PA Manufacturers' Association- Press Releases

Archives- September, 2006:

09/25/06

Rendell remarks at PA Press Club

In remarks before the Pennsylvania Press Club today, Gov. Ed Rendell engaged in multiple falsehoods and misrepresentations of fact regarding the state’s manufacturing sector and the competitiveness of Pennsylvania’s economy:

· Pennsylvania’s job growth relative to competitor states
Although Gov. Rendell asserts that Pennsylvania is holding our own against competitor states, Pennsylvania’s job growth is only a fraction of the U.S. average. From 2003 to 2005, Pennsylvania was 42nd in the nation in job growth. If Pennsylvania jobs had grown at just the national average during that time, 61,000 more Pennsylvania jobs would have been created.

· Overall health of Pennsylvania’s manufacturing sector
During the first 44 months Ed Rendell has been governor (Jan 03-Aug 06), Pennsylvania has had a net loss of 68,600 manufacturing jobs – an average net loss of 1,559 jobs per month. Even though the national manufacturing recession ended in November 2003, Pennsylvania continues to suffer an average net loss of ten factories and over 1,000 manufacturing jobs every month.

In contrast, competitor states like Missouri and Texas experienced net growth in manufacturing jobs during calendar year 2005. And although Virginia had net manufacturing jobs losses in 2005, it only lost them at 1/4th of the Pennsylvania rate.

· Subjective rankings vs. objective facts
The Rendell Administration emphasizes subjective rankings that make Pennsylvania look less bad (Tax Foundation – PA 16th) and ignores subjective rankings that show Pennsylvania at or near the bottom (FORBES Friendliest States for Business – PA 41st). However, regardless of which analysis one chooses, there are fundamental economic facts that cannot be ignored. From 2003 to 2004, Pennsylvania’s rate of growth in Gross State Product – the totality of economic activity in the state – was 43rd in the nation. As mentioned above, Pennsylvania’s job growth rate was 42nd in the nation during 2003-2005. No matter how you spin it, these economic indicators are bad news for Pennsylvania.

· Corporate welfare
The very Tax Foundation survey Gov. Rendell cited contradicts his positive view of taxpayer-funded, government-directed subsidization:

“Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business climate plagued by bad tax policy. A far more effective approach is to systematically improve the business climate for the long term so as to improve the state’s competitiveness as compared to other states.”

· National/International issues vs. State issues
Although Gov. Rendell’s press club comments on international trade were correct, it is an issue area where he has no authority and therefore no accountability. In areas where Gov. Rendell could have acted to improve state public policy for manufacturers, such as the Fair Share Act, the Regulatory Flexibility Act, and the business tax relief in House Bill 515, he killed them by veto.

09/19/06

MOVIN' OUT

Pennsylvanians "voting with their feet" as North Carolina, South Carolina gain.

During the first half of 2006, Pennsylvania was one of the top ten "departure" states for United Van Lines (UVL), representing the ongoing loss of population and economic opportunity that is diminishing Pennsylvania's future. According to an analysis of UVL data by the Mackinac Institute in Michigan, 57.8 percent of moves involving the Keystone State were departures, marking Pennsylvania as one of only seven "high outbound" states with departure rates of 55 percent or more.

Pennsylvania was in the "high outbound" category for both calendar years 2005 and 2004.

"The Mackinac Center has performed an econometric analysis of the UVL information with year-by-year migration data obtained from the federal government's Bureau of Economic Analysis," wrote Mackinac Director of Fiscal Policy Michael D. LaFaive. "Our conclusion is that UVL move data is very highly correlated with the migration patterns of the American people."

Describing the moving company as "something of a leading economic opportunity indicator," LaFaive commented, "Many variables go into a person's decision to move, but superior economic opportunities probably tops the list of reasons. That would mean that states with better economies should draw more people."

From January through June 2006, UVL transported 5,545 shipments involving Pennsylvania. Of those, 3,204 were headed out of state, a net loss of 863 shipments. Each shipment can be assumed to represent one Pennsylvania household, and UVL is only one of many moving companies in business today.

Michigan had the highest proportion of outbound moves at 65 percent, followed by North Dakota, (hurricane-ravaged) Louisiana, New Jersey, and Indiana, with Pennsylvania and New York tied for sixth place. Oregon had the highest rate of arrivals at 63.8 percent, closely followed by North Carolina at 63.3 percent. In order, Nevada, South Carolina, and Idaho were next highest for "inbound" moves.

