Capitol recap: What state lawmakers want in Pennsylvania cities

The state Senate Appropriations Committee covered a lot of ground during its two-hour hearing on the Department of Community & Economic Development’s budget.

But a few things stuck out, revealing particular concern for accountability for businesses that get tax breaks, and stabilizing municipal finance.

Accountability 

Legislators want to know whether economic development incentives are working. Supportive or skeptical, they want a cost-benefit analysis. Film tax credits, in particular, came up a lot. 

The existing film tax credit program generates set work for skilled trades such as construction, says State Sen. Randy Vulakovich, R-Allegheny. And Kim Ward, R-Westmoreland, says she’d like to see credits extend to post-production. 

Some economists say, however, attempts to entice certain industries like filmmaking often amount to buying jobs.  They argue that competitive advantage is more important; i.e., New York’s deep talent pool. And absent that, incentives turn into a cost-cutting race among states.

As for general accountability, Acting Secretary Dennis Davin noted an Auditor General’s report that found companies getting incentives created or retained 96 percent of the number jobs promised.

That’s true – overall.

Some did more, some less.  For more, check out Keystone Crossroads’ coverage of the Auditor General’s report.

If it ain’t broke

Lawmakers also want to keep going with economic development incentives that appear to be working well so far.

State Rep. David Argall, R-Berks/Schuylkill, put it like this:“I haven’t seen that kind of revitalization in a community since Berlin Wall came down, … but you don’t sound like you’re a fan.”

Argall was talking to Acting DCED Secretary Dennis Davin, about the Neighborhood Improvement Zone program designed to help revive the city of Allentown.

Davin says he’s a fan.

“My only response was, essentially, based on…the governor’s proposal and different look at tax structure, perhaps there will be a time when it might not be necessary,” Davin said.

He says the same thing about the Community Revitalization Zone program, but confirmed the department will designate another two zones for 2016.

The department also is slated to get funding restored to levels of two years ago for its Keystone Communities economic development programs, and intends to partner with universities to encourage research and training for the manufacturing sector.

Mild panic over municipal pensions

Vulakovich says he’s “sick” over local pension funds and their collective underfunding of nearly $8 billion. “They’re never going to get out of it. We’re going to have to do to bring something together on the state level,” says Vulakovich.

Asked later, Vulakovich elaborated.

He says he thinks the state should force severely distressed pension funds (those with less than half costs projected for retirees and retirement payments to working public employees, once retired) into the Pennsylvania Municipal Retirement System, or PMRS.

PMRS manages about 600 local pension funds. The other 1,400 or so put their funds in the hands of private firms, an appointed board, or both.

Pennsylvania also gives aid to distressed local pensions. Basically, that offsets the required minimum amount the municipality (as employer) must pay into the pension fund in any given year. Vulakovich suggests enticing moderately or mildly distressed funds to engage PMRS by giving more aid to those that do and a little less to those that do not.

Those are just ideas, though, he hasn’t proposed anything.

$1M might mean more that you’d think

DCED has another $1 million this year for its early intervention program.

It’s less than half a percent of the department’s total allotment of the state’s general fund budget. But the amount boosts funding for early intervention by 50 percent.

The program attempts to help cash-strapped local governments avoid a full-blow fiscal crisis.

DCED’s Local Government Center Executive Director Fred Reddig says the extra money will let the state help more municipalities.

That’s increasingly critical giving the pension problems noted above and potential for poor decisions (and wide-ranging consequences) referenced below.

And the fact that the Act 47 program (the next step in state intevention) now limits cities to five years, instead of however much time previously, before the dissolution process would begin.

But what about using the money to do more in a given city? Could the money be used to deal with issues that frequently limit the impact of early intervention efforts?  

Yes, Reddig says, in the form of upgraded financial management systems. 

The spectre of Harrisburg lingers

State Sen. Rob Teplitz, D-Dauphin, took an opportunity Thursday to passively protest CRIZ guidelines written to exclude the city of Harrisburg, asking DCED to administer and create programs with “fairness.”

He also asked Davin about supporting legislation that would create more work for DCED, but prevent the financial catastrophes that famously befell Harrisburg, which Teplitz represents.

The bills would tighten DCED oversight of local government finance and help prevent financial professionals from preying on municipal officials.

It’s not yet clear how the state would pay for the enhanced oversight, but state Sen. John Eichelberger, R-Blair, suggests initiating or increasing filing fees for debt issuance paperwork.

Gavin says he has “no opinion” about the legislation, but is hoping to address issues with financial decision-making through the early-intervention program expansion.

Harrisburg’s near-bankruptcy yielded charges from the Securities and Exchange Commission and a half billion-dollar debt restructuring partially supported by rage-inducing parking enforcement and fines.

The city’s ill-fated financing are the subject of a grand jury probe, which state Attorney General Kathleen Kane recently said she hopes will wrap up soon.

Teplitz, Eichelberger and others say they’ve done battle over the nearly two years since the legislation was introduced with financial industry lobbyists who previously enjoyed a “sweet deal” in Pennsylvania’s lax regulatory environment.

They also retreated from their proposed ban on public agencies engaging in interest-rate swaps resistance from public finance professionals who say the transactions can be beneficial – if managed properly.

Former Auditor General Jack Wagner and others – including both of Harrisburg’s former receivers – spoke out against swaps as a form of “gambling with taxpayer money” – particularly given indexes used to determine winners and losers were revealed to be rigged.