Alan Blinder and Mark Zandi have a new paper “How the Great Recession Was Brought to an End” in which they estimate the impact of all the recent efforts by the government to rescue the economy. Blinder and Zandi conclude policy actions by the Federal Reserve, programs like the Troubled Asset Relief Program (TARP) as well as the Recovery Act likely prevented the 2nd Great Depression.

It is understandable that the still-fragile economy and the massive budget deficits have fueled criticism of the government’s response. No one can know for sure what the world would look like today if policymakers had not acted as they did—our estimates are just that, estimates. It is also not difficult to find fault with isolated aspects of the policy response. Were the bank and auto industry bailouts really necessary? Do extra UI benefits encourage the unemployed not to seek work? Should not bloated state and local governments be forced to cut wasteful budgets? Was the housing tax credit a giveaway to buyers who would have bought homes anyway? Are the foreclosure mitigation efforts the best that could have been done? The questions go on and on. While all of these questions deserve careful consideration, it is clear that laissez faire was not an option; policymakers had to act. Not responding would have left both the economy and the government’s fiscal situation in far graver condition. We conclude that Ben Bernanke was probably right when he said that “We came very close in October [2008] to Depression 2.0.”

Well sort of, they have hired a Penn State professor to speak on their behalf.

Tim Lambert and Radio Pennsylvania report:

The $8,000 federal tax break that expired in the spring helped fuel strong home sales across the commonwealth in the first half of the year. The latest data shows sales were especially strong in February, March and April. Austin Jaffe, a real estate economics professor at Penn State, serves as a consultant to the Pennsylvania Association of Realtors. He says he sees evidence that home prices have bottomed out. “First quarter 2008, first quarter 2010, prices on average have fallen a bit about six percent,” he says. “But in recent months, they’ve reversed that trend and I believe that we’re going to start seeing some flat or moderate price increases.” Jaffe says he’s not convinced the housing market is experiencing a sustained recovery, noting there’s concern sales in the state will be significantly lower in the third and fourth quarters. He adds since the housing market has become more dependent on the overall economy, positive employment news could boost demand.

We will not get data for the second quarter of 2010 until August. I would agree the housing market in Pennsylvania is by no means out of the woods. Interesting to see if there is a surge in home refinance activity as interest rates reach new lows. Here are trends in housing prices in PA through the first quarter of 2010.

Here is my full summary of housing price data for the first quarter of 2010.

A new report from EPI in Washington, D.C. illustrates the dual  benefits that are achieved by providing Unemployment Insurance (UI)

The first benefit of providing UI is that it assists the individual worker by replacing a  fraction of their lost income so that the unemployed can purchase the necessities that help them maintain a portion of their regular standard of living. Those purchases include but are not limited to rent,  groceries, electricity, gas, and other necessities. And this spending is what generates the second benefit of UI in that it helps preserve and expand employment. 

The impact of  unemployment compensation (UC) programs including regular benefits which are automatic and the Recovery Act programs which included extended weeks, extra weekly benefits, and COBRA was to expand employment by 1.7 million. Figure A below demonstrates the impact of each UC program on the UC system.

The US Employment and Training Administration has released new data on unemployment claims in Pennsylvania.

This release is showing improvements for Pennsylvania in the month of June and furthermore, demonstrates a 32% decline in UI claims compared to last June. However, while that is considerable progress there is still room for improvement as UI claims are still 22% above pre-recession levels from June 2001 to June 2007.

Economist Dean Baker of the Center for Economic Policy and Research, demonstrates how government regulations have no influence on buisnesses propensity to hire.

Like the school kid who is always coming up with silly excuses for not doing their homework, corporations always blame the government for their failures. Lately they have been whining that the reason they don’t hire more workers is the uncertainty created by government regulations. The Washington reported these complaints on the front page.

While the article did present the views of some economists, there is actually a very simple way to disprove the businesses’ claim. The number of hours worked per worker has plunged in this downturn and risen only modestly from its lowpoint. The current average of 34.1 hours is almost 2 percent lower than the 34.7 avearge in December of 2007, the month the recession began.

If firms would otherwise hire workers but are being discouraged by uncertainty or regulations then the number of hours worked per worker should be increasing, not decreasing. Firms would be working their existing workforce longer rather than hiring new workers. Since firms are actually using their existing workforce less, this implies that the problem is a lack of demand pure and simple.

Businesses pay their lobbyists lots of money to develop stories that will make regulations more pro-business. Reporters should be able to assess these arguments, not just pass along to readers any silly story that a lobbyist can dream up.

One of the few actual pieces of peer reviewed research the Commonwealth Foundation likes to cite as evidence of why you shouldn’t extend unemployment benefits is a paper by Lawrence Katz and Bruce Meyer:

“A very recent study [link is to paper by Lawrence Katz and Bruce Meyer which was published in 1990] finds that each week UC benefits are extended increases the average duration of unemployment by recipients by 0.2 weeks.”