The analysis of UVL data reinforces everything already known about Pennsylvania's deepening demographic crisis and follows the recent news of fast-growing Phoenix eclipsing Philadelphia as America's fifth-largest city. Pennsylvania's rate of population growth is one of the slowest in the nation, as reflected by our continuing loss of representation in Congress following each decennial U.S. Census.

"Pennsylvania deserves better than the diminished future we currently face," said Frederick W. Anton III, President and CEO of the Pennsylvania Manufacturers' Association. "The policy decisions made in Harrisburg have real-world consequences, as this report illustrates. Every time one more moving van leaves Pennsylvania than arrives, the people register a vote of 'no confidence' in our state."

"This latest analysis is deeply discouraging, but not unexpected," said PMA executive director David N. Taylor. "Pennsylvania's state and local governments continue to spend money faster than taxpayers can earn it, stifling the economy. As Pennsylvania continues to experience a net loss of ten factories and 1,000 manufacturing jobs every month, it shouldn't surprise anybody who's paying attention that people are following those jobs out of state."

For years, PMA has described this economic and demographic crisis as a "Silent Killer" - chronic overspending in Harrisburg resulting in high taxes that stifle job and wage growth, send young people out of state, and leave fewer people in their productive years to bear a larger burden.

Contact: David Taylor, 717-232-0737, Taylor@pamanufacturers.org

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09/01/06

PENNSYLVANIA’S UNDERPERFORMING ECONOMY

Leadership must come from Harrisburg to arrest
the “Silent Killer” endangering our future

By David N. Taylor, Executive Director

Philadelphia is now America’s sixth-largest city, having been eclipsed by fast-growing Phoenix for fifth place (behind New York City, Los Angeles, Chicago, and Houston). It remains to be seen how long Philadelphia can stay ahead of San Antonio, San Diego, and Dallas, which – in seventh, eighth, and ninth place – are growing robustly while Philadelphia shrinks.

Pennsylvania’s rate of population growth is one of the slowest in the nation, as reflected by our continuing loss of representation in Congress following each decennial U.S. Census. In the 1980s, Pennsylvania had 23 U.S. Representatives; in the 1990s, we had 21. Now, in the first decade of the new century, we have 19. Following the census of 2030, the U.S. Census Bureau predicts that number will fall to 15, the smallest number of U.S. Representatives from Pennsylvania since Philadelphia was the nation’s capital city 200 years ago.

Pennsylvania has the largest proportion of senior citizens of any state except Florida and West Virginia. Pennsylvania has the fourth-highest percentage of native-born citizens, which is another way of saying that very few people choose to move here. The ongoing exodus of Pennsylvanians in their 20s and 30s leaves a smaller workforce to carry the overall tax burden.

Our unrelenting demographic crisis is fueled by poor economic performance: Job growth in Pennsylvania is just a fraction of the national average. If Pennsylvania employment had grown at just the national average between 2003 and 2005, there would be 61,000 more jobs in the commonwealth today. The same is true of wage growth. Stagnant job growth and wage growth impel younger Pennsylvanians to build lives and careers out of state, in places where employment opportunities are both more plentiful and more promising.

From 2003 to 2004, Pennsylvania’s rate of growth in Gross State Product was 43rd in the nation. In 2005, the American Cities Business Journals ranked the economic vitality of the 50 states and found Pennsylvania to be 44th. And even though the national manufacturing recession ended in late 2003, Pennsylvania continues to lose an average of ten factories and more than 1,000 manufacturing jobs every month. Since July 2000, roughly 200,000 high-value Pennsylvania manufacturing jobs have disappeared.

More than six years ago, the Pennsylvania Manufacturers’ Association first described this economic and demographic crisis as a “Silent Killer” – chronic overspending in Harrisburg resulting in high taxes that stifle job and wage growth, send young people out of state, and leave fewer people in their productive years to bear a larger burden. In the previous and current sessions of the General Assembly, we have worked with pro-growth legislators to advance a package of reforms we call the Keystone Manufacturing Initiative. Support continues to grow for this forward-looking agenda, and we will continue to advance these important reforms until each and every one is enacted into law.

Manufacturing is the engine that drives Pennsylvania’s economy, generating over 16 percent of Gross State Product and creating more than $75 billion in wealth every year. Manufacturing adds the most value, has the strongest multiplier effect on economic growth, and offers some of the best wages and benefits in the marketplace. The manufacturing sector directly employs nearly 670,000 Pennsylvanians, upholding the quality of life for families and communities across our commonwealth.

Manufacturing is the top of the economic food chain and the steep, unrelieved loss of manufacturing jobs is a danger sign for Pennsylvania’s well being.

