Report: ‘Unclear’ whether Pennsylvania’s rural tax credit program creates jobs

By Anthony Hennen | The Center Square

HARRISBURG, PA – Lawmakers have approved a variety of tax credits in an effort to boost economic growth in the commonwealth. Evidence of that growth, however, can be hard to find.

For one program aimed at rural Pennsylvania, a state agency has recommended a pause until more data can show that the tax credits have actually created jobs.

The Independent Fiscal Office released its evaluation of the Rural Jobs and Investment Tax Credit, arguing funds through the program should not be approved until the program has more data to judge the tax credit’s economic impact.

“Additional funds should not be allocated until the impact of the initial $30 million in tax credits can be fully assessed,” the report noted. Furthermore, the IFO noted the program “would be more effective as a loan program administered by the Department of Community and Economic Development,” instead of its current structure.

The DCED approved the tax credit program to invest $50 million through four rural growth funds. Those funds then invest in rural businesses.

Since approval in 2021, three funds have invested $7.3 million in four businesses in Adams, Berks, Luzerne and Mercer counties, which have created or retained 106 jobs.

Without more tax credits sent out, and more data on what happens to the money, the IFO was reluctant to give a final judgment.

“Because the RJITC is still in the early stages of the program, the IFO does not have sufficient data to compute an economic impact or return on investment,” the report noted. “Based on the limited data available, it is unclear how many rural businesses will be supported, or the number of jobs created or retained as a result of the program.”

However, the results of other tax credit programs have not been promising.

“Evaluations of similar programs in other states find concerns regarding program effectiveness and efficiency,” the IFO noted.

In its review, the IFO listed a number of evaluations in other states. A 2009 audit of a Washington, D.C. program concluded that it “failed to achieve the desired impact due to poor government management of an inefficient and expensive program.”

A New York program that sent out $325 million to 184 businesses found a net increase of only 188 jobs, with 61 businesses not reporting employee data at all. And a 2017 analysis of an Alabama program noted it “provides little or no fiscal return to the state.”

When those program reviews did find evidence of economic growth, it was a blinkered view. A 2020 review of a Georgia rural tax credit program noted a positive economic impact “provided the new/retained jobs were maintained for 10 years.” However, “The analysis did not consider any alternative use of state funds (i.e., the benefits if tax credit monies had been used for a different purpose).”

Those complications informed the IFO’s cautious review.

“Pennsylvania should thoroughly evaluate the impact of the existing program before additional funds are appropriated, particularly because this program provides significant benefits to rural growth funds and it is unclear how much of that benefit remains in the state,” the report noted.

The rural tax credit program isn’t the only one in Pennsylvania that may not have an economic payoff, either.
Tax credits for the film industry, as The Center Square previously reported, has found bipartisan support but critics note the economic activity created doesn’t surpass the funds spent in the first place.