As part of the Democratic Caucus’ 2011-2012 policy agenda, Democratic leaders issued a platform for accountable government operations free from corporate and outside influences. The pledge of good governance was to be accompanied by fair fiscal policy aimed at protecting working families from tax increases and ensuring that out-of-state corporate interests pay their fair share. However, just last week, thanks to Pennsylvania’s film tax credit for movie producers, House Democrat Paul Costa celebrated a multimillion-dollar film project in his district. The Allegheny County lawmaker boasts many years of hard work in maintaining his corporate welfare program. He credits himself for the creation of thousands of jobs and nearly a billion dollars of economic activity since 2007. Interestingly, research and policy analysis debuts a much different tale, one of special interests putting taxpayers last.
According to Rep. Costa and reports by the Pennsylvania Legislative Budget and Finance Committee, Governor Rendell’s $60 million film tax credit appears to be an important investment for Pennsylvania. Advocates of the film tax credit argue that the tax incentive is responsible for thousands of jobs and increased economic activity in the Commonwealth. The problem with their claims is that the report does not show a direct relationship between tax credits and increased film production. The report acknowledges that the majority of film producers do not even apply for the film tax credit which indicates that the tax incentive is not nearly as strong as proponents believe.
In reality, the tax credits are ineffective in providing substantive increases in economic output. Policy analysis also indicates that tax credits fall short in paying for themselves. States with the most robust film tax credits report a meager twenty cents in tax revenue for every dollar given out in credit. In Pennsylvania, the $60 million dollars in tax credits are allegedly accompanied by $18 million additional dollars in tax revenues. This leaves two-thirds of the tax credit on the taxpayer’s tab. The film tax credit effectively mitigates the industry’s tax liabilities into an increased share of the state’s tax burden on both workers and businesses.
Democratic Rep. Costa’s beloved film tax credit is in direct opposition to his caucus agenda. The corporate welfare program enables Hollywood Studios to prosper at the expense of Pennsylvania’s hard-working families. The program provides neither substantial economic activity nor enough tax revenues to be self-sufficient. The film tax credit represents yet another special interest successfully lobbying for private privilege with the deception of fostering real economic growth. As a result, many states have decided to put taxpayers first and have abandoned their film tax credit programs.
It is evident that state politicians out of Harrisburg face many of the same challenges of their Washington counterparts. Lawmakers in both capitals are overseeing immense budgetary challenges, ballooning debt to GDP ratios and an ever-increasing amount of unfunded entitlements and liabilities. These problems are readily traced to generations of dramatic spending increases that perpetuated the size of government to unsustainable levels. Despite the fiscal circumstances, legislators continue to appropriate funds and take on more debt for pork barrel projects and earmarks. Whether it be the infamous “Bridge to Nowhere” or the Arlen Specter Library, lawmakers turn to taxpayer dollars for pet projects. The General Assembly is now looking at new legislation aimed at reforming private development projects.
State officials are currently evaluating the Redevelopment Assistance Capital Projects (RACP) program. Established in 1986, the capital projects fund received $400 million in exchange for a promise to bring jobs and make substantive investments for economic growth in Pennsylvania. When passed by the General Assembly and signed by the Governor, the RACP allocates debt-funded grants to private developers. Like most government programs, the debt-ceiling of the program increased eight times between the funds inception and 2010. In just 24 years, RACP demonstrated a borrowing capacity of $4 billion, which represents an outlandish 1,000% increase.
Gary Smith, of the Chester County Economic Development Council, served as the administrator of many projects, which were funded by the RACP. When questioned about the program, Smith readily refers to the RACP as a “political process, first and foremost.” He further acknowledges that the RACP has been both abused and manipulated by legislators. Frequently, firms petitioning for grants hired lobbyists to appeal to legislators for taxpayer funding for their private development projects.
Leading the dialogue for reform is House Leader Mike Turzai. Rep. Turzai shares Mr. Smith’s view regarding the program’s maligned history. The current proposal consists of gradually reducing the programs debt ceiling from $4 billion to $1.5 billion over a period of 20 years. In addition, there is a motion which would require public hearings before the approval of RACP grants. Senate Majority Leader Dominic Pileggi supports more rigorous reductions than the proposed timetable. Governor Corbett also campaigned against these corporate welfare programs. While these reforms are promising, they are gradual and still leave ample leeway for political favoritism and government handouts to private development at the taxpayer’s expense. A serious commitment to reining in spending and debt must be accompanied by the elimination of pork barrel spending.
Similar to elected officials in Congress, the General Assembly is reluctant to eliminate spending on pet projects. As Senator Pileggi explains, fiscal responsibility includes the close re-examination of every government program. Now more than ever, it is imperative to prioritize the way government spends citizen’s tax dollars. Pennsylvanian’s are being forced to make ends meet with less. Legislators must act responsibly and follow suit by sacrificing their politicized spending grants. Citizens contribute enough in taxes and deserve to have their money spent with prudence. The path to a government that lives within its means requires changing business as usual in Harrisburg.
Not only does Harrisburg share Washington’s spending problem, but both capitals are homestead to a multitude of rent-seeking lobbyists. As legislators recess for an extended two weeks, the rest of Pennsylvanians head back to work in order to survive in this dismal economy. An examination of accessible public information regarding the political culture of Harrisburg is in order. It may surprise the general public how extensively interest groups influence the political arena at the state level.
The Pennsylvania Department of State maintains reports on lobbying disclosure information. In their 2009-2010 biennial report, the department disclosed that a grand total of nearly $1 billion were spent in lobbying. To put this in perspective, the Pennsylvania coal industry produces $200 million annually. The size of the lobbying industry is more than double the size of the coal industry. More than $500 million alone were spent on direct communication between lobbyists and policymakers. Approximately $23 million were spent in the form of gifts, hospitality, transportation, and lodging for state officials, staff and their families. The Department of State’s list of lobbyists consists of 571 pages and more than 8,000 entries. It is important to acknowledge that some lobbyists represent non-profits and are not in the business of rent-seeking.
While the numbers surrounding lobbying may appear staggering, lobbyists have been very successful. The Pennsylvania government willingly hands out more than $750 million of taxpayer money in corporate welfare per year. This places Pennsylvania second in this state ranking category, behind only Ohio. As the government becomes entangled in business ventures, there are increased distortions in the market mechanisms of prices, profits, and losses. The convoluted tax code’s myriad of loopholes and exemptions merit strong incentives for the lobbying culture. The power hold of labor unions and big business across the state represent a large interest and are often at odds with taxpayers. It is not surprising that big government involvement in the economy yields such a large and undesirable rent-seeking industry.
The only way to protect taxpayers’ wallets and maintain constituent control over legislators is to rein in the size of government. Picking winners and losers in the economy through favorable appropriations or legislation should not be a function of government. Ending corporate welfare and introducing a more fair and simpler tax code is imperative to diminishing the influence of Harrisburg lobbyists. Limiting the role of government in the economy will undoubtedly allow for freer markets and a more prosperous Pennsylvania.