Wolf vows crackdown on delinquent DCED beneficiariesState pursues nearly $4M per year from those who don't live up to contracts
Last year, the Pennsylvania Department of Community and Economic Development approved nearly $1.1 billion in low-interest loans, tax credits and grants for business-development projects across the state, with private-sector beneficiaries committing to create or retain more than 245,000 full-time jobs.
Not everyone fulfills their commitments to the state: DCED pursues, on average, nearly $4 million per year from entities that don’t live up to the terms of their contracts, department spokesman David James Misner said.
Gov. Tom Wolf wants to go after delinquent recipients even harder, with the added revenue being used to fund a new apprenticeship program. Under Wolf’s 2017-18 budget proposal, unveiled last week, regulations and enforcement would be ramped up to take action against those who fail to add or keep jobs as promised.
“This proposal is about establishing a new way forward for Pennsylvania that allows us to continue to make investments in important programs, without cutting others or raising taxes on Pennsylvania’s families,” Wolf spokesman J.J. Abbott said.
A longstanding worry
Concerns about whether businesses are living up to their end of the bargain when they get state money go back at least two decades.
The Business Journal has reported on businesses failing to deliver in the past, including a 2004 story in which the paper documented funds returned to the state under what was called a “clawback,” program — the money included $855,000 recouped in the previous year from nine companies, as well as $760,000 in public funds officials were unable to recover from six other companies in the same program. At that point, DCED officials told the paper the state had received about $10.3 million from its clawback program since 1996.
Misner said $4 million has the been average amount sought by DCED over the past five years. In fiscal 2015-16, the agency’s performance and monitoring division found 23 projects were not compliant, resulting in clawback requests. Because of the time allotted for recipients to meet the terms of their finance packages, the cases of non-compliance stemmed from awards made in fiscal 2012-13 or earlier, Misner said.
An award to the Kraft-Heinz Co. was one example Misner cited.
In 2013, the company received a $200,000 Pennsylvania First Program grant to expand and create 45 jobs and stay at its Lehigh Valley site for seven years. Last year, Kraft announced a plan to leave the site, and therefore did not fulfill its commitment, Misner said.
“Because Kraft did not fulfill their contractual obligations, DCED requested and received the full $200,000 Pennsylvania First grant, he added.
Lean budgets prompt action
Given that the issue is not new, why is Wolf interested in tightening regulations now?
“For years Pennsylvanians have been asked to pay more for the things they wanted or devastating cuts were made to things that we need. This budget proposal demonstrates that there are other choices when we think creatively,” Abbott said.
What do Republican legislators think? How about the business community?
Few are talking about it.
Steve Miskin, a spokesman for the House Republicans, did not immediately respond to a request for comment.
Kevin Sunday, government affairs manager for the Pennsylvania Chamber of Business and Industry, declined to comment.
“Thanks for reaching out, but we are going to pass on this one,” Sunday said.
Franklin & Marshall College political analyst G. Terry Madonna, meanwhile, sees the approach as “pretty novel.”
“It seems a bit like (President Donald) Trump’s idea of forcing companies that build plants abroad to pay a tax on the importation of their products. It seems like a new proposal for state government,” Madonna said, He added that the payback requirements “put accountability into the system, and now companies will have to do a reassessment of their participation in these grant programs.”
Proposed changes to DCED job-creation grant programs would include:
• Companies receiving state economic-development grants will be required to maintain any jobs created through receipt of a state grant for no less than five years, and to maintain operations in the state for no less than eight years.
• Where a company commits to create jobs, and fails to make progress towards its obligations, the state will require full repayment of the grant amount.
• If a company receives a grant from the state and subsequently moves operations out of Pennsylvania within eight years, DCED will require full repayment of the grant, as well as a 10 percent penalty.
• DCED will revise the formula by which it pursues recovery in the event a company does not achieve its full commitment to prioritize job creation.
• Finally, DCED will strengthen its contract language to implement the requirements above and ensure that all parties understand their responsibilities up front.
“Pennsylvania’s economic-development projects provide tremendous value to the state, but businesses that receive state funding to expand economic opportunity must be held accountable for the use of those dollars. This new way forward for Pennsylvania means that new safeguards must be in place to ensure taxpayer dollars for economic-development projects are spent appropriately and intended outcomes are met,” Abbott said.
Revenue recovered by DCED would fund a new apprenticeship program for workers — those entering the workforce from K-12 education as well as those transitioning into new sectors — that would provide training aligned to workforce needs, Abbott added.
Under the program, businesses would be able to seek grant funding of up to $2,000 for each apprentice employed pursuant to an apprenticeship agreement registered with the Office of Apprenticeship in the U.S. Department of Labor.
How much money DCED expects to recover is not yet clear.
“An estimate on the potential increase of clawbacks under new contract conditions would be premature,” DCED’s Misner said.
Funds earmarked for training
The apprenticeships would be one component of a $12 million budget proposal called Manufacturing PA, which would link up Pennsylvania’s research universities and its Industrial Resource Centers to accelerate the advancement of manufacturing technology and create or retain 6,000 manufacturing jobs.
Manufacturing is the third-largest industry in Pennsylvania, according to statistics presented by Wolf, employing over 550,000 workers with an average salary of $72,500. His budget predicts the sector will continue to grow, reaching more than 584,000 workers in 2020.
In addition to the apprenticeship grants, Manufacturing PA would include:
• $5 million for a manufacturing training-to-career grant program, building on the recent enactment of a manufacturing tax credit to encourage high-tech manufacturing growth.
Through this new grant program, manufacturers would receive funds to partner with technical programs and community colleges to develop new training programs that align with their workforce needs.
• Creation of a governor’s middle class task force, composed of industry and policy experts as well as residents, to make future policy recommendations to improve the lives of working, middle class families.