In Pa., mystery profits, vanishing taxes, secret corporate-welfare clawbacks
"We don't want to drag their names through the mud"
Republican Scott Wagner is challenging Democratic Gov. Wolf at the Pennsylvania polls next month with a platform of eliminating the public-school property tax, outlawing abortion — and ending corporate welfare, the tax breaks and incentives that politicians of both parties love to award prospective employers in their districts.
These may sound like attractive policies, in a state full of aging voters who are anxious to stay in our homes even as we grow too old to work, get pregnant, or start a business. (Half of Pennsylvanians are now over 41, compared with an average age of 34 down in, say, Texas.) It's as if Wagner sees where we're headed and is marching in front of the crowd.
But, I think Wagner is holding back his best argument: He should be running on his talent as investor. Because if he's really as bold and successful at playing the markets as his campaign-finance reports appear to show, Wagner might solve one of the commonwealth's biggest fiscal headaches once and for all.
Back in his March campaign-finance report Wagner posted a $1.55 million gain in the value of "excess campaign funds invested in brokerage account," as the Harrisburg Patriot-News reported. In April, he noted a $1.45 million loss. Then his luck returned: As of his most recent report in September, Wagner showed a net gain so far this year of $841,000 on an account that had a maximum balance of about $6 million.
The Democratic operatives who have been calling and e-mailing to complain about this say they find Wagner's reports suspicious: How, they ask, can any investor possibly get gross monthly profits (or suffer losses) approaching 25 percent? And double-digit net gains, year to date? Wagner has added to the mystery by not explaining his betting strategies in detail.
I'd say these young Democrats lack imagination. Even without trying one of those new sports-betting parlors, it's not so hard to show quick gains or losses if you play the options markets, which allow you to bet, not on stocks' long, slow appreciation, but their short-term gains and losses. Your friendly brokerage office or online broker will show you how, and take a fee. Or hire one of the firms that still do battle for clients on the floor of the Nasdaq options market, in Philadelphia's FMC Tower.
If Wagner gets elected, his spokesman Andrew Romeo says, he can share more about how he rolls the dice — if not with the public, at least with the investment staff and boards at the state workers' (SERS) and teachers' (PSERS) pension funds, which after years of underfunding under Govs. Tom Ridge and Ed Rendell and adventures in the private-investments markets have rolled up future pension obligations totaling tens of billions more than their assets.
That failure to match investments to pension promises is why Pennsylvanians now pay more than 30 cents extra on every dollar of public servant payroll to fund retirement. And it's a big reason why Pennsylvania school-district property taxes are high and rising.
A future Gov. Wagner, if he kills those property taxes, as promised, would have to find some other way to pay what his predecessors pledged. Or he'd have to raise the income taxes on those Pennsylvanians still young enough to work. Or sales taxes, already high, which won't help him get reelected.
Speaking of corporate welfare, the conservative Commonwealth Foundation tells me it's still against it. "There is no relationship between the amount of state government incentives to corporations and economic output or growth in wages and income," Commonwealth spokesman Michael Torres told me last week. "Corporate welfare is both expensive in itself and requires intense administrative oversight, which results in higher taxes for smaller businesses, property owners, and even your average wage earner." He noted the state gave money to Hyundai Rotem, but it still closed its Philadelphia subway-car plant this summer, after SEPTA bought cars from the Chinese, instead; and to the Philly Shipyard (formally the Aker Philadelphia Shipyard), which just laid off 275.
I reminded Torres that state payouts to connected companies in marginal industries has been a proud Pennsylvania tradition since the first state canal contractors absconded from their cholera-plagued ditch-digging camps in the early 1820s. Then, I asked Wolf's office how it tracked subsidy benefits, and got sent to Scott Dunkelberger, of the Pennsylvania Department of Community and Economic Development, which monitors a couple of popular giveaways.
"With the Job Creation Tax Credits, it's real simple. The company doesn't get the tax credits until they create the jobs," Dunkelberger said. Wolf told staff to "tighten" scrutiny of another program — Opportunity Grants to companies that pledge to hire in return for cash. As the General Assembly demanded in the 1996 credit-and-grant law, Dunkelberger said his department "is very diligent" keeping track: see its 685-page Annual Financing Strategy Report.
The report names companies it has given cash, but not those that failed to create or keep promised jobs. "$45.5 million has been clawed back" from those firms, Dunkelberger said. Who? When I pressed, the state gave three examples — WNS Global Services, the India-based IT outsourcing firm that closed its Wilkes-Barre office two years ago, idling 100, and gave back $400,000, plus a 10 percent penalty; Netherlands-based Ceva Logistics, which gave back $237,000 in grants and tax credits when it closed its warehouse in Carlisle last year; Kraft Foods, the merger-crazed Chicago-based multinational, which refunded $290,000 when it closed its plant near Bethlehem in 2016.
What about the remaining $44.5 million? Dunkelberger wouldn't tell: "There are also companies that came very close to meeting the job requirements. They missed it by a few jobs. We don't want to publicly say, 'This is a bad apple.' The majority are excellent corporate citizens. We don't want to drag their name through the mud. We have the ability to waive the penalty; Gov. Wolf has said we are not going to do it." But they won't name more names, either.
So you'll have to take it on faith, Pennsylvanians: These corporate welfare programs go mostly to two kinds of companies: the ones that create all their promised jobs, and the ones that return the money, with interest, quietly.