Accountable USA - Pennsylvania

Pennsylvania’s economic development “toolbox” contains some costly subsidy programs that need sharpening to achieve greater accountability, encourage the creation of good jobs and address problems such as suburban sprawl. Its major economic development programs are often used to recruit businesses from neighboring states.  Keystone Research Center estimates that Pennsylvania’s state spending on subsidies for individual companies reached a high of $260 million in FY2006-2007; the annual total declined to $164 million in 2009-2010.

The Opportunity Grant Program and the Keystone Opportunity Zone Program are examples of old, unfocused, and outmoded approaches.  Both have generated their share of controversy.  The Opportunity Grant Program was examined in 2007 by the Pennsylvania Auditor General, who concluded that the state’s Department of Community and Economic Development (DCED) was negligent in monitoring grant recipients, that recipients frequently fell short on job-creation targets, and that DCED was lax in clawing back funds when companies failed to deliver. 

In 2009 a performance report by the state Legislative and Budget Finance Committee criticized the Keystone Opportunity Zone (KOZ) program, saying that the program’s records were so bad the Committee could not make an assessment of its effectiveness.  Incredibly, the Committee found that 75 percent of KOZ participants reported no jobs created.

Pennsylvania has been known to aggressively pursue very large deals, such as the $400 million it provided to a Norwegian company in 1997 for the redevelopment of the Philadelphia Naval Shipyard (see below).  To land a Westinghouse Electric nuclear engineering facility in 2006, the state even enacted a completely new subsidy program.  Westinghouse also received an Opportunity Grant (see below).  In 2012, Pennsylvania awarded $1.65 billion in tax breaks and credits over 25 years to Royal Dutch Shell for an ethane cracker facility in the western part of the state.  This is the largest such deal in the state’s history and one of the largest deals awarded to an individual company nationally.  The  projected direct job creation for this facility is just 400-600 jobs. 

Good Jobs First’s 2010 report on high-tech industry subsidy programs, Growing Pennsylvania’s High-Tech Economy:  Choosing Effective Investments, found that Pennsylvania’s “grow-your-own” programs were more effective than interstate recruitment. In its 2010 study, Good Jobs, Strong Industries, a Better Pennsylvania, the Keystone Research Center (KRC) called for reform of the state’s economic development programs to emphasize “grow-your-own” approaches. KRC has also twice mapped Pennsylvania subsidies, finding they often contribute to sprawl but have become more targeted over time.

Although Pennsylvania’s subsidy disclosure practices are above average, the state has a long way to go to achieve true transparency.  Pennsylvania employs a glitchy database of economic development program recipients known as “Investment Tracker.”  The state uses this database for three of the five major programs we examined (Opportunity Grant Program, Job Creation Tax Credits, and the Film Production Tax Credit).  Recipients of R&D tax credits are disclosed in a different location.  There is no online disclosure of Keystone Opportunity Zone program participants. Recipient information for the programs covered in Investment Tracker can also be found in the contract database of the state Treasury Department.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Film Production Tax Credit

tax credits worth 25% of qualified film production expenses incurred in the state

$60 million (2015)
33/100
10/100
35/100

Job Creation Tax Credit

corporate income tax credits worth up to $1,000 per job for companies that increase employment

$10.1 million (2015)
35/100
60/100
63/100

Keystone Innovation Zone Tax Credit

- tax credit equal to 50% of the increase in that KIZ company’s gross revenues in the immediately preceding taxable year attributable to activities in the KIZ

$25.0 million (2015)
26/100
not included
not included

Keystone Opportunity Zone (KOZ) Program

businesses located in KOZs are entitled to a bundle of subsidies, including property tax abatements, hiring credits, and sales and use tax exemptions

$19.9 million (2015)
0/100
0/100
23/100

Pennsylvania First Grant

flexible grants, loans, and loan guarantees available to businesses that create jobs.

$37.8 million (2014)
33/100
not included
not included

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Kvaerner Philadelphia Shipyard (1997)

When the Pentagon closed the 195-year-old Philadelphia Naval Shipyard in 1996, the city thought that it had permanently lost a key element of its industrial infrastructure. But a year later the Norwegian engineering company Kvaerner ASA negotiated a deal with state and local officials under which it would reopen the facility and eventually hire about 1,000 shipbuilding workers. The plan called for subsidies from the city, state and federal governments and the Delaware River Port Authority of about $400 million, including some $200 million for reconstruction of the yard and the rest for workforce training. Kvaerner said it would invest $165 million over the first 12 years, but its costs were defrayed by a $30 million low-interest loan. Unions in the AFL-CIO’s Metal Trades Council agreed to work-rule concessions at the facility.

In 1999, before the new shipyard opened, the Kvaerner Group announced plans to sell its shipbuilding division but said it would move ahead with the Philadelphia project. To further assist the company, city and state officials allowed Kvaerner to shift $50 million of the money slated for training to construction costs and to redesign the shipyard in a way that cut those construction costs by $25 million. A 2000 audit by the state auditor’s office accused Kvaerner of using taxpayer funds for executive perks and living allowances. In 2001 the Kvaerner Group was taken over by Norwegian industrialist Kjell Inge Roekke. In 2003 the new shipyard completed its first vessel. In June 2010 the operation, which had been renamed Aker Philadelphia Shipyard, announced that it would lay off an unspecified number of workers because of a slump in new orders. Things improved in 2011after the shipyard received $42 million in new public assistance and then received several major orders. (Key sources)

Westinghouse Electric (2006)

In November 2006 the state legislature created a new subsidy program designed to persuade the nuclear engineering company Westinghouse Electric to stay in Pennsylvania as it underwent a major expansion. The legislation provided for the creation of up to four “Strategic Development Areas” in which state and local tax breaks found in Keystone Opportunity Zones would be made available for longer periods for companies that maintained at least 500 jobs and made capital investments of at least $45 million. Westinghouse, which had recently been acquired by Japan’s Toshiba, responded by choosing western Pennsylvania as the site for a $160 million headquarters and technical complex. But rather than automatically remaining in Monroeville, the company created a competition between that Pittsburgh suburb and another, Cranberry Township.

However, the administration of Gov. Ed Rendell moderated the process to avoid a ruinous race to the bottom. In March 2008 Westinghouse chose Cranberry, which offered a local-state subsidy package worth about $45 million over 15 years to capture the projected 3,000 jobs. The state offered several million more in other benefits. It later came to light that Westinghouse would not own the new complex but rather lease it from a real estate investment trust. The facility formally opened in October 2010 with projections that it would eventually house 5,000 employees. (Key sources)

Walmart in Pennsylvania

  • At least 7 Wal-Mart locations have received subsidies worth about $25.9 million in Pennsylvania.
  • At least 17 Wal-Mart locations in Pennsylvania have challenged their property tax assessment, recouping about $763,000.
  • Wal-Mart was found to have more workers than any other employer in the state relying on publicly-funded health insurance. This shows how taxpayers end up subsidizing Wal-Mart’s policy of providing low wages and inadequate benefits.
  • Wal-Mart receives about $3.2 million a year from a state policy that allows retailers to keep a portion of the sales tax they collect from customers.

For more information, see the Pennsylvania page of Wal-Mart Subsidy Watch.