And here is Dr. Katz on his “very recent” research from 1990 from what I guess would be very very very very very very very very recent testimony before the Joint Economic Committee on April 29, 2010 (full testimony).

“A key component of policies to assist the long-term unemployed and their families is the continuation of (emergency) extended unemployment insurance (UI) benefits. Some analysts — such as Mulligan (2010) – argue that the disincentive effects of the UI extensions themselves have contributed to rising long-term unemployment. But the most compelling research suggests only modest impacts of UI extensions on the search effort and duration of unemployment of unemployment insurance recipients (Card and Levine 2000; Schmieder, Von Wachter, and Bender 2009). Furthermore, previous estimates of larger impacts of unemployment durations of UI extensions for the United States (Katz and Meyer 1990) are based on data from the 1970s and early 1980s in with much of the responsiveness coming from firms and industries using temporary layoffs and the sensitivity of recall dates to unemployment insurance benefits. This layoff-recall process is much less important today than it was in the 1970s and early 1980s downturns. Unemployment insurance extensions also have important consumption smoothing benefits for the unemployed (Gruber 1997) and much of the impact on job search comes from reducing liquidity (credit-constraint) problems rather than traditional job search disincentives (Chetty 2008). Traditional microeconomic estimates of the impact of UI on the unemployment durations of UI recipients further tend to overstate the aggregate impact by ignoring the spillover effects of shorter unemployment spells for the other unemployed workers no receiving UI benefits (Levine 1993). They also ignore the macroeconomic stimulus impacts of increased consumption expenditures by the unemployed from UI raising aggregate demand and labor demand during a deep recession as well as the gains from keeping more of the long-term unemployed attached to the labor market rather than moving onto disability programs.”

Let me just add that I’m very very very very very impressed by the quality of research at the Commonwealth Foundation!

The Commonwealth Foundation had some trouble this weekend defending Republican gubernatorial nominee Tom Corbett who is under fire for a campaign gaffe in Elizabethtown where as reported by Scott Detrow he said:

“the jobs are there,” but that many people are purposely remaining unemployed, in order to collect benefits. He says he’s heard this from business owners across Pennsylvania. “One of the issues, and I hear it repeatedly – one of the individuals said, ‘I can’t get workers. People don’t want to come back to work while they still have unemployment.’’ He said. “They’re literally telling him, ‘I’ll come back to work when unemployment runs out.’ That’s becoming a problem.”

The Commonwealth Foundation an organization that normally has no qualms denying the perils of climate change, or trumpeting the wisdom of NOT taxing tobacco or promoting the economic contribution of Pennsylvania puppy mills was at a loss on how to directly defend Corbett’s statement and simply noted:

“Corbett is wrong to say “the jobs are there”…”

The immediate and justifiable reaction to Corbett’s claim was to fault his insensitivity towards people who have suffered a great deal for reasons beyond their control.

But as the Commonwealth Foundations inability to mount a defense of “the jobs are there” line illustrates the other problem with Corbett’s statement is that it betrays a startling lack of familiarity with the facts on the ground.

As of May 2010 employment in Pennsylvania remains 3% or 184,000 jobs below its level in December 2007. At a comparable point in the two previous economic recoveries employment was just under 2% below its peak levels. And critically the number of unemployed workers per job opening remains substantially higher than normal.

As you can see above the quote taken from the Commonwealth Foundation is not complete they go on to argue that there is some econometric evidence that in general the longer the period of benefits the longer workers take to find a job. Harvard economist Raj Chetty has some new research that explains those earlier findings which you can see here and hear about here (part 1) and here (part 2). But however you interpret the impact of unemployment insurance on the duration of unemployment the incentive effects of the system are not relevant to the current situation; currently there are 5 unemployed workers available for every new job opening.

The length of time that workers can receive unemployment benefits is typically limited but those limits are extended during a recession precisely because there are not enough jobs being generated in the economy for all of the workers who have lost jobs to find employment even if they took the first job offered to them. It is only after the job market has made substantial progress towards recovery that you want to begin cutting back on the number of weeks that workers can collect unemployment benefits. If you cut benefits before the economy has created a substantial number of new jobs you risk derailing the economic recovery because absent unemployment benefits jobless workers stop spending money and that has the potential for setting off a new round of mass layoffs.

While unable to directly defend Corbett’s claims the Commonwealth Foundation did manage to expand upon Corbett’s claim that unemployed workers are abusing the system. In Corbett’s version he argued that he has been told by some unnamed construction contractors that they have workers that have refused to come back to work until their unemployment checks run out. On its face this claim makes little sense because unemployed workers get an income that is about half of their salary prior to being laid off. Since most workers spend all or almost all of their income a job loss implies a substantial decline in their standard of living. Most people would not turn down a return to their higher salary unless they were looking to change industries or occupations.

