May 28, 2024

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Pennsylvania governor wants big bond bet on site development

3 min read
Pennsylvania governor wants big bond bet on site development

Companies don’t want to move to Pennsylvania, Gov. Josh Shapiro said in his budget address.

Mainly, because it’s too hard to move in.

Intel notoriously passed over Pennsylvania , the bonds would be issued on behalf of the Department of Community and Economic Development and debt service payments would be subject to annual appropriations by the General Assembly.

The money would go to the DCED to distribute through PA SITES, with the first $300 million between 2024 and 2025. 

Smith, who works with the administration through RIDC and served on the governor’s economic development transition team, said DCED is already working on the proposal as it waits for the budget to pass in June. 

Through RIDC, Smith knows that site development can be a “speculative” endeavor, especially on a large scale. 

In 1978, for instance, Volkswagen was looking to build a factory in the U.S., and Pennsylvania offered incentives worth nearly $100 million – at that point, the richest corporate deal in the commonwealth’s history. Volkswagen agreed to spend $250 million building its factory in an unfinished Chrysler plant and the surrounding farmland in Westmoreland County. 

The deal was supposed to create 5,700 jobs, sorely needed in a region with an economy declining alongside the coal industry. But by 1981, sales for the Rabbit – then the plant’s only car – were lagging, and Volkswagen began furloughing employees. 

The plant produced its last car in 1988.

Volkswagen left Pennsylvania around the time its government benefits dried up. Sony moved into the plant in 1990, and for a time kept the local economy going producing TVs. But after a string of layoffs, Sony left in 2008. 

Today, RIDC owns the plant and leases sections of it to various smaller companies. If Pennsylvania wants to avoid repeating the past, Smith said, the commonwealth should be discerning in which companies it offers incentives to. 

“A big part of it is understanding why your location is a good fit for the company. If it just comes down to cheap land or big incentives, at some point there’ll be cheaper land or a bigger incentive somewhere else,” Smith said. “But if you are really targeting companies that fit well with your workforce, and your educational infrastructure … as long as there’s an economic reason for them to stay, they’re going to stay.”

The Shapiro administration will have a lot of choices about how it spends the $500 million. The only specifics mentioned in the budget is that the funds will go toward “priority industries, such as agriculture and manufacturing.”

Although developing smaller sites is faster and has a higher likelihood of a return on investment, Smith said, he would like to see the majority of the grants go to larger sites with 25 to 50 acres. 

The administration will also have to decide how long they’re willing to wait for sites that receive grants to develop. Smith said he would stipulate that most sites supported by the program should be shovel-ready within two years, but there are some sites with potential in Pennsylvania that could take the better part of a decade to develop.

With interest rates so high and banks feeling the investment is too risky, many big sites won’t be developed without government grants. The economic stimulus from these sites begins during construction, long before a plant is operational, Smith argued. 

“There are a lot of sites where this kind of investment could definitely result in pad-ready sites being available [within] 18 to 24 months,” Smith said. “Once there’s confidence in the company, that you will be ready on their timeframe, you’ll start to see some of these investments happen… We can see new investments and new facilities and new jobs being created with these funds.”

The $500 million, which Smith said was “a great start,” would go a long way in Shapiro’s competition with Ohio. Last year, Ohio announced $750 million in zero-interest site development loans, some of which are forgivable. 

“There’s really no obvious lagging of employment growth in Pennsylvania compared to Ohio. So I’m not exactly sure where that’s coming from,” Briem said. “Those public comments, I think, are coming on the heels of just the one announcement about Intel. Everyone saw this big Intel plant — which is delayed.”

The Ohio Intel plant, the company announced in February, will not open in 2025 as scheduled. It may take an additional two years.