A cautionary tale on corporate welfare (editorial)
YDR Editorial Board9:03 a.m. ET Feb. 16, 2017
In the case of Unilife, state economic development incentives seemed like a wise investment – until recently.
YDR Editorial Board, 9:03 a.m. ET Feb. 16, 2017
Six years ago, when the Australian-founded medical device manufacturer Unilife moved its global headquarters to York County, it was viewed as a coup.
The company was in a field that was growing. It pledged to build a state-of-the-art production facility in Conewago Township. The move would create good jobs that required highly skilled workers – something vitally needed to replace manufacturing jobs that had leached from York County in the wake of globalization.
At the time, it made sense for the state to grease the skids for the company, offering $982,000 in grants and approval for loans totaling $4.45 million.
Those kinds of monetary incentives are referred to as corporate welfare by some. Yet grants, loans and tax breaks are sometimes necessary in these times, when states are competing for a seemingly finite number of jobs.
Unilife CEO resigns, COO also leaves
Still, it is a type of welfare, similar to the kind that props up professional sports franchises that extort large sums of money and huge tax breaks from cash-strapped state and local governments.
In the case of Unilife, it appeared to be a wise investment – another word that is often bandied about when politicians talk about these kinds of incentives. The company seemed to be on good footing. The jobs it created paid well, something that has a ripple effect in the local economy. It made sense – until recently.
The company is now on the precipice of failing. Its stock price has plummeted from a high of $98 a share to less than a buck. The company has placed its headquarters on the market, a property valued at $7.6 million for tax assessment purposes. It is seeking to cease operations at the production facility, leaving its 85 manufacturing employees in limbo.
Company founder Alan Shortall resigned last March, and in April the company revealed that he was under investigation for "violations of the company's policies and procedures and possible violations of laws and regulations." The former chairman of the board was also being investigated. The company has a new CEO who has streamlined operations.
Now, none of that could have been foreseen when the state attracted Unilife with its package of fiscal incentives to settle in York County.
The bottom line, as they say, is what's in it for the state.
In many cases, state support of business, and business expansion, pays off. Sweet loans and grants help businesses grow, and that growth, we hope, would create more jobs.
But sometimes, for a variety of reasons, businesses that receive support from the state fail to fulfill their promise to create jobs, falling short of projections.
In 2014, state Auditor General Eugene DePasquale's office
performed an audit to determine whether businesses receiving assistance with the promise of creating or retaining jobs were delivering, finding that the Department of Economic and Community Development did not provide adequate oversight of the businesses.
The audit found that of the 600 businesses that received state assistance, only 336 met or exceeded their job-creation projections.
The department subsequently adopted a number of reforms to address the issues the auditor general unearthed.
Yet businesses still sometimes fall short of the promises they make to create and retain jobs with the assistance of the state's taxpayers.
These programs, Mr. DePasquale pointed out in a letter attached to the audit report, are "a critical tool in fostering a competitive business environment."
He also pointed out that more oversight and transparency are required to make sure companies meet their goals – and if they don't, are penalized appropriately.
In the case of Unilife, the Wolf Administration "clawed back" $88,174 from the company for failing in its commitment to create jobs. (The administration has adopted a number of reforms to hold businesses that receive state money more accountable.)
Considering the state's initial investment, that seems like a paltry sum. It may be the best the state can expect, considering Unilife's current situation.
The state probably can't eliminate corporate welfare; it's part of the business environment now, companies are dependent upon it.
But it can and should do a better job of holding companies accountable and recouping taxpayer money when these businesses fail to live up to their promises.
http://www.ydr.com/story/opinion/ed...ry-tale-corporate-welfare-editorial/97940142/
