Group: Tax breaks to lure firms ineffective, costly
Pennsylvania's high-tech economy needs to focus on in-state employers and stop trying to recruit out-of-state companies with costly and useless tax breaks, a study released yesterday by Good Jobs First suggested.
Funded by the Heinz Endowments of Pittsburgh, the study compared Pennsylvania with six nearby states often cited as economic competitors. By jockeying in a "war among states" with competing tax incentives, Pennsylvania legislators are ignoring history, the study claims.
Since 1990, nearly all of the growth in Pennsylvania's high-tech economy has come from companies in the state. Special tax rates or incentives designed to lure companies across state lines have proved ineffective, especially as Pennsylvania's tax rates are about average among its nearby states: Maryland, New Jersey, New York, Ohio, North Carolina and West Virginia.
"Growing Pennsylvania's High-Tech Economy: Choosing Effective Investments" is a 94-page opus that was revealed yesterday morning at the Dominion Tower, Downtown, by project director Greg LeRoy. Good Jobs First is a nonprofit research center based in Washington, D.C. Commissioned during an economic crisis in which every dollar is scrutinized, the study drew upon nearly 20 years of data on the success of Pennsylvania workers and employers.
Companies are far more concerned with cost factors such as labor and occupancy rates than with tax-based incentives, the study found.
"Tax breaks are windfalls, not determinants, and are therefore wasted," the study stated.
Good Jobs First suggested focusing on Pennsylvania's pre-existing strengths.
Occupationally, that means more support for the engineering and biomedical communities. Among the seven states, Pennsylvania is average in the volume of its computer and math-related work force.
Pennsylvania saw a net gain of high-tech companies from 1990 to 2006. About 1,241 moved into the state while 1,198 moved out. The state lost 2,850 high-tech jobs to other states in that period.
Overseas migration also affected state jobs. "International job flight from Pennsylvania dwarfs domestic job shifting - by a factor of 30 for the years 2001 through 2006," the study said.
A cheaper, globalized work force has obviously influenced job migration overseas, the study said, but those forces shouldn't be confused with state incentives.
"You can't fix federal trade policy with state tax policy," said Mr. LeRoy.
The announcement drew a crowd of technology executives, legislators and analysts. Rep. David Levdansky, D-Forward, chairman of the state House Finance Committee, said the study "repudiated, pretty effectively" the conventional wisdom of tax breaks.
"You can't oversimplify the economics anymore," he said.
"This report doesn't fit into a 30-second sound bite."
Maybe so, but Brian Kennedy of the Pittsburgh Technology Council had a provocative one: "Hugo Chavez will look like a capitalist if you compare him to the right people."
The Good Jobs study is flawed in its choice of states to compare to Pennsylvania, which Mr. Kennedy said are some of the highest-taxed states in the country and don't provide the full picture of what competition the Keystone State faces.
The report includes a case study from each state. Pennsylvania's handling of the Westinghouse Electric expansion in Cranberry doesn't get good marks. Thinking it was in competition with North Carolina for the expansion, Pennsylvania enacted a new "Strategic Development Areas" program that provided tax exemptions and incentives of about $3 million per year for companies employing at least 500 workers and seeing more than $45 million in capital investments within three years.
The That legislation, designed to keep one of the state's most long-standing employers, was an unnecessary "low-tech" decision. The "Strategic Development Areas" tax incentives are not limited to high-tech industries, the study said, and bypassed the opinion of taxpayers. Ultimately, the study found the legislation played no role in Westinghouse's decision to expand in Cranberry.
Westinghouse spokesman Vaughn Gilbert disputed that. "The incentives were very important in our decision to only stay here but expand here," he said.
He noted that Westinghouse has hired 4,000 people in the past four years and that 60 percent of them are working in Western Pennsylvania.
"The premise that is put forth by that report is simply wrong," Mr. Gilbert said.
First Published January 14, 2010 12:00 am