Harrisburg Leads the Way

by Kevin D. Williamson
Pennsylvania’s state government shows that it’s possible to reduce borrowing and come out ahead.

While the esteemed ladies and gentlemen in Washington were voting to raise the national debt ceiling, their counterparts in the Pennsylvania legislature voted — unanimously — to lower theirs. Tell me again: What’s the argument against devolving more powers to the states?

Pennsylvania, like most states, has a corporate-welfare agency, called the Redevelopment Assistance Capital Program (RACP), and powerful interests that benefit from its ability to borrow money on the state’s credit and then distribute it to favored political constituencies in the name of “creating jobs,” whatever we imagine that overused phrase to mean. Unlike many of the things that would-be debt-reducers target, RACP’s budgetary burden is not chump change: Its more than $4 billion in borrowing authority amounts to nearly 40 percent of Pennsylvania’s general-obligation debt. Or at least it did: Under the new law, its credit limit will be reduced by $600 million, or nearly 6 percent of Pennsylvania’s general-obligation debt. That is not a game-changer for Pennsylvania, which has serious fiscal challenges on its horizon, but it is an important step in the right direction. If Washington managed to pare back the borrowing authority by 6 percent, we’d call it a minor miracle.

The problem is that, for once, Washington doesn’t have enough scandal.

RACP trucked along for years, merrily doling out borrowed public money for sports stadiums and similar so-called investments. But then it hit a particularly bad run, shunting money into such questionable projects as a $10 million investment in the Arlen Specter memorial library, along with $32 million in sweetheart loans and a straight-up $1 million handout to subsidize a new headquarters for the moribund makers of Tastykakes. The killing blow was a $2 million grant to The Second Mile, the now-defunct charity run by serial child molester Jerry Sandusky. What does it take to get politicians to regret writing a check? A conviction on 45 felony counts of sexually abusing children, apparently. Fraud amounting to $60 billion or more year in and year out may not have the same moral urgency, but you’d think it would get somebody’s attention.

Why is it so difficult to get politicians to move on corporate welfare?

“It’s seen as the way to grow the economy,” says Nathan Benefield of the Commonwealth Foundation, a Pennsylvania public-policy group. “Through corporate welfare and tax incentives, they think they can create jobs, and Pennsylvania has been a leader in that category, second in terms of total money spent behind Ohio. But we’ve been a laggard in terms of our economic growth—and the evidence is clear that not doing corporate welfare, having a fair and lower tax rate on everyone instead, is the way to grow our economy.”

Politics is infected by chronic short-term thinking, but Pennsylvania here is taking modest steps to get ready for the pension tsunami that soon will sweep over its finances and those of many other states. After the election of Governor Tom Corbett, Pennsylvania got religion about funding its pension obligations, but the state is still suffering from a $49 billion unfunded liability as a result of previous failures to provide adequately for its retirement obligations. It isn’t an Illinois-level basket case, or a California-level one — the Golden State’s two main pension systems are $170 billion short, and the deficit of the teachers’ retirement system is growing by $22 million a day — but a $49 billion shortfall is trouble enough in a state with an economy of less than $600 billion. Some cities and states are likely to default on their retirement promises, but Pennsylvania intends to pay what it has promised and to make sure that future promises are affordable. That is going to take some fairly serious economizing, mainly by reducing the bloated pension and health-care benefits given to already overcompensated public-sector workers. Letting minor-league baseball teams in Scranton pay their own way would help a bit, too.

Harrisburg, not known as the most responsible of our state capitals, is moving in the right direction. Why can’t Washington? “It’s disappointing how dysfunctional it can be,” says state representative Matt Gabler, one of the main backers of the Pennsylvania bill. “But I think we’ve shown that we can work in a bipartisan, bicameral fashion to leave a better financial situation for our children and grandchildren.” The next big fight will be trying to change the public-pension system so that new hires are enrolled in a defined-contribution plan rather than the traditional defined-benefit plan that has wrecked the finances of so many states and cities. The Pennsylvania House has voted on two bills that would do that, but the votes are not there yet.

Pennsylvania state-house majority leader Mike Turzai originally had sought a $1 billion reduction in RACP’s borrowing authority, but settled for the $600 million. And 60 percent of a win is a better outcome than 100 percent of a loss, something our Republican friends in Washington might want to think about.

— Kevin D. Williamson is the roving correspondent for National Review and the author of the recently published The End Is Near and It’s Going to Be Awesome.