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Wednesday, March 26, 2003

By Frank Reeves, Post-Gazette Staff Writer

Gov. Ed Rendell yesterday proposed a $2 billion economic stimulus package that he hopes will jump-start the state's sagging economy.

"My Plan for a New Pennsylvania is built on the premise that we cannot afford to wait for a national recovery," he said during an hour-long speech to the Legislature.

Rendell's stimulus package mirrored themes he raised during his campaign last fall. Much of the plan is aimed at creating a well-trained work force, boosting agriculture and tourism, encouraging the development of high-tech industries, stopping the exodus of young people from the state and ensuring that Pennsylvania's smaller cities and towns aren't left out of the next economic boom.

The plan also reflects Rendell's belief that the state should take a more active role in promoting business growth by becoming a full partner with private businesses and local government in revitalizing Pennsylvania. Rendell said that the state's $2 billion stimulus package -- which will largely be paid for by long-term borrowing -- will leverage "a minimum" of $5 billion in private investment in economic development projects across the state.

"These dollars will be infused into our economy in the next 30 to 36 months to stimulate economic growth immediately," he said.

Calling them "the most innovative aspects" of his economic recovery plan, Rendell proposed the creation of two public-private investment funds. One would be used to redevelop and revitalize "older, abandoned buildings [in our cities] that stand as monuments to our economic failures."

The other would provide badly needed start-up capital for struggling high-tech and biotech businesses. These businesses have often found it difficult to raise capital, because they often don't show a profit for years.

Each of the investment funds would be financed with $250 million from the state for a total of $500 million. The funds would be administered by a private fund manager and what Rendell described as "a strong board to direct the investments." The state would have a seat on the boards and a veto over any project, he said.

Each of the funds would provide early-stage capital that would be matched dollar for dollar by private investors.

The funds are similar to a private-public venture capital fund created out of Pennsylvania's share of the national tobacco settlement to help start biotech firms.

Rendell also proposed increasing the state's research and development tax credit for businesses, which is currently capped at $15 million, meaning that no more than a total of $15 million in R&D tax credits are permitted each year to all of the companies applying for them. Under Rendell's plan the cap would be boosted to $60 million.

Borrowing from legislation in other industrial states, Rendell would allow smaller, start-up companies, which don't make money during their first years, to sell their unused R&D tax credits to other profit-making companies for cash. It's another way for high-tech and biotech start-up firms to get badly needed capital.

Rendell's economic stimulus package received mixed reviews.

Steven Zylstra, president and CEO of the Pittsburgh Technology Council, said he welcomed the governor's initiatives, saying they would generate jobs and stimulate fast-growing companies in Pennsylvania. He particularly liked the $250 million equity fund designed to help finance start-up and expanding businesses.

But Jim Panyard, president of the Harrisburg-based Pennsylvania Manufacturers Association, said he was concerned that creation of private-public investment funds would allow "bureaucrats and politicians to pick the winners and losers."

He said he also opposed the way Rendell plans to pay for his stimulus program -- mostly with borrowing. He said Pennsylvanians will end up paying $1 billion in interest over the 20-year term of the loans.

Budget Secretary Michael Masch acknowledged that borrowing to pay for economic stimulus measures will cost taxpayers $12 million, $35 million and $65 million in interest payments over the first three years of the 20-year payback period. Interest payments for the remaining 16 years would be about $65 million annually.

Other components of Rendell's economic stimulus package:

Guarantee $100 million in tax increment financing loans to smaller cities.

Provide a $300 million revolving loan and grant program for municipalities and development partners to acquire and prepare sites, including demolition, environmental cleanup and installation of water and sewer lines.

Provide loan guarantees to small cities not included in the Community Development Block Grant program to fetch $288 million in federal aid.