Economic Development Subsidies in Pennsylvania: Do they Fuel Sprawl?

By
Dennis Bellafiore, Stephen Herzenberg
Meg Myer, Allan Rothrock

Every year, to create or retain jobs, the state of Pennsylvania gives out roughly $200 million in grants and loans to businesses. To date, the Commonwealth distributes this substantial sum without demanding systematic information and accountability regarding any of its benefits – in terms of jobs actually created (not simply promised), the quality of those jobs, limits on total assistance per job, the proximity of jobs to the people who need them, and whether new businesses fill in vacant lots in older communities or lead to further development of Pennsylvania’s open space.

Previously, the Keystone Research Center published one of the only attempts to gauge the quality of jobs created by Pennsylvania economic development programs. This report presents what is, to our knowledge, the first-ever systematic examina tion of a second dimension of subsidy accountability -- the extent to which business subsidies in Pennsylvania contribute to sprawling land-use patterns and job redistribution.

We focus on the three Pennsylvania Department of Community and Economic Development (DCED) business assistance programs that gave out the most money in grants or loans in the July 1, 1998 to May 6, 2003 period: the Opportunity Grant Program (OGP), the Infrastructure Development Program (IDP), and the PIDA program. Based on a list provided by DCED, we track 1333 business subsidies totaling $719.5 million.

Our geographical analysis examines dollars received by what the Brookings Institution defined in their larger report, Back to Prosperity, as “older Pennsylvania” and “outer townships.” As the label implies, older Pennsylvania are older municipalities, established for the most part before the 20th century, and include such municipality types as cities, boroughs, and first-class townships. Outer townships, or newer parts of Pennsylvania, are the larger second-class townships that comprise the rest of the state. Older Pennsylvania contained 58 percent of the state’s population in 2000 and outer townships 42 percent.

We examine the distribution of subsidies to older communities and outer townships in the state as a whole and within nine major metropolitan areas -- Allentown-Bethlehem-Easton, Erie, Harrisburg-Lebanon-Carlisle, Lancaster, Philadelphia, Pittsburgh, Reading, Scranton-Wilkes Barre-Hazelton, and York. (While general readers may think of metropolitan areas as consisting entirely of older, developed communities, this is not the case. All of the nine metropolitan areas contain substantial portions that fall in outer townships along with undeveloped farmland and other open space.)

Four findings stand out on the geographical distribution of business subsidies in Pennsylvania as a whole between 1998 and 2003.

• Overall, Pennsylvania does not use economic development dollars to counteract the outward movement of jobs and the tendency of this to reinforce sprawl. Statewide, older communities and outer townships receive almost exactly the same amount of subsidy dollars per capita -- about $58 per person. Based on land-use considerations and the goal of creating jobs closer to the communities and people most in need of them, older Pennsylvania should receive much higher levels of per capita economic development assistance.
• First-class townships – older, inner suburbs – receive very little economic development assistance to help them ward off job and population loss. In our data base, first-class townships receive only roughly one third (36 percent) of the statewide per capita average level of economic development assistance
• Subsidies to industrial and business parks – 135 projects totaling $101.4 million in our data base -- have the greatest bias towards new suburbs. On a per capita basis, outer townships receive 2.2 times as much in subsidies to industrial parks as older Pennsylvania. To the extent that outlying industrial and business parks trigger or accelerate relocations away from older communities, of professional services as well as manufacturing, they may be especially likely to fuel sprawl.
• Economic development subsidies appear to play a significant part in the emergence of huge distribution centers that increasingly dot Pennsylvania’s rich farmland. In a subset of our sample for which we have detailed industry information, 13 mega-projects in distribution industries (i.e.,“transportation and wholesale trade”) received $44.6 million in subsidies to locate in outer townships. This was almost exactly one half of the $89.2 million total given out to companies for distribution industry projects.

Across the nine metropolitan areas examined separately, great variation exists in the extent to which economic development dollars go to older versus newer areas.

• Within the Allentown-Bethlehem-Easton and the Philadelphia areas, outer townships receive nearly 50 percent more subsidy dollars per capita than older Pennsylvania.
• In the five-county Philadelphia area (Bucks, Chester, Delaware, Montgomery, and Philadelphia), the four affluent suburban cities receive two-and-a-half times as much as the city in precious grant dollars to promote economic development.
• The Lancaster metropolitan area appears far and away the state’s leader in terms of utilizing subsidy dollars consistent with Smart Growth principles. Almost all of the Lancaster area’s subsidy monies go to the city. Nine times as much money on a per capita base goes to older communities as to new.
• In all the six other metro areas – Erie, the Harrisburg area, Reading, Scranton-Wilkes Barre-Hazelton, York, and Pittsburgh – the old portions of metro areas receive at most 39 percent more subsidy dollars per capita than the new portions. This indicates that economic development subsidies are not used on a consistent basis to promote good land-use policies and job creation in struggling older towns and cities.

The last part of our report makes six recommendations aimed at channeling business subsidies in ways that better encourage revitalization of existing communities and discourage suburban sprawl. An essential first step must consist of improved disclosure, including requiring that DCED collect and make publicly available:

• addresses of the sites where business subsidies are used;
• a uniform and comprehensive system of classifying those sites from a land-use perspective, including identifying undeveloped or “greenfield” land;
• information on other Pennsylvania locations of the business at the subsidized site, including whether any of these other locations closed down or reduced employment in conjunction with the new operation; and
• similar location history for tenants at industrial parks, other multi-site facilities that receive state subsides, and businesses in designated areas with lower tax burdens (such as Keystone Opportunity Zones and Tax Increment Financing districts).

Beyond disclosure, business subsidy and tax incentive programs should more strongly encourage development in previously developed industrial sites (brownfields) and other blighted areas, while prohibiting subsidies to greenfield locations.

In conjunction with this report, KRC is unveiling a new interactive web-based map (www.keystoneresearchmap.org) that makes it possible to look at the subsidies received in any part of Pennsylvania. Viewers can pull up maps and data reports on subsidies received in any area, from the state as a whole down to a few blocks. Data reports on subsidies include the name of the company, the municipality and sometimes the exact address of the business site, the amount of the subsidy, and the program from which the subsidy came. Viewers can also feed back missing or additional information to KRC on specific subsidies.

This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site www.keystoneresearch.org © 2001 Keystone Research Center