Audit: PA handed out $93 million to businesses that missed job projections

By Andrew Staub |PA Independent

HARRISBURG, Pa. — A state audit released Wednesday shows Pennsylvania taxpayers haven’t got a lot of bang for their economic development buck.

Over a three-year period, Pennsylvania directed $93.5 million in economic development money to businesses that failed to create or retain the number of jobs they promised in exchange for the public assistance they received from state taxpayers, according to that audit.

The finding was part of a broader examination of $212.9 million in grants and business-friendly loans doled out from 2007 through 2010. Auditor General Eugene DePasquale initiated the audit last year, scrutinizing just five of the Department of Community and Economic Development’s myriad available incentives.

“We’re not saying that anybody did anything inherently wrong. We should be looking to examine why that happened and what needs to be done to fix it,” DePasquale said in comments that shifted between a discussion of the empirical evidence and his philosophical viewpoints on economic development.

The auditor general focused most of his attention on the finding that 44 percent of 600 contracts awarded to 582 businesses went to entities that didn’t meet job projections.

DCED Secretary C. Alan Walker latched onto another statistic — that in the midst of the second-largest economic downturn, businesses created or retained 133,329 of the 137,749 jobs pledged, or 96.7 percent of the projections.

Those more flattering numbers were accurate, DePasquale said, but he added that businesses self-reported those job figures and the statistics couldn’t be independently confirmed.

DCED spokesman Steve Kratz said the department was “confident in those numbers.” Based upon a prior audit’s suggestion, DCED requires two signed affidavits from high-ranking company officials verifying jobs were created or retained.

“We feel that having those signed affidavits that company officials wouldn’t put themselves at risk by lying,” Kratz said.

The audit also didn’t stipulate the degree to which businesses missed their marks, making it unclear whether the 44 percent in that category failed by 10 jobs or 100. While DCED was working on compiling that information Wednesday afternoon, Kratz urged a more holistic examination earlier in the day.

“If a business said they’re going to create 100 jobs and they created 99, do you really look at that as a negative?” he asked.

Susan Woods, a spokeswoman for the auditor general, said if a company finished a couple jobs off its mark, DCED generally considered it in compliance, meaning it wasn’t included within the 44 percent. There were 20 such cases, she said.

The audit didn’t name businesses that missed projections, but DePasquale said the intention is to improve programs, not “call out” companies. He instead directed most of his criticism toward DCED, saying the agency needs to improve oversight and transparency over its programs.

DePasquale also defended the programs, even while acknowledging a “pretty healthy part of the democracy” would like to see incentives eliminated. Doing that would be “dumb” given the need to compete against the rest of the country, he said.

“You can’t unilaterally disarm,” DePasquale said. “So unless there’s a deal from 49 other states, and I would recommend if there is, I would recommend Pennsylvania sign that document. But until that day happens — and I will not hold my breath — these tools are critical for job creation.”

The conservative Commonwealth Foundation, a free-market think tank in Harrisburg, takes the opposite view.

Elizabeth Stelle, the director of policy analysis for the foundation, cited the Council for Community and Economic Research’s finding that Pennsylvania has spent more on economic development than any other state over the past eight years. And states that spend the most on subsidies don’t always see their economies growing faster, she said.

“The auditor general’s report clearly demonstrates that taxpayers aren’t getting their money’s worth when it comes to these economic development programs,” Stelle said, adding that subsidies could be replaced with tax relief for all businesses.

The audit covered the Opportunity Grant Program, Customized Job Training, Infrastructure Development Program, Small Business First and the Pennsylvania Industrial Development Authority. Since Gov. Tom Corbett took office in 2011, those programs have been rolled into a single program known as Pennsylvania First.

While DePasquale’s audit drew attention to shortcomings, he stopped short of tabbing the incentives as waste within DCED, a department he also praised for its work and cooperation with his examination.

“I know that they’ve done good work,” he said, “and I think we just need to get better at it.”