HARRISBURG -- Despite billions of dollars spent by state taxpayers on economic development and eight years of pro-business Republican governors from 1995-2002, Pennsylvania still doesn't shine in ratings of state business climates.
The Tax Foundation, a Washington D.C.-based research group, ranked Pennsylvania 22nd among the states last year in an assessment of business-friendly tax climates.
A study released last November by the Pacific Research Institute ranked Pennsylvania 45th nationwide in a measurement of "economic freedom" that looked at factors such as state regulation, the legal system and the size of government. It's an index of "where government is least burdensome to entrepreneurs and job creators," said Grant Gulibon, a researcher for the Commonwealth Foundation, a Harrisburg-based think tank.
The administration of former Republican Gov. Tom Ridge initiated seven years of business tax cuts and claimed to have reduced burdensome regulations on business. But a similar study of government intervention showed Pennsylvania ranked 45th among the states in 1999 while Ridge was governor, said Matthew Brouillette, president of the Commonwealth Foundation.
Democratic Gov. Ed Rendell, midway through a four-year term, is by no means viewed as an enemy of business. He's "very much a pro-business, Clintonite Democrat," said Marick Masters, a business professor at the University of Pittsburgh. But Rendell gets mixed reviews from business groups for pushing through an increase in the state's personal income tax in December 2003, and advocating increased fees on manufacturers -- deemed to be polluters -- for an environmental initiative called "Growing Greener II."
Is Pennsylvania's business climate backsliding? Or were the root problems never fixed?
The answers are complex and spill beyond Pennsylvania's borders and gubernatorial terms. The state's economy is largely driven by the national economy, Masters says. International dynamics -- chiefly outsourcing -- heavily impacted the loss of manufacturing jobs in Pennsylvania over the past few years, said Jim Panyard, president of the Pennsylvania Manufacturers Association.
But within those larger parameters, what a state does is significant in terms of making it an attractive place to do business, Panyard said. The state's business climate is impacted by the degree of state regulation, the tax structure, the cost of workers' compensation and litigation. And in those categories Pennsylvania doesn't stack up so well, Masters said..
Pennsylvania "has a long way to go to be more favorable toward business," said Masters.
The cost of doing business in Pennsylvania continues to put Pennsylvania's job creators at a competitive disadvantage, said Maura Donley, vice president of communications for the Pennsylvania Chamber of Business and Industry.
"We hope that in addition to creating economic development programs for business, that the governor will tackle our costly tax structure, our health care costs, our legal system and our labor laws," Donley said recently, reacting to a Rendell-backed program of low-interest loans for small business.
Republican state House members led by Rep. Mike Turzai, R-McCandless, are pushing legislation to help the state's manufacturing industry. But Turzai said the legislation in a broader sense is trying to improve the overall business climate by tackling issues from workers' comp to legal reform.
Meanwhile, Rendell's Business Tax Reform Study Commission last November recommended lowering the Corporate Net Income Tax, but its plan hammers small business, Brouillette said.
"The reality is that when people are looking to relocate they are not looking to Pennsylvania," Brouillette said. They're not moving overseas, he said. They are moving to right-to-work states like Virginia, he said.
Ridge did make some changes that benefitted business, Brouillette said. "All true but other states passed us up," he argued. "We still have effectively, the highest Corporate Net Income Tax in the nation."
For Pennsylvania to become competitive with other states "it's got to get corporate and other taxes down," Masters said. "It's got to make regulation less burdensome, reduce litigation, and get a handle on workers' comp costs."
To get some idea where Pennsylvania is heading, consider that government jobs -- from school districts to state agencies -- now exceed employment in manufacturing, Panyard said.
Said Panyard: "There are now more takers than makers in Pennsylvania."
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