Why is Pennsylvania’s economic performance so much weaker than the nation’s? National competitiveness rankings illuminate some of the problem areas: the Pacific Research Institute compiled a Tort Liability Index that found Pennsylvania to be 47th in the nation for a business-friendly legal climate. Partnering with FORBES magazine, the California-based think tank calculated an Economic Freedom Index, which found Pennsylvania to be 45th in the nation in ease of regulation for starting a business. In its most recent study, FORBES ranked the Friendliest States for Business, with Pennsylvania placing 41st. The survey named neighboring Virginia as the best in the nation and ranked nearby North Carolina as third best.

Why is Pennsylvania less competitive than other states? Because of the public policy decisions made by our state government in Harrisburg relative to the decisions made by elected officials in competitor states. Pennsylvania is first into recession and last into recovery because of overregulation, lawsuit abuse, a hostile labor climate, and high business taxes caused by state government overspending.

Pennsylvania imposes taxes on business revenue (the Corporate Net Income Tax or CNI) AND business assets (the Capital Stock & Franchise Tax or CSFT), while most states only rely on one or the other. Even states that assess both taxes usually only require a business to pay whichever one is higher for them that year. But Pennsylvania assesses both taxes, collects both taxes, and has among the highest rates in the nation for both taxes. If the twice-delayed phase-out of the CSFT isn’t postponed further, the business assets tax will be eliminated in 2011. We’ll see.

Beyond the high CNI rate of 9.99 percent, the tax has at least two major structural liabilities that make the tax worse. First, CNI liability is assessed on in-state sales, in-state hiring, and in-state infrastructure, which means employers give themselves a tax increase every time they hire another Pennsylvanian or expand their Pennsylvania facilities. This antiquated tax structure dates back to the economy of the late 19th Century and early 20th Century when coal mines, oil wells, and timber operations were mainstays of our economy. State government needs to modernize by adopting a sales-only formula for CNI.

The other glaring structural problem with the CNI involves the treatment of business losses. Under the federal tax code and tax law in 48 states, businesses are allowed to apply the fullness of their recent business losses against their current and near-future tax liability. This practice, known as Net Operating Loss carryforward, is critical for start-up companies and cyclical industries that don’t earn a profit in tidy twelve-month chunks. Unfortunately, Pennsylvania is one of the two states to limit this standard business practice. Again, state government needs to modernize by eliminating the cap on NOL carryforward.

In the realm of lawsuit abuse, Pennsylvania is one of only a few states to fail to reform the “deep-pockets rule” known as “Joint & Several liability,” which can require a party that may only be one percent responsible for an injury to pay one hundred percent of damages. In 2002, the legislature passed and then-Gov. Mark Schweiker signed the Fair Share Act, which – with certain exceptions – established a system of proportional liability where someone less than 60 percent responsible for an injury could only be required to pay a percentage of damages equal to that party’s percentage of responsibility.

When the Fair Share Act was invalidated by the state courts on procedural grounds, the General Assembly approved an identical bill, which Gov. Ed Rendell then vetoed. And so, the “deep-pockets rule” remains on the books in Pennsylvania while businesses in other states are protected against being plundered by personal injury lawyers.

In his January 2003 inaugural address, Gov. Ed Rendell vowed “to make state government live within its means”. However, according to an Associated Press analysis of state budget data, “state spending during Gov. Ed Rendell's first three years in office increased faster than the national average, while his first-term spending is projected to be just shy of the two-decade peak set by the late former Gov. Robert P. Casey. Counting the budget for the current fiscal year, which Rendell just signed [July 2006], the state's general fund budget has grown by $5.7 billion, or 28 percent, since he took office in 2003.”

The General Assembly must end the cycle of overspending and overtaxing by slamming the brakes on the escalating cost of government. Other important reforms are needed but fiscal discipline is the first and most necessary step. Enactment of a “Taxpayer Bill of Rights” would achieve this goal by setting real-world limits on how fast state government can grow, thereby making sure Harrisburg can’t spend money faster than the taxpayers can earn it.

These challenges to our prosperity are specific and they have specific solutions; it is within our power to improve our situation. There is no reason why Pennsylvania cannot build a dynamic, pro-growth future worthy of our unparalleled industrial heritage. As President Reagan said in his first inaugural address, “We're not, as some would have us believe, doomed to an inevitable decline. I do not believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing.” Business-as-usual in Harrisburg is the “nothing” Pennsylvanians must no longer tolerate.

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Founded in 1909, the Pennsylvania Manufacturers’ Association is a statewide trade organization representing the interests of the manufacturing sector in Pennsylvania’s public policy process. www.pamanufacturers.org