Tuesday, June 12, 2012

The three things wrong with Corbett's Shell cracker deal

Governor Corbett is asking members of the General Assembly to pass legislation giving the Royal Dutch Shell Company a massive 25-year tax break even as they wrestle with a state budget that will further slash funding for education and basic human services. Tax credits, used judiciously, can be effective economic development tools. They are usually used to provide support for early stage industries, to incentivize investment in financially distressed communities, to increase employment and to encourage the adoption of beneficial technologies and practices among other things.

So, offering tax incentives to Shell to entice it to locate its cracker plant in Pennsylvania is not, in and of itself, a bad thing. That corporations have created an arena game where states are played off against each other with the winner being the one that opens its treasury to deliver the most taxpayer dollars to corporate coffers is an unfortunate fact of economic life in this country.  

The problems the governor has with this tax deal are its excess, its timing and his inability to develop a vision and strategy for overall economic development for Pennsylvania’s future. 

The governor seems to have been caught up in the bidding in this high stakes auction for the cracker plant jobs that Shell orchestrated among Pennsylvania, Ohio and West Virginia. He offered 15 years of relief on state and local taxes, but that wasn’t enough. The over-the-top bid is the $66 million a year for 25 years tax credit on the manufacture of ethane. And even with that, the governor says this is not a done deal. If the cracker plant creates all 20,000 jobs that the governor says it will, Pennsylvania taxpayers will be handing over $85,000 to Shell for each job it creates. This is, by far, the largest tax break for any company in Pennsylvania history. 

And the governor says he needs the legislature to give him this $1.7 billion deal now. He wants it passed with the budget. Members of the General Assembly are facing voters in their districts who are livid over the teacher layoffs, education program eliminations and higher property taxes that are the result of drastic cutbacks in state support for basic education. While this tax credit will not start to drain the treasury for several years, school districts will be facing years of budget woes brought about primarily by structural issues like pensions and health care costs. Taxpayers hear the governor’s call for shared sacrifice in hard times. They look at what’s happening in their school districts.  And then they witness the governor’s excessive generosity to one of the richest corporations on the planet. Taxpayers conclude that they get to make the sacrifices while Shell rides the limo.

Governor Corbett has a one-trick pony for his economic development strategy – shale gas. He counts on the drillers to create jobs, revitalize communities, produce revenues. Other than that, he is apparently content to allow existing industries to wither on the vine. He opposes a minor fix to Pennsylvania’s Alternative Energy Portfolio Standards act which would help the solar industry over a rough spot. He removed his name from a letter from the Governor’s Wind Energy Coalition supporting the extension of the production tax credit for wind power. The wind industry currently employs about 4,000 people in Pennsylvania in the construction of wind projects and manufacture of wind turbine components. So, the governor will place a huge bet on 20,000 future jobs, but ignore the potential loss of 4,000 existing jobs. 

Today’s Quinnipiac poll shows that only 36 percent of voters approve of the Governor’s handling of his job. Only 33 percent approve of the way he is handling the state budget. Sweet deals for rich corporations juxtaposed with cuts to schools and human services will likely not improve those numbers soon. The governor doesn’t care about the polling. He will not face voters for 2 more years. But all the members of the Pennsylvania House and half the members of the Senate will this November. Casting a vote to seal the cracker deal will not be an easy one.

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