RACP – Risks Assigned to Citizens’ Pockets, Part 1

Posted by By at 27 October, at 15 : 49 PM Print

(By Tim Potts DemocracyRising PA)  A premise of capitalism is that when people put up their own money for a venture, they reap the rewards of success and suffer the consequences of failure. When private entrepreneurs need to borrow money for their ventures, they go to private lenders.

A premise of government is that it should stay out of the competitive marketplace unless the private sector cannot or will not fulfill a legitimate social function that government then must fulfill.

Among the many outrages of this year’s reported $600 million in capital budget projects under RACP – the Revitalization Assistance Capital Program – is that huge sums of money are going to private interests who have transferred the risk side of the equation to taxpayers while keeping the reward side for themselves. Some call this “corporate welfare.” Some call it “socializing” business because it assigns to society the costs of private sector failure.

In any case, these projects raise serious constitutional problems, not to mention the lack of transparency and competition in determining who gets taxpayer funds. Here are two examples: Marcellus Shale and Valhalla.

The Marcellus Shale Tax: They Tax Us
In July, the General Assembly and governor enacted a budget that has since proven to be unconstitutional. The budget required political leaders to agree on an extraction tax for Marcellus Shale drilling, but there has been no such agreement, creating a hole in the revenue side of the budget. Pa. budget has big surplus of smoke, mirrors , writes Mark Guydish in the Wilkes-Barre Times Leader, Oct. 26.

The fruitless public debate about the extraction tax served as misdirection for a very fruitful and less public subsidy. While the state cannot impose an extraction tax on Marcellus Shale drillers, the drillers are taxing citizens. The list of RACP grants includes at least $42.8 million, which will cost taxpayers more than $85 million to repay over 20-25 years, for various activities related to Marcellus Shale drilling. These include $26.8 million in several counties for “related costs for the development of flowback and production wastewater and acid mine drainage treatment plants to treat and recycle hydrofracture and acid mine water;” $10 million for a “Marcellus Shale enterprise center” in Centre County; and $6 million in Westmoreland County, in part for a “Marcellus shale learning resource center.”

Through RACP, taxpayers are on the hook for $20 million in bond debt for the Valhalla project in Chester County. The initial phase of Valhalla includes a luxury resort with “restaurants, wellness and fitness center, spa, clubhouses as well as tennis, trails, water sports, and golf courses,” quoting the application on file with the Department of Community and Economic Development. (The same application says, “Phase II includes construction of 278 English Village style residences.”)

The application also lists other money the Valhalla project is seeking. Altogether, Valhalla will cost $136,250,000. Altogether taxpayers are expected to front slightly more than half of this cost, $68,750,000 or 50.5%. According to the application, Valhalla itself will put up a whopping $6 million – slightly more than 4%.

Obviously, this is a great deal for Valhalla. If the project succeeds, the developers make a fortune. If it fails, taxpayers are on the hook for the debt because the state issued the bonds for the project, and taxpayers are legally obligated to repay the bonds.

State officials justify Valhalla and other projects – such as $100 million for a private developer in Philadelphia – with the claim that the projects will create jobs. While that’s certainly true, it’s also true that the project would create those jobs if private funds were used instead of public funds.

What the Constitution says
Article VIII, Section 8 of the PA Constitution says, “The credit of the Commonwealth shall not be pledged or loaned to any individual, company, corporation or association nor shall the Commonwealth become a joint owner or stockholder in any company, corporation or association.”

This being PA, there is a state Supreme Court ruling that says the Constitution doesn’t really mean what it says. But the case is old (1975) and pre-dates a full-time General Assembly whose members throw money around like confetti in order to stay in office. The court should redeem its 1975 decision with one that protects citizens as the Constitution intended.

— If these are sound business propositions, why not require the private interests to obtain funding from private sources?
— If they are not sound business propositions, why should taxpayers subsidize them?
— If the Risks are Assigned to Citizens’ Pockets, will citizens get 50% of the profits? Or will citizens get the 3% personal income tax rate, unless there are loopholes to reduce even that amount?
— Why doesn’t the banking community object to the state competing for the business of private companies and developers?

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