The Commonwealth Foundation adds a twist to Corbett’s story and claims that it has evidence of employers conspiring with workers to defraud Pennsylvania taxpayers:

“Anecdotally, we are hearing much of the same things from businesses: that employees are refusing jobs – or in some cases asking to be paid under the table to avoid losing unemployment benefit.”

Neither Republican gubernatorial nominee Tom Corbett nor the Commonwealth Foundation has offered any evidence of widespread abuse or fraud of the unemployment insurance system beyond vague assertions reportedly coming from unnamed construction contractors or things the Commonwealth Foundation staff have overheard at a tea party rally. In fact at the last Harrisburg tea party rally I remember there was a sign that equated Ed Rendell with Hitler and another that asked everyone to repent because the Day of Judgment is upon us. Interesting expressions of free speech but hardly are such wild claims the basis for making policy.

For more on the what economists know about the effects of unemployment employment insurance on the duration of unemployment here is a link to series of short videos that summarize the research.

Republican gubernatorial nominee Tom Corbett explains how he knows that unemployed workers are choosing to stay unemployed rather than accept paid employment – some anonymous employers told him so:

“The jobs are there. But if we keep extending unemployment, people are going to sit there and – I’ve literally had construction companies tell me, I can’t get people to come back to work until…they say, I’ll come back to work when unemployment runs out.”

Since candidate Corbett often discusses the state budget without mentioning that state tax revenues have been decimated by a severe recession he may indeed not be aware that we just went through a very deep recession. As the following figure illustrates the amount of job loss was more than twice as large as what occurred during the previous two recessions.

Candidate Corbett is also probably not aware that this recession has not punished every industry to the same degree. As the next figure illustrates construction in particular has been hit hardest since the start of the recession in December 2007 as both residential and nonresidential construction have declined in the wake of the collapse of the national housing bubble.

Employment in residential construction in Pennsylvania started declining even before the recession officially began.

Measuring the decline in construction employment from its peak in June 2007 to what for now is a trough in February 2010 one in five construction or 51,600 workers have lost their job. Over the past three months this sector has added 6,500 jobs. A very rough back of the envelope calculation suggests that there were nearly 8 unemployed construction workers available to fill every one of those new jobs.

Many of those workers will have been unemployed for more than six months and assuming they qualified for unemployment insurance they have been living off an income that is just about half of what they earned while working. Like most workers, construction workers have little in the way of liquid savings and they have mortgages and other bills which are not easily reduced by half after a job loss.

So the bottom line is there is something very fishy about the story candidate Corbett has told. Who are these employers that claim they have workers refusing employment? Are they real employers or are they business lobbyists?

The Pennsylvania Budget and Policy Center (PBPC) has released a detailed analysis of the 2010-11 state budget that was signed into law this week.

The budget sets state spending at $28.043 billion, which includes $25.3 billion in state dollars and $2.75 billion in state fiscal relief provided by the federal Recovery Act. Overall General Fund spending is increased slightly over available 2009-10 budget levels, but this budget still uses fewer state dollars than were spent in 2006-07.

Funding is increased to meet mandated expenditures for public health care and corrections and to maintain investments in education, but the budget offsets those increases with cuts to numerous other services, including early childhood services, human service programs, environmental protection, agricultural programs, libraries and state parks.  Budget cuts are also expected to add to job losses in the public and private sector.

The budget does not include any additional recurring revenue sources. Legislative leaders have agreed to enact a severance tax on natural gas extraction in the Marcellus Shale by October 1, which will go into effect January 1, 2011, but revenue from the tax is not counted in the budget. Lawmakers did not enact an excise tax on smokeless tobacco and cigars, close corporate tax loopholes, or eliminate the sales tax vendor discount, as was proposed by Governor Rendell.

Spending is supported through a projected 3.3% increase in revenue, transfers from special funds, and other one-time revenue sources, including federal FMAP funding that is now in jeopardy.

FMAP refers to the federal percentage of matching funds for state Medicaid expenditures. The American Recovery and Reinvestment Act of 2009 enhanced the FMAP for states through December 2010 to help address a recession-driven decline in state revenues. President Obama proposed extending the FMAP funding to states through June 2011, but legislation to do that has stalled in the U.S. Congress.

If Congress fails to approve the additional funding, Governor Rendell and state legislative leaders will have to identify further cuts to critical human services including public health care, child protective services, and mental health services.

PBPC has prepared Congressional district-level fact sheets that show how many Pennsylvanians benefit from the federal FMAP funds. The fact sheets detail the number of Pennsylvanians receiving Medical Assistance and other critical human services funded by FMAP dollars, and the economic impact in the health care sector created by funding those services.

In the State of Pennsylvania 120,000 unemployed workers prematurely exhausted unemployment benefits as of July 3rd due to the Senate’s failure to pass  legislation that would extend unemployment benefits for those workers, their families, and the broader economy.

