By Dick Miller
WE.CONNECT.DOTS: If money is so tight in Harrisburg, why does no one take a hard look at funding to private corporations that supposedly helps create new jobs and strengthen a regional economy?
Otherwise known as “corporate welfare,” these grants remain popular even though there is little accountability or certainty of the results.
Could it be that this kind of government handout generates tons of campaign contributions come election time? Republicans love the program because it puts money in the pockets of Republican business people, part of their base.
Democrats utilize these funds for the same purpose for two reasons. First, the doling out makes them appear as if they are also “friends of business” and they get campaign funds from beneficiaries. Second, labor unions support these grants because they help underwrite construction of new or renovated plants.
Do these programs work?
The answer is always “yes” if you listen to the arguments advanced by those governors who dish out the funds and those legislators who use their influence to get projects funded in their districts.
The real answer is who knows? Ten states and the District of Columbia have laws that require regular evaluation of tax incentives and economic development grants.
Pennsylvania is not one of them. Our state spends more time and money auditing a welfare mother to see if she should continue to get her meager benefits than they do to find out if an economic development grant or loan of several million dollars has achieved its intended and stated purpose.
These programs help widen the income disparity between run-down and booming areas of the state. The programs are not targeted beyond someone putting a deal together that they claim will create scads of new jobs and then lobbying the right officials to sign off on the money.
Banks also love the deals. If the grant is in the form of an economic development loan, their funds take a very “junior” lien position. This means the banks are very well protected for the funds they lend to the deal. In case of a default, banks seldom lose money on the liquidation as the state taxpayers say “bye-bye” to their share.
Pennsylvania is one of a few states that have an even better economic development program for expanding businesses.
Competition for direct grants from the PA Redevelopment Assistance Capital Program is intensive. Use an $8 million expansion plan for any business that is able to secure $2 million in an outright grant for the project. What bank won’t lend funds to a deal that has so much equity at the outset?
Economic development loans with state funds is an even sorrier example of misplaced taxpayer funds. Lending to a private enterprise is unconstitutional.
Instead, loans are applied for through a local non-profit economic development corporation, called a “pass through.” The money is loaned locally and, as it is paid back, these funds stay in the local economic development corporation treasury.
These funds can then be –re-loaned to another eligible project.
Of course, the first goal of the local economic development corporation is to get more funds from Harrisburg. The state continues to hand out our monies even though there is an estimated $500 million to $1 billion in local treasuries. In Mercer County, for example, there is a lending pool of about $8 million. The state is not encouraging the use of local funds first.
Taxpayer assistance to these business barons gets to be obscene amounts when tax benefits are included. No one liked to hand out fake oversized checks for the news cameras than Gov. Rendell.
However, even recent former Gov. Tom Corbett galloped into Pittsburgh a month before his disastrous re-election and announced he was committing the state to a $31 million package if United States Steel promised to stay in this state. Some people believed until that date US Steel had not filed a formal application for such a large amount.
Does that mean the state should cease that type of funding altogether, at least until local funds are exhausted? Not exactly, but these programs should be targeted to counties that are impoverished or perhaps are border regions that are competing with an adjoining state for a new business.
Bottom Line: Unfortunately, that would force the state to adopt an economic development policy. We don’t even have such a policy on the national level because such a document would force politicians to make uncomfortable choices.
