It was a simple, yet revealing summary of the problems plaguing Pennsylvania’s businesses. “Please stop trying to ‘fix’ it,” the business owner begged. “Leave us alone.” That plaintive plea came as three new studies show our state’s economy is sagging under the weight of new regulations, higher taxes, and unsustainable government spending.
Recovery from the Great Recession of 2008-2009 has been one of the slowest in history. But, some states have bounced back faster and farther than others. Pennsylvania is not one of those states. The Fall 2016 Keystone Business Climate Survey conducted by the Lincoln Institute of Public Opinion Research found half of the business owners/chief executive officers surveyed saying the state’s business climate has gotten worse over the past six months, and only five percent reporting improving business conditions.
Like other states the people who actually run businesses reported a dramatic deterioration in economic conditions in Pennsylvania during the Great Recession. Optimism returned briefly during the Corbett Administration, but tanked less than three months into Governor Tom Wolf’s tenure.
Governor Wolf began his administration pushing for historic increases in both state spending and in taxes. The Republican-controlled legislature successfully derailed that effort last year, but then caved into $1.4 billion in higher spending this year – earning the disapproval of 86% of the owners/CEOs. All of this creates a climate of uncertainty leaving one owner to comment: “We expect another shoe to drop making it difficult to operate in Pennsylvania.”
The biggest shoe that hasn’t dropped is who will pay to bail out Pennsylvania’s massively underfunded public pension system. Business owners fear a significant portion of that burden will fall upon them. And the problem is, to use a currently popular word, huge.
The American Legislative Exchange Council (ALEC) recently released a study of state pension systems entitled Unaccountable and Unaffordable. It pegged Pennsylvania’s unfunded pension liability at nearly $212 billion dollars. The commonwealth has amassed the 44th largest unfunded pension liability among the fifty states.
Compounding the problem is Pennsylvania has little room in which to maneuver in finding new revenue streams (taxes) to fund the public pension system. The Tax Foundation’s State Business and Tax Climate Index found we have the 24th highest state tax burden in the nation. We already have the most damaging taxes on the books: the Personal Net Income tax, Corporate Net Income tax, and a broad-based state sales tax. Already suffering from a poor tax climate, any move to expand, increase or create new taxes would further erode our competitiveness.
These factors weigh heavily on the minds of business owners/CEO as they consider locating or expanding in Pennsylvania. Forty percent said Governor Wolf’s proposed tax hikes have caused them to not expand their businesses. That factor was second only to the explosion of new federal regulations in impeding business growth.
Why should non-business owners care about all of this? Business relocation into Pennsylvania and the expansion of existing businesses will result in the creation of new jobs. Penn’s Woods has lagged the national average in job creation in large measure due to state taxes and regulations. The 2016 Keystone Business Climate Survey found 21% of the responding businesses reduced their employee compliment over the past six months while only 11% added employees.
Thus Pennsylvania continues on a downward spiral. And there is little optimism among those on the front lines of business activity in the state for improvement at any point in the near future. Uncertainty is Kryptonite to business development. At the state level uncertainty abounds. Governor Wolf continues to press for increased spending and higher taxes at a time when the commonwealth already faces a structural budget deficit. The recent record of legislative Republicans has shaken confidence in their ability to either deal with cost drivers like the pension crisis or to successfully oppose future tax hikes.
The bottom line is Pennsylvania’s business climate will not improve, and significant job creation resume, until and unless state government gets spending under control, addresses the looming pension crisis, cuts onerous regulations and provides some measure of tax relief to businesses ready to expand but which are being held back by the heavy hand of government.
(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is firstname.lastname@example.org.)
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