Data from the U.S. Department of Labor suggest that at this rate the number of unemployed workers that would exhaust unemployment benefits would  increase by the thousands every week.  Another  27,000 unemployed  workers would exauste their UI benefits by  July10th,  another 26,800 by July 17th, for a total of 107,200 by the end of the month.

To weaken the impact of a tough job market extending unemployment compensation is the most reasonable thing we can do, it’s also tremendously stimulative to the economy. Estimates by Economic Policy Institue show that the expansion of UI benefits since has generated 1.5 million full-time equivalent jobs in the economy. Until the Federal Government intervenes unemployed workers and the greater economy can only look forward to a growing body of negative consequences.

The Bureau of Labor Statistics (BLS) released new data last Friday on the employment picture for the month of June. Total nonfarm payroll employment declined as the Census Bureau laid off 225,000 temporary employees. Although total employment was down private sector payrolls did increase in June by 83,000.

What follows are the major points taken from analysis of the data released last Friday by leading labor economist.

Heather Boushey, of the Center for American Progress notes the risk posed to the economy from failing to extend unemployment benefits.

“These workers are losing their unemployment benefits right now due to the Senate’s inability to pass the necessary legislation. Without delay, unemployed workers need extended unemployment benefits, both for themselves and their families, and the broader economy

The current number of long-term unemployed workers without benefits will drive down private sector hiring, drive up the federal deficit, and cost many currently employed Americans their jobs, too…

Without unemployment benefits, workers who lost their jobs through no fault of their own will have no cash in their pockets, will not be able to go to their local grocer for food, and will have trouble paying their rent or mortgage. As a result, businesses will be seeing fewer customers this holiday weekend, which will stymie employer’s nascent thoughts of hiring new employees or adding hours for the employees they have. Employers may even have to engage in new rounds of layoffs. On top of this, without benefits, current and possibly future unemployed Americans will owe even less in taxes, cutting back government revenues.”

Heidi Shierholz, of the Economic Policy Institute highlights that the share of unemployed workers who have been unemployed for more than 6 months now stand at 45%. To make matters worse, there are five unemployed workers per job opening.

“Demographic breakdowns show that while all major groups have experienced increased unemployment in this downturn, some groups got hit particularly hard: racial and ethnic minorities, young workers, men, and workers with lower levels of schooling.”

Dean Baker, of the Center for Economic and Policy Research paints a depressing picture of a weak economy.

“College grads seemed to do well last month with their EPOP rising by 0.2 percentage points and their unemployment rate falling by 0.3 percentage points to 4.4 percent, the lowest level since April of last year.”

“The manufacturing sector added just 9,000 jobs in June, after adding 70,000 over the prior two months. With the workweek shortening by 0.5 hours, there is little reason to expect robust hiring. Construction lost another 22,000 jobs, mostly in the non-residential sector. This decline is likely to continue, although possibly at a slower pace.”

“With state and local governments cutting back to deal with deficits, house prices falling again, and wages not keeping pace with inflation, there is little hope for a robust growth any time soon. It is likely that the unemployment rate will rise in the second half of the year.”

The state Legislature is expected to pass a 2010-11 budget plan today that includes millions in cuts to health and human services, early childhood programs and other children’s services, agricultural programs, environmental protection, libraries and state parks. The state Senate has already approved it, and the House is expected to do the same today.

The Pennsylvania Budget and Policy Center (PBPC) has done a preliminary review of budget line items provided by the Pennsylvania House Appropriations Committee. According to the committee, state General Fund spending in 2010-11 is set at $28.043 billion, an increase of less than 1% from the current year. This is slightly lower than the $28.052 billion spending figure the Governor announced on Tuesday.

Despite the slight overall spending increase, the budget contains many cuts to offset rising mandated expenditures. Governor Rendell has said budget cuts will require 1,000 state employee layoffs.

The budget calls for the enactment of a severance tax on natural gas production in the Marcellus Shale, which is good news for Pennsylvania. The Legislature has until the fall to work out the details on the tax, which would go into effect in January. There are still many details to work out, including the actual structure of the tax, the rate and the distribution of funds. We are very concerned about efforts by industry lobbyists to add exemptions to the severance tax. As PBPC noted in a report last week, two-thirds of the gas extracted from a typical Marcellus Shale well would be exempted from the tax with exemptions supported by the industry. Lawmakers should not give in to industry demands for tax breaks. The rich gas reserves in the Marcellus Shale and its proximity to lucrative gas markets in the Northeast are already attracting oil and gas producers like ExxonMobil, Shell and Range Resources, which recognize the shale’s profit potential.

Unfortunately, the budget plan leaves several other recurring revenue sources – including an excise tax on cigars and smokeless tobacco – on the table and relies heavily on one-time funds. Among those one-time funding sources is $850 million in extended FMAP funds that have not yet been approved by Congress. The Governor said that if Congress fails to approve the FMAP funding, he and legislative leaders will have to identify additional cuts in the budget.

