Hand up, not out: State should rethink subsidy business
The problem isn’t that Gov. Ed Rendell blew through town over the weekend to announce a package of state assistance that purportedly will keep the Columbia Gas customer call center in Georges Township alive and kicking. The problem is that only $2 million of the total $5.5 million package was bestowed in the form of a state loan that NiSource Inc., the parent of Columbia Gas of Pennsylvania, will have to pay back.
The rest – a $1.5 million grant, $1.5 million in tax credits and $500,000 for job training -amounts to a $3.5 million state subsidy to a private company.
Of course, the usual pledge to increase employment, from 170 to 500 within five years, accompanied the big announcement. We also learned that the local center was lucky, indeed, to have won out in a round of consolidation that will close similar call centers in Kentucky and Ohio.
So to win this hand of poker, Pennsylvania ponied up a tax break, an outright grant and a pledge to train the firm’s employees. If 330 jobs are added, the state subsidy Rendell and his Governor’s Action Team threw on the table amounts to $10,606 per employee. This can be justified as a cost of doing business these days.
But the accompanying press release makes no mention of how long NiSource, which has subcontracted its call center work to IBM for a 10-year period, is locked in to operating the Fayette Business Park call center. That’s a key point, and the subsidy on the surface makes sense only if the facility remains operational for at least that long.
A bigger concern is the need to wean private entities like NiSource away from the norm of seeking, and all too often getting, government handouts. When they get out of paying taxes, someone else makes up the difference. When they get government-paid employee training or an outright grant, the Commonwealth’s taxpayers foot the bill. And that’s money that can’t be spent on other worthy purposes, or given back in the form of tax reduction.
Companies, of course, know they have leverage in the hyper-competitive world economy and thus can successfully exploit this weakness. They simply sit in the catbird seat, playing one state or region against another, seeing which will offer the sweetest deal. But it is a race to the bottom, because somebody, somewhere will always be looking to undercut you.
For an example of how this game sometimes plays out, one need look no further than Volkswagon, which milked the state for as much assistance as it possibly could, then vacated its New Stanton automobile manufacturing facility as soon as those deals expired, moving production to lower-wage Mexico. US Airways played the same game in neighboring Allegheny County, angling for a new airport and scarfing up all the state and local subsidy it could extract, all in the name of retaining one of the region’s biggest employers. But impending bankruptcy threw that company into a downward spiral anyway.
On the federal level, Fayette has clearly benefited from the stature of U.S. Rep. John Murtha (D-Johnstown), whose position in congress has seen defense-related contractors sprout up all over his westward-expanding district. But does anyone doubt that they will vanish soon after Murtha retires or passes away, when another jobs-hungry and influential congressman takes his position of influence?
What happens if and when NiSource decides that another round of consolidation is in order, this time pitting the local call center against one of its other remaining facilities, or as is the national trend, against some overseas outsourcing operation?
And don’t forget that the local call center’s employees will now work either for IBM or one of its subcontractors. What if the subcontracting dynamic changes? These aren’t far-fetched possibilities; they are part of today’s ever-changing corporate structure, where little if anything is long-lasting.
We can’t blame the state for doing what it feels it must to remain competitive, but we can question the long-term wisdom of pursuing this strategy for operations as fluid as call centers.
Rather than fork over money to a select number of private enterprises, particularly those whose businesses could easily be moved, we’d rather see the state make more tangible investments.
Prime examples of that are infrastructure in the Fayette County Business Park along Route 40, where roads, water and sewerage lines have a long economic shelf life; and the new downtown Uniontown parking garage, which will benefit current and would-be businesses across a wide spectrum.
To his credit, Rendell has also invested state funds in those two projects. But the highest and best use of available state funds isn’t plowing them into any private enterprise that’s playing the shakedown game.