PhillyDeals: Rendell approves of some Christie, Corbett cuts

Safely out of office, former Gov. Ed Rendell told a public-finance conference sponsored by Bloomberg L.P. in New York Tuesday that he approves of some of the recent cost-cutting moves by Republican governors in New Jersey and Pennsylvania.

Public-worker benefits: Rendell, a Democrat, said that state "pensions are not supportable in their current state," and that "if [N.J. Gov.] Christie is going after them, it's the right thing to do."

Public-worker strikes: "The idea that unions always win is ludicrous," Rendell said. "If the public is willing to take a strike and suck it up, you will win that collective bargaining [dispute] every time."

Budget cuts by his successor, Gov. Corbett: "The people are getting what they voted for. They voted to reduce spending and will now see what that means."

But Rendell, whose post-Harrisburg gigs include helping private investors try to buy state turnpikes and ports, also suggested that Corbett was going too far slicing subsidies to Penn State, Temple, Lincoln, and other state-backed colleges. "There is reason to cut," he said, "but those cuts should be nowhere near" the nearly one-half off Corbett intends, compared to Rendell's last budget.

Turns out it takes more than balanced budgets and low taxes to please the banks and investors that finance and profit from local-government spending.

By cutting public-school and local-government subsidies, Corbett's new budget "is allowing the pain to flow down to the local level," Tom Kozlik, municipal-bond analyst at Janney Capital Markets, tells clients in a new report.

School districts on the Main Line and other wealthy places "typically rely less on state aid," and voters there "are willing to endure tax increases for spending on local schools, as most seem to understand that property values are tied to the desirability of school districts."

But poor Pennsylvania cities and rural townships, with lower bond ratings and higher financing costs, stand to lose as much as a quarter of their school budgets to Corbett's cuts, and that could "substantially and negatively affect the credit quality of lower-rated school districts and communities," Kozlik writes.

He also notes the "glaring omission in Corbett's budget" of a natural-gas extraction tax.

Corbett is right that a gas tax won't raise enough to cancel the budget cuts, Kozlik says. But without one, he is "concerned about the negative credit stress drilling will have on the small rural areas of Pennsylvania," as drillers wear out roads and bridges and as drill waste swamps the aging water plants.

Credit ratings will drop if Pennsylvania towns "cannot keep up with needed infrastructure repairs or upgrades," the Janney report concludes.

Gemin X, a lung-cancer drugmaker founded in the 1990s by doctors Gordon Shore and Phil Branton at McGill University in Montreal, moved to Malvern four years ago in search of U.S. dollars.

It found them down the road at Cephalon, which Monday said it would pay $225 million for Gemin X, plus up to $300 million more for the smaller, neighboring firm if it meets development and sales goals.

Gemin X, which employs about 20, plus contractors, left its lab in Montreal but moved half its 20-person team south as it sought U.S. venture-capital investors and an initial public stock offering on the Nasdaq market in 2007, chief financial officer Michael Dixon told me.

The market crash stopped the IPO, but Gemin X kept raising money, boosting its equity total above $120 million, from Silicon Valley's Sanderling Venture Partners and other U.S., Canadian, and European firms, though Pennsylvania's own tech funders were absent.

The sale guarantees "the development of this asset is going to be centered in the Philadelphia area," Dixon, who is based in Montreal, told me. In the next few weeks, "we'll be putting our heads together, Gemin X and Cephalon," to expand the business.