The budget will likely put Pennsylvania in bad shape for the 2011-12 fiscal year when the state will have to deal with the loss of federal stimulus funds.

Want to learn more? Click here for PBPC’s brief budget overview, highlighting mostly cuts and a few increases in funding levels for education, health and human services, corrections, environmental protection, economic and community development, conservation and agriculture.

View a table detailing spending levels by state agency.

You can also access more detailed tables on funding for education, health care, economic development, workforce training, conservation, corrections, environmental protection, the arts, and more.

“The Economic Development and Fiscal Accountability Act”

Joint Hearing of the Senate Community, Economic, and Recreational Development Committee and the House Finance Committee

June 29, 2010

My name is Stephen Herzenberg. I hold a PhD in economics from the Massachusetts Institute of Technology. I am also the Executive Director of the Keystone Research Center, the mission of which is to promote a more prosperous and equitable Pennsylvania.

I appreciate the opportunity to testify this morning before this joint hearing of the Senate Community, Economic, and Recreational Development Committee and the House Finance Committee.

Let me begin by thanking Senator Pat Browne, Representative David Levdansky, and Senator Jane Earll for their leadership on the issues of economic development transparency and accountability.

My testimony divides into three parts. The first part underscores the objective need to strengthen economic development accountability and transparency. The second presents evidence that Pennsylvania has an opportunity to build on a strong position, relative to other states, when it comes to disclosure and also when it comes to smart targeting of business subsidies to places that make sense. The third part of this testimony addresses some of the differences that remain regarding accountability legislation. Given the level of consensus that exists on the substantive issues at the heart of the two bills under discussion today, the Pennsylvania legislature has an opportunity to enact reforms that would make Pennsylvania a national model in the area of economic development and accountability.

The Need to Strengthen Economic Development Accountability. Accountability needs to be strengthened because it is not currently adequate. To establish this, Keystone Research Center reviewed the current state of accountability in a report released in March (Good Jobs, Strong Industries, a Better Pennsylvania: Towards a 21st Century State Economic Development Strategy, online at http://keystoneresearch.org/sites/keystoneresearch.org/files/KRC2010report_0.pdf).

For nine major Pennsylvania business subsidy programs, pages 31 to 33 of Good Jobs, Stronger Industries consider three dimensions of accountability: (1) transparency and disclosure, (2) post-grant monitoring, and (3) “recapture” provisions. (Recapture—or “clawback”—provisions require companies to repay all or part of a subsidy if they fail to deliver on up-front job creation and wage commitments.)

Improved disclosure is essential because it makes it possible for citizens and researchers to see how public subsidies are being used and to analyze whether this distribution makes sense.  The current state of disclosure makes it impossible to tell whether Pennsylvania’s subsidies are targeted sensibly based on place, job quality, and industry. That is, we cannot determine whether subsidies

• go to locations that use existing infrastructure and are accessible to high unemployment communities where people most need jobs;
• result in creation of decent-paying jobs; or
• are awarded to businesses in industries that make sense—i.e., to industries within which regions have a realistic possibility to enhance competitive strength and increase self-sustaining job growth without further subsidies.

With regard to post-grant monitoring (e.g., do companies actually create promised jobs?) and to the adequacy of recapture provisions, our review relies on recent reports by the Legislative Budget and Finance Committee and the Auditor General. These reports documented a need for better monitoring and increased recapture.

To its credit, the Department of Community and Economic Development has demonstrated an internal commitment to improving post-grant monitoring and, in the case of the one program for which data exist (the Opportunity Grant program), has increased recapture of money from companies that fail to create promised jobs. (Whether recapture from other programs has also increased we do not know because of a lack of information.)

Pennsylvania Can Build on Strength to Become a National Leader in Economic Development Accountability and Smart Targeting of Subsidies. While Pennsylvania needs to strengthen accountability, it is important to note that the starting point for greater accountability is significantly better than average. Both the Ridge and the Rendell Administrations deserve credit for this.

Good Jobs First, the national nonprofit clearinghouse on subsidy accountability, ranks Pennsylvania 12th in the nation for online business subsidy disclosure. (The specific criteria used by Good Jobs First to evaluate public information online were searchability, level of detail, and thoroughness.)  Pennsylvania does well compared to other states because of the online “Investment Tracker” database, established during the Ridge Administration and maintained by the Rendell Administration. The Investment Tracker reports all state subsidies, the name of the applicant for assistance, the county, jobs existing, jobs pledged, and award amounts. To upgrade the Investment Tracker and make it a “best in class” disclosure tool the state needs to add information on the address of the business site, the industry of the company, whether companies actually created jobs, and job quality (wages and whether the company provides health benefits). It is also important that DCED upload the enhanced information in a way that can be easily downloaded into a data set by researchers.

