Many Pennsylvania Industrial Development Loans Create Low- Quality Jobs New Keystone Research Center Study Shows

Harrisburg, August 8 -- A new study of one of Pennsylvania’s largest economic development programs estimates that 39 percent of its recent subsidies went to companies that created low-quality jobs.

The Keystone Research Center (KRC) examined 312 low-interest loans, totaling $238.5 million, made by the Pennsylvania Industrial Development Authority (PIDA) between July 1998 and March 2002. The KRC found that 122 of the projects funded by PIDA statewide produced jobs with wages and benefits projected to be 80 percent or less of the industry average.

An even higher proportion of PIDA loans produced such low-quality jobs in the Western and Southeast/Southcentral regions of the state, and in counties that include Allegheny, Bucks, Philadelphia, and Westmoreland. In the Southeast/Southcentral region, 12 of 22 loans to the low-paying wholesale and distribution sector paid 80 percent or less of the industry average.

"The data on the PIDA program make clear that significant state money goes to companies that pay a lot less than most companies in their industry and area," said Dr. David Bradley, author of the study and Policy Analyst at the Keystone Research Center. "Since very few of Pennsylvania’s over 200,000 corporations actually receive state dollars, it makes no sense to single out for public assistance companies that pay poorly."

Bradley adds that the PIDA reporting system, while far from perfect, is better than that of other Pennsylvania economic development programs. "Hundreds of millions in grants and low-interest loans now go each year to individual private firms without any real public accounting."

So that the state gets information about the number and quality of jobs generated, Keystone recommends that Pennsylvania improve its disclosure requirements when companies receive state grants, low-interest loans, or targeted tax breaks. By enacting better disclosure laws, Pennsylvania would join a bipartisan good government movement that started in Minnesota and Maine and is spreading to other states.

The fact that so many PIDA-funded projects produce jobs of questionable quality suggests that the state should also strengthen wage standards for businesses receiving PIDA loans, according to Dr. Stephen Herzenberg, an economist and Executive Director of the Keystone Research Center.

"We’ve recommended that state money go only to firms paying at least 150 percent of the minimum wage and at least 85 percent of the average wage in the industry and county in which a subsidized company operates." Like disclosure laws, wage standards have become part of best practice in state economic development circles in recent years.

Beyond improved accountability, KRC recommends shifting economic development dollars away from subsidies for individual companies. "With many companies facing shortages of skilled workers," Herzenberg says, "the state should instead invest in the workforce infrastructure that feeds many firms not just a favored few. That means, for example, more support for community colleges and industry training partnerships."

As well as influencing state policymakers and the two gubernatorial candidates, KRC aims to encourage economic development practitioners to focus more on job quality. The Center’s report includes data on PIDA loans in 10 regions and 12 individual counties, and reveals sharp variation in the share of projects supporting high-quality and low-quality jobs. Using KRC’s substate data, practitioners and local lawmakers can benchmark their area job-quality performance against their peers.

The Keystone Research Center briefing paper "Many Pennsylvania Industrial Development Authority Loans Create Low-Quality Jobs" is available from the KRC Web site at www.keystoneresearch.org. Also on line is a list of each of the 312 PIDA projects (in Adobe PDF format) the business assisted, and its location, industry, projected payroll per job, and payroll as a percentage of the industry average.

The following individuals are familiar with economic development policy issues and may be willing to provide comments on the KRC findings and policy proposals.

Greg LeRoy, Good Jobs First, 202-737-4315

David Washburn, House Democratic Policy Committee, 717-787-3055

Grant Gulibon, Commonwealth Foundation, 717-671-1901

In another study of Pennsylvania’s economic development programs, the Legislative Budget and Finance Committee (LBFC) released an evaluation of DCED programs – Department of Community and Economic Development – Economic Development Programs – in October 2000. For a copy of the LBFC report, call 717-783-1600