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State's Shell deal trades short-term tax losses for long-term jobs

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By Alex Nixon and Mike Wereschagin,
Sunday, March 18, 2012
 

Zero state and local taxes for 15 years.

That's the deal, plus other incentives under negotiation, that Shell Oil Co. landed to build a multibillion-dollar petrochemical plant in Beaver County.

Yet economic development experts and politicians appear to agree that Western Pennsylvania will come out ahead.

"This could mean 8,000 to 10,000 construction jobs. Who's doing something like that anywhere?" state Sen. Jay Costa, D-Forest Hills, said following Shell's announcement last week that it signed an option agreement with Horsehead Corp. for its 300-acre zinc smelter property in Potter and Center townships.

"Sometimes you lose tax revenue but in return what you're getting is a long-term employment opportunity," Costa said. "I view those lost tax dollars as an investment."

Republican Gov. Tom Corbett continues negotiations with Shell officials about what the state can offer in addition to a Keystone Opportunity Zone designation, which eliminates the plant's property taxes along with its corporate net income, capital stock and franchise, and sales and use taxes for 15 years.

The Legislature in February expanded the KOZ program to include the site. It streamlined local land-use rules, limiting municipal zoning power over oil and gas site locations. The legislation contained almost $12 million that state officials could use over three years to lure a chemical plant or ethane cracker and to convert oil refineries in Southeastern Pennsylvania.

"One of the reasons we have been so quiet about this is because negotiations are ongoing and, as part of the negotiations, we signed a confidentiality agreement," Corbett said. "When those terms can be released, we will release them to you."

Another potential lure for Shell -- which declined offers from Ohio and West Virginia -- is that Pennsylvania lacks an extraction tax on natural gas the company would take from its wells and feed into the plant to create the building blocks for plastics and other products. The other states tax gas extraction.

A final decision on whether to build the plant, which could cost up to $4 billion, will occur in coming years. If it happens, taxing authorities including the county, townships and school district will have to decide whether to grant the Keystone Opportunity Zone, said Bob Rice, vice president of Beaver County Corporation for Economic Development.

Although taxpayers might view tax exemptions as a high price for a financially strapped state to promise, a large chemical plant would produce strong economic ripple effects, said Jake Haulk, president of the Allegheny Institute for Public Policy, a conservative policy group in Castle Shannon.

"I'm torn," said Haulk, who typically opposes tax incentives. "I don't like just handing out benefits to people to get them here. But if they're going to spend a lot of money and hire a lot of people, I can see the Keystone Opportunity Zone being an appropriate vehicle for that."

In addition to construction jobs, the plant could employ hundreds of skilled workers, earning average salaries of $70,000 a year. The supply chain for the plant and manufacturers that locate here to take advantage of its products could create thousands more jobs, advocates said.

"The state will benefit because all the people they employ will pay income taxes, and on all the things those people buy, they'll pay sales taxes," said Harold Miller, president of Future Strategies, a Downtown consulting firm. "All those people who work there will be paying property taxes where they live."

Tax revenue should increase from businesses that supply the plant and from workers those companies likely would need to hire, Miller said.

Shell "may not be paying taxes but all the companies that supply it will," he said. "You can't look at it as narrowly as 'Did we give away the store to get the Shell plant?' "

Haulk pointed out that Horsehead planned to shutter its zinc smelter next year and move the operation to North Carolina, leaving an empty industrial site that no company would redevelop without government help.

The months-long competition among Pennsylvania, Ohio and West Virginia required state leaders to offer lucrative incentives, Haulk said.

"It's about competing with other states that will offer something," he said. "If you don't offer them something, they won't come."

Shell operates a 1,000-acre chemical plant in Norco, La., with more than 600 employees. The plant generates annual payroll of $50 million, the company states on its website. It pays more than $16 million in state and local taxes, plus $1 million a year in property taxes to St. Charles Parish, where it is the third-largest taxpayer.

Although the first 15 years in Beaver County would be tax-free, the years after would not be, noted David Black, CEO of the Harrisburg Regional Chamber and Economic Development Corp., a former deputy secretary of Community and Economic Development.

"If you invest in the plant, you're not just there for 15 years," Black said. "You're there for the long haul."

As long as there's demand for Marcellus shale gas, he said, the taxes paid in later years "will more than offset the losses in the early years."

 

 
 


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