In discussions with current and past DCED officials, it has been suggested that most of the additional information needed already exists in DCED’s internal data bases. If so, that is great news. It has also been suggested that the key information could be captured through modest modifications to the single application for economic development assistance created by DCED in the mid-1990s. If an online single application could be kept live for companies awarded subsidies, the same form could be used to provide information on jobs created and wages one year, two years, and three years following distribution of funds. (A variant of the same online tool could help localities comply with improved disclosure requirements.) The gist of these conversations is that DCED is already within shouting distance of being able to provide national model disclosure and transparency for its economic development programs.

Pennsylvania is also poised to become a national leader in smart targeting of economic development subsidies. Last week, Keystone Research Center released a report that documented increasingly smart targeting of business subsidies from three major Pennsylvania business subsidy programs.[1] Based on extensive interviews, we attribute the greater focusing of subsidies on older Pennsylvania towns (including boroughs), inner suburbs, and cities to both local economic developers and to state government’s 2005 adoption of the Keystone Principles (see p. 17 of Making Smarter Investments).

The accountability bills would provide transparency and data that reinforce the well-established movement to smart targeting of subsidies within the Pennsylvania economic development community. Greater disclosure makes it easier for economic developers to push back on subsidies that don’t fit with their regional economic strategies and with land-use plans—disclosure makes it easier to say “no” because all the “yeses” will be subject to more systematic scrutiny.

Reconcilable Differences. We think that today’s hearings will further demonstrate broad support for greater economic development accountability across partisan and stakeholder lines. For example, written testimony in support of accountability today is being provided by conservative (the Allegheny Institute) and progressive think tanks (KRC), environmental and smart growth groups, labor and, I believe, the planning community.

Furthermore, support for the goals of greater transparency and disclosure is nearly universal.

We are aware of three concerns about the accountability bills entering today’s hearings. First, I believe there are some misconceptions that the bills contain “prevailing wage” provisions. They don’t. The bills contain wage standards that aim to ensure that subsidies not go to companies that pay poorly by the standards of their industry in the place where they locate. Most companies don’t get subsidies. Why would we want to distribute subsidies to companies in the lower end of the wage distribution? (Although I don’t have time to elaborate the point, these companies are the least likely to contribute to innovation and self-sustaining industry growth.)

Second, I believe there are some concerns about disclosing company-specific information based on the idea that this would negatively impact companies’ competitiveness. I don’t yet understand this argument. Moreover, this information is only being disclosed for companies that receive public subsidies. That said, the policy issue that drives the need for wage data relates to the desire to find out whether go to companies that pay poorly by the standards of their industry. Compromises might be explored on this whereby DCED has to collect the information and make it available in response to right-to-know requests but where what is publicly disclosed in data online is not company-specific.

Third, I understand DCED has concerns about the cost of implementing the accountability bills. Clearly, every opportunity should be pursued to implement better disclosure and reporting as efficiently as possible. Since better disclosure mostly requires refining the existing single application and Investment Tracker, the cost after initial implementation should be very low. Bottom line, before recent cuts, Pennsylvania spent an estimated $300 million per year on subsidies for individual businesses. We need to spend a fraction of one percent of that money to ensure adequate disclosure and accountability.

[1] See Maria Cristina Herrera, Stephen Herzenberg, and Michael Wood (2010), Marking Smarter State Investments: The Geographic Distribution of Business Subsidies in Pennsylvania, Harrisburg, PA: Keystone Research Center, online at http://keystoneresearch.org/sites/keystoneresearch.org/files/MakingSmarterStateInvestments.pdf).

If the Pennsylvania General Assembly listens to the natural gas industry, two-thirds of the gas extracted from a typical Marcellus Shale well will be exempted from a state severance tax.

That is the central finding of a report released Thursday by the Pennsylvania Budget and Policy Center. It examines severance tax policies in Texas and Arkansas as the gas industry ramps up efforts to include exemptions in Pennsylvania’s severance tax that are more generous than the gas tax breaks offered by either of those industry-friendly states.

The gas industry has successfully lobbied Pennsylvania officials to include an exemption for low-producing wells in recent severance tax proposals. The exemption would be for existing shallow, or “stripper,” wells – in addition to Marcellus Shale wells in their later years of production.

More recently, the industry has been making the case for a tax exemption during the first three years of Marcellus Shale well production to recover capital costs. If both front- and back-end exemptions are included, a typical Marcellus Shale well would be taxed for only nine years of its 40-year life span.

Pennsylvania doesn’t need to offer tax breaks to attract gas producers. The state is already close to lucrative natural gas markets in the Northeast, and studies in other states have found tax breaks do little to spur production. Pennsylvania could end up leaving millions of dollars on the table without much to show for it.

