Corbett's $1.7B tax pledge banks on jobs
By Brad Bumsted
Published: Saturday, June 9, 2012, 6:08 p.m.
Updated: Sunday, June 10, 2012
HARRISBURG -- Even before Republican Gov. Tom Corbett proposed a long-term, $1.7 billion tax credit to lure a petrochemical plant to Beaver County, television ads designed by a Democratic operative criticized him for giving tax breaks to corporations while cutting money for social services and higher education.
By handing out business tax breaks, "he's just making things harder for our middle class," says the ad by American for Working Families political action committee, produced by Bud Jackson, a videographer who worked on campaigns for state House Democrats, including imprisoned former leaders Mike Veon and Bill DeWeese, whom Corbett prosecuted for corruption when attorney general.
"It should not surprise anyone that Veon's and DeWeese's former Washington media consultant is running ads critical of Tom Corbett," said Corbett's spokesman Kevin Harley.
Yet, the ad portrays the mood of many Pennsylvanians. The governor's critics -- including some conservatives -- piled on last week after learning that Corbett proposed tax breaks of $66 million a year for Royal Dutch Shell and other ethane "cracker" plants to locate in Western Pennsylvania.
Rep. Dan Frankel, D-Squirrel Hill, called the credit "over the top" and criticized the administration's nondisclosure. Rep. Robert Freeman, D-Northampton County, said Corbett is "making sweetheart deals while he is slashing funding for higher education and social services."
"He's saying there's no money," Freeman said. "You can't have it both ways."
Harley argues the tax break would enable "good-paying, mostly union, jobs." The plant construction near Monaca would require about 10,000 people; if built, the plant could employ hundreds and spawn thousands of jobs in spin-off industries, he said, noting the deal wouldn't involve money until 2017.
Competition a factor
Since the late Gov. Milton Shapp lured Volkswagen to the state for a 10-year stint in Westmoreland County in 1978, Pennsylvania governors have used billions of dollars in grants, loans, tax credits and incentives to maintain and acquire businesses.
"Every governor has used tax breaks to bring job creators and producers into the state," said Charlie Gerow, a Harrisburg-based GOP consultant. "The question always is: Are they good investments?"
Corbett's predecessor, Democrat Ed Rendell, doled out grants to companies with frequent displays of oversized cardboard checks at news conferences. Rendell gave $15.4 million to Harley-Davidson to keep its factory in York; $12.75 million to Comcast to build another corporate headquarters when it threatened to leave Philadelphia; and a $32 million, low-interest loan and $1 million grant to TastyKake in Philadelphia.
Asked whether he would have backed tax credits for Shell, Rendell told the Tribune-Review: "It would depend whether the company was coming on their own anyway and whether there was real competition. If there was real competition, I'd agree to the tax credits -- but we would hold them to a very strict standard on the 10,000 jobs, and if they didn't meet it we would claw back some of the money."
The Shell tax credit is performance-based, on natural gas used to produce ethylene, Harley said.
"The difference is, Rendell would have just given them the money," said Rep. Mike Vereb, R-Montgomery.
Said Freeman: "I think one of the things that distinguishes this from other efforts of past governors is the sheer amount."
Over 25 years, the cost of the petrochemical tax credit is close to the $60 million annual film tax credit begun under Rendell and supported by Corbett, Harley said. That tax credit helped lure major movie productions to Pennsylvania, officials contend.
Financial aid and tax breaks that Corbett provides to corporations are far less than those under Rendell, said David Taylor, executive director of the Pennsylvania Manufacturers Association. The Department of Community and Economic Development, through which most money flowed, drastically decreased with Corbett's administration, Taylor said.
"The timing of this can look bad, with the recession and other funding needs, but the simple fact is we are in a stiff competition with Ohio and West Virginia for this project and others like it," said Rep. Tom Quigley, R-Montgomery County. "Ten years from now, this may look like the best thing we could have done at this time."
Corbett wants lawmakers to approve the tax credit before recessing for the summer. Legislators from both parties are miffed that they learned about the deal last week, more than two months after Shell announced its land deal near Monaca. Legislators say they have many questions about the deal Corbett offered to woo the company.
"Governor Corbett had previously announced this plant but did not mention this huge tax credit," said Sen. Daylin Leach, D-Montgomery County. In a letter to Corbett, Leach wrote: "Did Shell agree to build the plant without the deal? Was the deal negotiated concurrently with Shell's decision to build the plant? If so, why wasn't this deal revealed to legislators and the public at that time?"
Steve Kratz, Corbett's spokesman at DCED, said the tax credit was part of continued negotiation after the land deal.
Frankel demanded public hearings.
Rep. Rob Matzie, D-Beaver County, said he's a likely supporter but it depends on details. "Is this the whole package? Will we need to do more, either legislatively or from other sources of revenue or programs? Is this a deal breaker? Was this promised by the governor?"
A few complications
A wrinkle emerged on Friday when Capitolwire.com, a subscription-based news service, reported state taxpayers will pay the "seven-figure" cost of environmental cleanup at the former zinc factory on the site where Shell would build its plant to convert natural gas to ethylene used in plastics.
That troubles Leach, who asked why taxpayers should pay and not the polluters.
Another political complication: Conservatives view this funding as "corporate welfare" and support broad-based tax cuts, rather than grants or credits to specific companies or industries. In addition to tax credits, the site of the proposed ethane cracker plant lies in a tax-free zone.
Nathan Benefield, an analyst for the conservative-leaning Commonwealth Foundation in Harrisburg, said Pennsylvania long has given grants and tax credits as incentives for business development but lags in job growth. Targeted tax breaks, he said, "prevent across-the-board tax rate reductions that would benefit all Pennsylvanians" by attracting businesses and encouraging business expansions.
House Majority Leader Mike Turzai, R-Bradford Woods, acknowledges the Shell deal raises questions. "My goal is reduced taxation for all employers, so they have a fair advantage to compete," he said.
Public hearings unlikely
Gene Barr, president of the Pennsylvania Chamber of Business and Industry, prefers across-the-board tax cuts to credits for specific companies or industries but said he understands why governors offer incentives.
To attract industry, Pennsylvania has hurdles to get over, Barr said -- including the nation's highest corporate net income tax and a difficult labor climate.
"I want to support the governor in his quest to get the cracker plant," said Senate President Pro Tempore Joe Scarnati, R-Jefferson County. But, he said, "I've got 29 members of my (Republican) caucus that want answers."
Scarnati promised to examine the deal carefully but said lawmakers probably do not have time to hold public hearings on the matter. They're negotiating the budget before vacation.
Still, cautions W. Wesley McDonald, a political science professor at Elizabethtown College, lawmakers should be careful because Shell could locate elsewhere.
"On the surface, we should welcome this," he said. "If Pennsylvania is going to get its economy back on its feet, it's got to create real jobs. That will create more (tax) revenue."
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