State tax credit programs target a range of industries, from manufacturing to film production to high-tech start-ups. Other programs aim to spur waterfront development, environmental cleanup, and job creation in rural areas. Companies typically have to meet job creation or investment thresholds to qualify for the tax benefits.
But the true economic impact of a tax credit program, Knittel said, hinges on a question that is difficult to answer. If a company that receives state tax credits opens a new facility in Pennsylvania, were the tax credits the deciding factor? Or did the tax breaks reward the company for something it would have done anyway?
“That’s very hard to pin down,” Knittel said.
Several programs, the fiscal office concluded, likely fell into the latter category. A tax credit for breweries worth roughly $2 million annually is likely not generous enough to influence companies’ decisions to invest or expand in Pennsylvania.
The fiscal office found a lack of data makes it challenging to analyze the impact of other programs.
One of the largest, which funds scholarships for students at private schools, suffers from a basic lack of accountability, the fiscal office found. The review noted that the impact of the tax credits depends on how many students use the money to switch from public to private schools. State law, however, prohibits the collection of that data. Republican lawmakers successfully pushed for a massive increase to the program last year — without adopting any of the fiscal office’s recommendations to improve transparency.
Pennsylvania’s tax credit programs are also being scrutinized as part of an overhaul of the state’s approach to economic development recently announced by Democratic Gov. Josh Shapiro.
Spotlight PA is an independent, nonpartisan, and nonprofit newsroom producing investigative and public-service journalism that holds the powerful to account and drives positive change in Pennsylvania.