While the industry cites Texas and Arkansas as models, neither state offers exemptions for all gas wells at the beginning or end of production. Texas, for instance, provides a rate reduction for “high-cost” wells based on the actual costs of drilling. Only in extreme cases will the tax rate be reduced to zero and only until half of capital costs are recovered. Unlike in Pennsylvania, Texas drillers also pay billions each year in property taxes on gas reserves.

As Center Director Sharon Ward noted in a press release on Thursday: “Pennsylvania taxes are already very favorable to the gas industry. Further tax breaks will drain revenue for core services like health care, education, and environmental cleanup. Communities across Pennsylvania are already feeling the impact of Marcellus Shale drilling. Lawmakers need to act now to put a properly structured severance tax in place.”

The Budget and Policy Center paper recommends that lawmakers reject an upfront severance tax exemption for Marcellus Shale wells and that any exemption for low-producing wells be conditioned on gas prices dropping below a certain level – the same way a rate reduction is triggered for shallow wells in Texas.

Read the full report here.

Check out media coverage of the report here.

And view video coverage of a Thursday press conference (taken by the Roxbury News), where Sharon Ward was joined by Representative David Levdansky and Jan Jarrett of PennFuture to discuss the report.

Wednesday night the American Jobs and Closing Loopholes Act failed in the Senate. A version of the bill which has less total spending is now being considered.

The version of the bill that failed Wednesday included a six month extension of FMAP (Federal Medical Assistance Percentage) spending. Medicaid is jointly funded by the federal government and the states. The federal government’s share of state expenditure for Medicaid services, which is usually the largest, is called Federal Medical Assistance (FMAP). Under the Recovery Act the federal government’s share of Medicaid expenditures has been higher to help offset the decline in state tax revenues caused by the recession. The governor’s budget proposal for Pennsylvania assumes an extension of the extra FMAP funding for another six months which equates to $850 million.

If FMAP does pass in the senate, there is still concern that conservative democrats in the U.S. House may attempt to strip the FMAP money out of the Senate bill in reconciliation.
The Pennsylvania Democrats in the House that originally voted to strip FMAP money out of the bill were Kathleen Dahlkemper (district 3), Jason Altmier (district 4), Chris Carney (district 10), Tim Holden (District 17) and Tim Murphey (district 18).

Word is that Tim Holdin has promised not to oppose inclusion of the FMAP money in the final bill. Dahlkemper, Altmier, Carney and Murphey have not indicated whether they will support the FMAP extension.
Each of these members are concerned about the impact of the American Jobs and Closing Loopholes Act’s impact on the Federal Deficit. As Paul Krugman and Ryan Avent explain the failure to take action now to boost the economy is a much more serious economic problem than the impact of this bill on the long term deficit. Not only is that true for the country but also for the constituents of these house members. The figure below presents the unemployment rates in the following democrat’s district: Dahlkemper (district 3), Altmier (district 4), Carney (district 10), Holdin (district 17) and Murphey’s (district 18). Please note these unemployment rates are calculated including each county within the Congressional District. The failure to extend unemployment benefits and FMAP threatens to prolong these very high unemployment rates.

A new report by Economist Algernon Austin, “Uneven Plain,” finds that unemployment is not evenly spread across the country’s 50 largest metropolitan areas. For instance, the unemployment rate in Detroit metro area was more than two times higher than the unemployment rate in Oklahoma City (Detroit holds the highest unemployment rate at 15.1%, and Oklahoma City holds the lowest unemployment rate, at 5.9%). This report also includes annual unemployment rates for Pennsylvania’s two largest cities, Philidelphia (8.3%), and Pittsburgh (7.4%).

The report also concluded that unemployment was unevenly distributed by race and ethnicity within those 50 metropolitan areas. Only one metropolitan area nationally had a white unemployment rate above 11.3%, which was Detroit, at 13.8%, but nine metro areas had a Hispanic unemployment rate above 11.3%, and 14 had a black unemployment rate above that level. In Philadelphia, Hispanics and blacks separately hold an unemployment rate of 12.2% compared to their white counterparts who have an unemployment rate of 7.0%. Unemployment rates by race and ethnicity were not available for Pittsburgh due to small sample size.

Economist Algernon Austin believes that such a difficult and uneven time for the unemployed puts the American economy in need of three things: (1) More job creation as soon as possible, (2) job creation targeted to areas with high unemployment, and (3) job creation that can support state and local government.

