad news for Pennsylvania.

The commonwealth scored a D and ranked 40th place among the states in the Good Jobs First report, Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs. Some of the five Pennsylvania programs reviewed by researchers lack job creation requirements and wage standards for workers at subsidized companies. None of the programs required companies receiving state tax dollars to provide health benefits to workers in jobs or facilities funded by the subsidy.

Researchers looked at Pennsylvania’s Film Production Tax Credit, Job Creation Tax Credit, Keystone Opportunity Zone (KOZ) Program, Opportunity Grant Program, and Research and Development Tax Credit. Combined, these programs cost state taxpayers $181 million a year.

Learn more about the Pennsylvania findings here.

The Good Jobs First study confirms the Keystone Research Center’s 2010 study which found that nine major Pennsylvania business subsidy programs had low or no job quality standards.

Hopefully, lawmakers in Harrisburg get the message and take steps to improve economic development accountability. Senator Pat Browne has proposed legislation in past sessions to address these issues. Remarking on the Good Jobs First study, he said in a Keystone Research Center press release yesterday: “Certainly, the overall process would be improved by setting clearly defined accountability standards for all of the various economic development programs in Pennsylvania.”