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Pennsylvania Governor Rendell doles out $361 million in borrowed money

| Sunday, Aug. 9, 2009

Faced with the growing impact of a prolonged recession and revenue shortfalls, Gov. Ed Rendell last fall froze state hiring, ordered spending reductions and hunkered down for a coming budget battle.

On the surface, it appeared Pennsylvania was mired in a financial morass that would affect spending at all levels.

But records obtained by the Tribune-Review show one thing hasn't been hampered by the state's revenue woes: Rendell's ability to spend borrowed money.

While he was battling revenue shortfalls and lobbying for an income tax increase, Rendell was running his own economic stimulus program, quietly handing out $361 million in bond money across the state.

Projects that benefited from the public largesse ranged from a multimillion-dollar movie studio in Chester County that received $10 million to a proposed UPMC hospital in Monroeville that received $5 million. Among Pittsburgh projects is the August Wilson Center for African-American Culture, Downtown, scheduled to open Sept. 17, which received $3 million.

The UPMC grant was approved even after Rendell's administration questioned the need for a new hospital in the suburban Pittsburgh community. UPMC received $18 million for an expansion project at UPMC Passavant in Pittsburgh's North Hills.

House Minority Whip Mike Turzai, R-Bradford Woods, considers it worse than the so-called "walking around money" that legislators spend in their districts. He calls the bond-backed grant program -- which lawmakers expanded from a $400 million cap 20 years ago to $3.45 billion today -- "a super WAM fund."

The money, which the state borrows from Wall Street financial institutions, is separate from the regular budget. Taxpayers ante up only when bond payments come due. Last year they paid $138 million in interest on them.

Although many lawmakers lobby to have pet projects funded through the program, known as Redevelopment Capital Assistance Program or R-CAP, most don't know exactly where the money goes. That's because it's solely the governor's call. The Trib requested the information under the state's Right to Know Law.

The grants serve as matching funds for brick and mortar projects that will create jobs. State officials say the grants are doled out as reimbursement when work is completed.

Last year they underwrote support for buildings at pricey private schools, municipal parking garages, libraries, museums and industrial parks. Records show R-CAP even provided $5 million for Philadelphia's "Lights of Liberty," a laser light show projected on historic buildings in Philadelphia.

The only limits to such spending are the Legislature's willingness to authorize bonds, the state's ability to levy taxes to pay for the bonds and investors' willingness to buy them.

"When I first came in I thought there might be some merit to it," Turzai said. "But given what I've seen since -- three expansions that added $640 million, $500 million then $800 million in new debt -- I think we'd be better off reducing debt and taxes so everyone benefits."

That might be tough.

Rendell is the fifth governor to administer what the Legislature created as a program reserved for huge regional projects such as Pittsburgh International Airport and the Philadelphia Convention Center.

According to Rendell's Budget Office, the administration puts emphasis on projects that "display significant potential for improving economic growth and the creation of jobs."

Budget Office spokeswoman Susan Hooper said grants for the coming year will depend upon recommendations about potential projects from local governmental entities and the Legislature's political caucuses, as well as the viability and readiness of the projects.

"Having said that, we hope that projects eligible for R-CAP funding will continue at a steady stream to fuel economic development in Pennsylvania, as they have in the past," Hooper said.

Sen. Jim Ferlo, D-Highland Park, said lawmakers from both parties line up to insert projects into bills that amount to annual wish lists.

"There are just as many Republicans as Democrats who lobby and want R-CAP consideration," he said.

Ferlo isn't happy with a system that excludes lawmakers in divvying up the money. He was outraged to learn UPMC was awarded tax money for a Monroeville hospital he considers unnecessary. But Ferlo has his own "worthy" project: he said he wants $2 million to renovate the Connelly Skills Center.

Ferlo said there's little question that R-CAP is part of the private discussions among the governor and legislative leaders who finalize state budgets.

"Absolutely, it's part of the equation. In the end, every caucus wants to have some say of the allocations of discretionary dollars," Ferlo said.

Nathan Benefield, director of policy research for the Commonwealth Foundation, a free-market policy group, agreed.

"That's one of the reasons we've called for open budget negotiations. When you have closed-door budget talks, you can have the governor saying 'We'll authorize money for a hospital in your district' as a way of trying to buy votes with that money," Benefield said.

"We would say the whole thing doesn't have a lot of benefit. It's taking money out of the private sector and redistributing it to government," he said.

Although each governor decides what R-CAP will fund, they draw projects from wish lists of projects lawmakers draft yearly. The bills can contain thousands of projects, many listed for money well in excess of what the sponsors hope to obtain.

Many items are never funded, but even so the bills remain on the books. That means the governor's office can reach back and approve any of the projects from past bills. A 2002 bill, for example, provided grounds for the state to issue $27 million for Pittsburgh's new hockey arena between 2006 and 2008.

The most significant limit on R-CAP is a prohibition against using the money for ordinary government obligations, such as building or repairing roads and bridges, constructing or maintaining water and sewage systems, and -- with the exception of $50 million specifically for that purpose -- housing.

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