Economist Lawrence Mishel, Ph.D. testifying before the U.S. House made the case for additional efforts to boost the job market. He urged congress to pass three pieces of legislation that would strengthen recovery efforts:

1. The American Jobs and Closing Loopholes Act of 2010 which includes a provision that supports 350,000 summer jobs for youth ages 14 to 24, an age group that holds the highest unemployment rate of 25%. In the Act there is also a provision that extends Emergency Unemployment Compensation (EUC) that provides up to 53 weeks of extended benefits. Additionally, there is a Temporary Assistance for Needy Families provision (TANF), that would give short term, one-time aid, and subsidized employment to low income households, which is scheduled to add 185,000 jobs by the end of September. The provisions for COBRA and FMAP that the House removed are also included; The govenor of Pennsylvania’s proposed state budget assumes the passage of FMAP.
2. The Harkin amendment to preserve education jobs; this amendment would appropriate 25 billion to help states retain education employees that would otherwise be laid off. According to Mishel, the American Association of School Administrators estimate that 275,000 school employees will be laid off if assistance is not provided, which translates into a loss of 81,000 additional jobs in other sectors as a consequence of reduced spending by laid off school employees.
3. The Local Jobs for America Act, H.R. 4812.

These three peices of legislation would create more than 2 million jobs that would be better targeted at high unemployment metro areas.

The Keystone Research Center has released a series of new reports that provide an overview and assessment of current programs in Pennsylvania that aim to create jobs and promote economic growth. The latest report includes a metro analysis of business subsidies in various regions of Pennsylvania. To see the full report and press release, go to:

http://keystoneresearch.org/21st-century-economic-development

To see how different regions of PA allocate their funds, check out KRC’s interactive map at:

http://www.keystoneresearchmap.org/

The map is very informative and easy to use.

1. First, in the top left of the screen, choose a time frame. Your options are 1998-2003 or 2003-2008.
2. The map displays subsidies given out by three PA Department of Community and Economic Development (DCED) programs.

• Pennsylvania Industrial Development Authority (PIDA) -Low-interest loan financing through Industrial Development Corporations for land and building acquisition, construction and renovation, resulting in the creation or retention of jobs.
• Infrastructure Development Program (IDP) – provides grants and loans for infrastructure construction and rehabilitation which is necessary to complement capital investment by private companies and private developers.
• Opportunity Grant Program (OGP) - provides flexible and effective economic development financing to preserve and expand existing industry and attract other economic development prospects to the Commonwealth.

1. Choose (by checking box) at least one program. Now, you are viewing the PA-wide distribution of business subsidies. You can also choose to view the data on a total or per capita basis. See the Map Legend for descriptions of the colors. To identify a region of interest, click on it on the map.
2. Next, there are a series of drop down menu bars where you can choose the County, Municipality, Metro area, and/or School District that you would like to focus on. Now you have an up-close view of the region of your choosing.
3. Lastly, explore the map and learn about where business subsidies are distributed in Pennsylvania!

For example, I chose to take a closer look at Lancaster County. The Metro report for Lancaster (located at: http://keystoneresearch.org/21st-century-economic-development), revealed a lot of interesting data that I did not know about.

For instance…

• From 2000-2008, Lancaster’s outlying area population has grown 10.6% while the older urbanized population of Lancaster has only grown .8%.
• Poverty is nearly four times higher in the City of Lancaster than in the rest of the metro region.
• On a per person basis in Lancaster, for every $1 that outlying areas received, older urbanized areas received just 74 cents.
• Lancaster receives fewer subsidies per person than most PA regions.

After viewing the Metro Report for Lancaster, I went to Keystone’s map page (http://www.keystoneresearchmap.org/). I choose to look at the business subsidies for the 2003-2008 time frame. I selected all three options (PIDA, OGP, and IDP) and viewed them as per capita fund. Then, I narrowed my search to Lancaster County and subsequently, Lancaster City.

The KRC’s map identifies 10 business subsidies in Lancaster City—six OGP grants, four PIDA companies, and zero IDPs. After clicking on the dots on the map, which correspond to businesses that received some sort of PA subsidy, I found some interesting information.

The biggest investment that PA made in Lancaster City was $2,000,000 in PIDA loans to Sam Levin Furniture Company. This state funding retained 378 jobs and created 44. Please note that estimates of jobs retained and created were estimates provided by the entity receiving the assistance and have not been independently verified. PA also invested $1,522,700 in PIDA loans to Auntie Anne’s, Inc. The state money for Auntie Anne’s retained 109 jobs and created 8.

PA also invested $50,000 in OGP grants to Auction Inn. It created 112 jobs and retained 11. Generations eCycling also received an OGP grant in the amount of $40,000. While this grant did not help to retain any jobs, it was successful at creating 40 new jobs.

In order to put all of this information in perspective, KRC encourages you to view other regions such as Harrisburg, Philadelphia, or Pittsburgh. It is a lot of information to take in, but if you take the time to explore the map, you can learn a lot about where your home state spends its money. And, it doesn’t end there. If you want to learn more about the implications of what this map suggests, visit http://keystoneresearch.org/21st-century-economic-development to view the full report that analyzes this data.

A little fake news fun via Calculated Risk.

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Now having had a bit of fun read up on the Pennsylvania budget battle which includes a fight over a small tax on really really big and really really old industry. Colliding political agendas block budget progress in Pennsylvania by Laura Vecsey.