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Pennsylvania
Governor Rendell Strikes Out With Economic Development Bonds
(Taxpayers as
Forced Investors In Venture Capital Projects)
By
Grant Gulibon
Governor Ed Rendell moonlights as a cable television sports commentator. So
when Pennsylvanians recently saw headlines reading "Rendell Wants $2 Billion for
Bonds," many of them could be forgiven for concluding that the governor thinks
the San Francisco Giants' Barry Bonds-the 5-time MVP and single-season home run
king-should get a hefty pay raise.
Unfortunately, Governor Rendell wasn't talking baseball, but economic
development policy. And if he gets his way, Pennsylvania taxpayers will be on
the hook for a 20-year "contract" guaranteeing higher taxes and likely
delivering very little in terms of new statewide economic growth.
The governor's "Plan for a New Pennsylvania" calls for borrowing nearly $2
billion in taxpayer-funded bonds, which will subsidize politically chosen
economic development projects. In short, every current and future taxpayer in
Pennsylvania will become an "investor" in Governor Rendell's plan to use tax
dollars as venture capital for projects he deems worthy of your support. He
promises, however, that the new development these funds spur will more than
compensate for the additional costs they will impose on your family.
But such a plan isn't new or innovative at all. Rather, it continues and
amplifies the same failed approach to economic development that Pennsylvania has
used far too often in the past.
One of the few areas in which Pennsylvania has led the nation is in the use of
taxpayer money for "economic development." As recently as 1998, Pennsylvania
outpaced every other state in terms of economic development funding. However,
the Commonwealth's economic results have been at the opposite end of the
spectrum. Indeed, the ten states that spent the most per capita on
government-directed economic development in 1997-98 experienced cumulative
personal income, population and employment growth rates respectively 28.6, 124.4
and 166.7 percent lower than the 10 lowest-spending states between 1997 and
2002. The bulk of the Rendell plan ignores this economic evidence.
Nowhere is that ignorance better exemplified than in the governor's proposal to
earmark $500 million to a "Pennsylvania Opportunity Fund." This fund would use
taxpayer money as-in the administration's own words-"venture capital for growth
companies." Governor Rendell claims that such a fund is necessary because
"young entrepreneurs struggle to find financing to turn their dreams to
reality. They are forced to move to where their capital backers believe there
is a better environment for growth."
Governor Rendell understands Pennsylvania's problem-a lack of business
investment in our state's economy-but completely misunderstands the reason why
it exists.
Pennsylvania entrepreneurs struggle to find financing because the state's
business climate-characterized by high taxes on income and capital,
still-onerous regulations, and the lack of a voluntary union law-is far less
attractive to private investment than those of many of our competitor states.
These are the issues-not a lack of government "investments" of taxpayer
money-that have forced young entrepreneurs to move to "a better environment for
growth."
Some of the areas targeted for new spending-such as infrastructure that can be
used by all taxpayers (including water and sewer facilities, road, bridge and
street improvements, and some limited telecommunications improvements)-are
worthy of support. However, new borrowing or taxes are not needed to fund
them. Pennsylvania's existing programs and taxation (including the substantial
increase just six years ago on the state's gasoline tax) can and should be
refocused toward these critical priorities.
Since taking office, Governor Rendell has often quoted Robert F. Kennedy. But
when it comes to his economic development plans, he ought to heed the words of
another Democrat, the late Daniel Patrick Moynihan:
Wishing so many things so, we all too readily come to think them not only
possible, which likely they are, but also near at hand, which is seldom the
case. We constantly underestimate difficulties, over promise results, and avoid
any evidence of incompatibility and conflict, thus repeatedly creating the
conditions of failure out of a desperate desire for success. ... I believe that
this danger has been compounded by the increasing introduction into politics and
government of ideas originating in the social sciences which promise to bring
about social change through the manipulation of what might be termed the hidden
processes of society.
The free-enterprise system in Pennsylvania is one of those "hidden processes of
society" which has suffered endless "manipulation" throughout history in the
name of "social change." Governor Rendell is the just the latest politician to
try to improve the market's performance through government intervention.
Unfortunately, his "Bonds" are unlikely to be a "home run" for Pennsylvania's
economy. In fact, Governor Rendell's bonds have a better chance of becoming an
embarrassing "strikeout."
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Grant R. Gulibon is senior policy analyst at The Commonwealth Foundation, a
free-market public policy research and educational institute based in
Harrisburg. For more information visit
www.CommonwealthFoundation.org and
www.PleaseNoMoreTaxes.org.
Editors Note: Accompanying chart available at
www.CommonwealthFoundation.org/taxes/c03-07.pdf
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