Pennsylvania needs an interstate compact to end corporate handouts
The clouds parted. The sun shone. After 30 years of decline following the closure of the steel mills, Western Pennsylvanians greeted Shell’s 2016 decision to build a massive petrochemical plant near Monaca with near-mes-sianic enthusiasm. Our elected representatives clearly had faith in the project, too. Why else would they have offered Shell a tax credit worth $1.65 billion over 25 years and a huge property tax exemption? Seeing those towering construction cranes as I crossed the Vanport Bridge on my way to the mall, I too found myself swept up in enthusiasm for the project.
If only it had worked. Between 2008 and 2019, Beaver County’s job growthrate fell by 0.5%, while Pennsylvania saw a statewide increase of 4.6%, according to a study by the Ohio River Valley Institute. The gap is sure to widen as the plant nears completion and thousands of construction workers are laid off, leaving only 600 permanent jobs. Economic development subsidies are corporate welfare at taxpayer expense.
Still, enthusiasm for these kinds of tax breaks remains high among voters and lawmakers. Last year, the Pennsylvania Legislature approved another massive tax break, modeled on the sweetheart deal Shell received, for future petrochemical plants.
Instead of doubling down on these misguided policies, Pennsylvania’s Legislature should take decisive action to ban them forever.
According to a report by the Mercatus Center at George Mason University, only one out of every eight subsidies actually influences a company’s decision on where to locate. Amazon’s HQ2 is the perfect example. Economist Michael Farren argues that Amazon was always going to pick the Washington, D.C., area. By starting a bidding war between the various “candidate” cities, the tech giant was just putting “extra icing on the cake.”
Even if a subsidy convinces a corporation to invest, prosperity is still not guaranteed. Corporations have an incentive to overpromise. Foxconn claimed it would create 13,000 jobs in Wisconsin but, after receiving billions in subsidies, created only 3,000, costing the state $20 billion in lost economic growth. Also, every dollar of subsidy must be paid for by a dollar of taxation. Sure, a new factory will stimulate the state economy, but so would a tax cut or an increased investment in roads, bridges and schools. At best, politicians who offer subsidies are gambling with other people’s money, betting that whatever corporation they’ve decided to favor with public largesse will be a good long-term investment.It seems that Shell’s ethane cracker plant wasn’t. But good luck getting corporations or lawmakers to admit any of that.
When Shell first announced that it had chosen Beaver County, everyone involved in the deal lined upto attribute this grand success to Pennsylvania’s generous handouts, according to The Beaver County Times. “I can tell you with the hand on my heart that without these fiscal incentives, we would not have taken this investment decision,” Shell spokesman Ate Visser said. Of course he did. If he’d said the incentives didn’t make a difference, Pennsylvania taxpayers would riot. Beaver County Commissioner Tony Amadio agreed with Mr. Visser, claiming the tax breaks were “key” to luring Shell to the area.
But Mr. Amadio also hinted, whether he knew it or not, at just how unnecessary those handouts really were. “The topography itself, and the fact we have the river and rail lines and the highway, coupled with the workforce, that’s really what lured them here,” he said. But if that’s the case, then why all the subsidies? One more quote from a local official holds the answer: Pennsylvania was “competing with Ohio and West Virginia for site location.” Ohio and West Virginia offered subsidies, so Pennsylvania had to offer them, too.
It’s a Mexican standoff — put down your guns, and you’re sure to get shot. What would happen, though, if all three states put down their guns and stopped offering economic development subsidies? It’s an interesting question, and it doesn’t need to remain hypothetical.
Mr. Farren offers a solution: an interstate compact to ban economic development subsidies. What’s an interstate compact? It’s the reason you don’t get a ticket for driving in Ohio with a Pennsylvania license. All 50 states signed an interstate compact agreeing to honor the driver’s licenses of every other state.
Pennsylvania lawmakers could extend an olive branch by passing a compact bill that would come into effect only when neighboring states enacted legislation that was “substantially the same.” A bipartisan bill that would have done exactly that died in committee last year. Thankfully, Reps. Chris Rabb, DPhiladelpha, and Dawn Keefer, RYork, the duo who sponsored that bill, reintroduced it last week. For the sake of taxpayers across Pennsylvania — and Ohio and West Virginia— it’s time to pass it.