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Hunting for
Taxpayers: Pennsylvania's Big Game Sport
by Grant R. Gulibon
This fall, the newest Cabela's outdoor superstore-described by a company
marketing specialist as "a retail store wrapped up in a museum wrapped up in a
restaurant"-opened in Berks County, Pennsylvania. The 250,000-square-foot
complex includes a 55,000-gallon walk-through aquarium, a Deer Country museum,
an indoor archery range, a man-made lake and walking path, and a 30-foot,
two-story "Conservation Mountain" replica complete with waterfalls, streams, and
a trout pond.
However, not everyone is eagerly anticipating Cabela's opening
day-complete with a ribbon-cutting ceremony attended by Gov. Ed Rendell. A
number of much smaller sporting goods and outdoor store owners in the area are
concerned about their gigantic new neighbor's impact on them. But it isn't the
competition itself that many of these small business owners are most upset
about-it's the fact that they will be forced to subsidize a new competitor with
their own tax dollars. That's because the state, along with local
municipalities, promised Cabela's $27 million in taxpayer funding-nearly half
the $59 million cost of the
facility.
Randy Campbell, owner of Triple Creek Rod & Gun in Perry County, summed up the
fundamental problem with the Cabela's deal in a recent newspaper article: "I
don't have a problem with the competitive aspects of business. I don't begrudge
anyone going into business." But, he
argues, the small entrepreneur is "never put on a level playing field.
The deck is stacked against us"-and big companies (like Cabela's) "have the
money to pay lobbyists." In other words, the squeakiest-and
biggest-business "wheels" get the taxpayer-funded "grease," while the
smaller, less-politically connected firms are expected to keep quiet
while they pay their taxes-taxes, as in the Cabela's deal, that are
redistributed to competing businesses.
Nevertheless, supporters of the Cabela's deal-primarily
politicians-argue that the store will be an economic generator that will
easily recoup any "investment" made by taxpayers, and that the ultimate
winner in any competition that results will be the customer.
But in calculating the economic impact of such taxpayer-subsidized
projects, a number of hidden costs are often ignored-and the benefits of
such projects are therefore overstated. Rarely considered are factors
such as the impact of subsidized development on existing businesses, the tax
burden required to pay for the subsidies, the lobbying and other
costs of obtaining the subsidies for the recipient business, and the
fact that Pennsylvania and many of its local governments have also, at
times, lost out when attempting to use subsidies and other inducements
to lure companies. Once all of these costs are considered, it is highly
questionable as to whether or not subsidizing Cabela's-or other private,
profit-seeking businesses-will be a "winning" proposition for the people
of Pennsylvania.
A look at this larger, more complete picture would yield a more
realistic, less rosy assessment of whether or not a taxpayer-funded
economic development strategy is a wise one for Pennsylvania.
Unfortunately, governments engaged in these projects do not usually
conduct a rigorous analysis of whether or not the development that does occur
would have happened in the absence of their intervention. In fact, contrary to
the conventional economic development wisdom, studies do show that incentives
are generally not the deciding factor in
business location decisions. This means that many of the scarce tax
dollars that are supposedly helping wavering companies make up their
minds about where to locate simply allow private investors to make an
even greater return on investments that they would have undertaken in
any case. By offering taxpayer-funded subsidies to companies that do
not "need" them, states feed a vicious cycle of corporate welfare.
Still, development officials often claim that they have no other choice
but to offer subsidies-especially in states, like Pennsylvania, that
have generally poor overall business climates characterized by high
business taxes. That is the attitude of the Rendell Administration,
which continues to tout a $2 billion "economic stimulus" plan that
relies heavily on taxpayer-backed bonds to provide "venture capital" to
private businesses.
However, forcing Pennsylvania families and businesses to pay for the
incentive packages used to attract competing companies-from inside or
outside the state-only serves to move the state's business climate from
bad to worse. This is borne out by the fact that despite Pennsylvania's
generous recent economic development expenditures, which as recently as 1998
ranked first overall among the states and 5th on a per capita
basis, the Commonwealth still lags its competitors in terms of
employment, population, and income growth.
As a visitor and shopper experience, the new Cabela's will likely be all
that its promoters promise. But hunting for taxpayer subsidies will
never be a successful strategy for reviving the business and economic
climate of Pennsylvania. Instead, policymakers should level their
sights on the "big game" of high taxes and burdensome regulations that
keep jobs out of the Commonwealth.
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Grant R. Gulibon is senior policy analyst at The Commonwealth
Foundation, a free-market public policy research and educational
institute based in Harrisburg. For more information, visit
www.CommonwealthFoundation.org.
PDF version of this Commentary can downloaded at
www.CommonwealthFoundation.org/economy/c03-18.pdf.
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