Posts Tagged corporate

Ending Corporate Welfare


Adoption of an annual budget is a core function of government.  Both the federal and state governments have failed to get the job done. At the national level there has been no budget for years, as congress passes “continuing resolutions” that keep the money flowing.  The budget impasse in Harrisburg is now in its third month, with Governor Tom Wolf rejecting the equivalent of a continuing resolution passed by legislative Republicans.

There are many reasons for this lack of agreement, but the bottom line is the age-old problem of too much demand for too few resources.  Eating up a large portion of both federal and state budgets is entitlement spending.  Taking away that which someone already receives is a near impossibility, yet neither budget crunch can be resolved until the spending side of the equation is addressed.

Republicans often point to social welfare as an area where spending can be cut, Democrats are adamantly opposed.  Corporate welfare is a different story. Here there is bi-partisan agreement.  Establishment Republicans love government hand-outs to big corporations. Despite lip service to the contrary, Democrats do too.

But, there is growing opposition among the GOP’s conservative base to continuing corporate welfare programs.  After all, how can you morally justify cutting social welfare when voting to give taxpayer dollars to wealthy corporations?  In order to address the systemic deficits present in both the federal and state budgets cuts in all such programs are needed.

At the federal level conservatives have been successful in closing down the Export-Import Bank.  This happened largely because the bank was up for reauthorization, meaning all congress had to do was nothing to put it out of business.  Congress is good at doing nothing, so the Export-Import Bank was allowed to expire.  But, supporters of the bank – which gives large, risky taxpayer-backed loans to big corporations – are working hard behind the scenes to resuscitate it, meaning the battle is far from over.

Here in Penn’s Woods the vehicle for corporate welfare is a little-known entity called the Redevelopment Assistance Capital Program (RACP).  Like most government programs it started small, with $400 million in borrowing authority in 1986.  By 2010, the last year for which complete information is available, borrowing authority had ballooned to $4 billion.

Unlike the Export-Import bank which merely finances risky loans, RACP is a grant program.  Meaning state government borrows money and then gives it to select businesses.  That is correct: state government borrows money, gives it away, and then repays the loans plus interest with tax dollars.  Worse, small businesses need not apply.  The grant program is only available for projects exceeding $1 million.

There is a set of criteria for a business to obtain a RACP grant, but since the final list of recipients must be approved by the legislature the politically well-connected have an advantage. There is no escaping the fact the entire effort amounts to little more than government picking winners and losers.

A new study by the Mercatus Center at George Mason University finds the program is itself a loser.  The study found: “The RACP is an inefficient and market-distorting program that mostly transfers economic activities from counties receiving less in RACP grants to counties receiving more of the grants.”  Another concern: the study found “RACP is likely to decrease economic growth in the long run since the market is ultimately skewed away from efficient investment and toward politically favored industries.”

The program is not even popular in the business community.  A recentKeystone Business Climate Survey conducted by the Lincoln Institute found 52% want the program eliminated entirely; another 40% think the amount spent on it should be reduced.  Over the years, the survey has consistently found business owners/CEOs would rather have across-the-board business tax cuts than such targeted grant programs.

Clearly programs like the Export-Import Bank and the RACP are nothing more than government welfare for politically connected companies.  The end result, at best, is government directing rather than expanding economic activity.  As budget-makers look for ways to bring government spending under control, reducing welfare – both corporate and social – must be part of the equation.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.

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Natural Gas: Location, Location, Location


By Lowman S. Henry

There is an old adage in the real estate business that three factors affect the price of a property: location, location, location.   It is a truism that might also be adopted by Pennsylvania’s natural gas industry. Not only is the commonwealth blessed by abundant reserves in both the Marcellus and Utica shale regions, but our geographic location has the state poised to take advantage of a potentially enormous export market.

The exportation of liquefied natural gas could be the next big economic boom for Pennsylvania. Drilling in the Marcellus shale region has yielded a bounty of new natural gas supplies, so much so that prices have begun to dip. The industry has tremendous room for production growth, so the opening of new markets is essential. Pennsylvania, with its access to ports, has the ability to move liquefied natural gas products from the well head to foreign markets in a cost-efficient manner.

To understand the size of potential foreign markets it is important to grasp the versatility of natural gas liquids. Hydrocarbons, including ethane and propane, serve as key components for the manufacturing of plastics, and for the chemical industry. The gas is used as fuel for heating and cooking, and can also be blended into vehicle fuel. The demand for such products is expected to grow dramatically as emerging economies across the globe continue to develop. Therefore, gas products produced in Pennsylvania have the ability to literally fuel both domestic and international economic growth.

Already Penn’s Woods has seen an economic revival due to the development of the Marcellus Shale industry. Production of natural gas liquids from the Marcellus region is estimated to exceed 1.6 billion gallons per year by 2015. More manpower will be needed to extract that gas, and a PricewaterhouseCoopers study estimates up to one million new jobs could be created by 2025.

Adding further to the potential of this resource is the fact that estimates of gas trapped in the Marcellus Shale reserve continue to be revised upward. Estimates of gas available in the Utica Shale region also continue to evolve. Thus, projections of production levels and potential job creation may be vastly underestimated as the industry and government gets a better handle on the size of the resource available for development.

The Marcellus Shale industry has already had a transformative effect on vast swaths of Pennsylvania that previously had languished economically for decades. The potential to create a sizable export industry for natural gas liquids will not only keep that boom alive, but will expand the economic benefits to other regions of the commonwealth as the product is transported to foreign markets.

More broadly, an upsurge in natural gas exports will have a positive effect on the current U.S. trade deficit. Reducing that deficit means less borrowing from China and other nations that already hold a significant amount of U.S. debt. Increased capacity will also help lessen the Russian stranglehold on the industry, giving the U.S. a key new card in international diplomacy.

The problem, as always, is government. The federal government must act quickly to grant approval for more exportation of natural gas liquids. And here in Pennsylvania, state government must resist the urge to kill off a promising surge in gas exports by throwing up regulatory roadblocks or enacting new taxes on the industry. The success of the natural gas industry has been viewed by some lawmakers as a potential piggy bank for funding pet projects. But, it is a truism that if you want less of something tax it, and placing a “success tax” on the natural gas industry is a surefire way of preventing the industry from reaching its full potential and stifling the creation of much needed new jobs for Pennsylvanians.

Governor Tom Corbett has stood firm in his opposition to the enactment of job-crushing new taxes, but as the gas industry expands its export component look for renewed pressure by the spending interests to extract higher taxes. The fact is tax revenues – from corporate, personal income, sales and other taxes – will rise naturally because of the expanded economic activity created by development of a natural gas liquids export market. That, and not higher tax rates, is the pay-off to government.

Pennsylvania has been blessed with a golden opportunity to reinvigorate its economy, put our citizens back to work, and contribute significantly to the nation’s energy independence. Time will tell if our state government will be a partner in this progress, or a roadblock to success.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org.)

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