Changes in Government: State takes active role

In the 1970s and early 1980s, foreign competition sucked business from Pennsylvania's steel plants and coal mines. Clo, sures pockmarked the state with empty industrial sites and unleashed thousands of employees who lacked training for other work.

Pennsylvania, like other rustbelt states, needed

In the past 20 years, the state has handed out millions in venture capital to startup companies, set up trade offices overseas, cleaned up more than 1,350 brownfield sites and offered companies tax credits to relocate to Pennsylvania. In addition, state officials helped:

* companies pay for employee training;

* entrepreneurs gain expertise through small-business development centers; and

* manufacturers learn how to use new technology to save money and develop new products through federal and statefunded industrial resource centers.

Despite those efforts and the revival of some cities, such as Allentown, small towns that boomed under steel and coal have not recovered. Nearly 30,000 people between the ages of 20 and 29 left the state between 1999 and 2001. With slow population growth, Pennsylvania lost two congressional seats and earned the title of the state with the second-largest number of elderly residents (Florida is No. 1). Pennsylvania ranked 35th in job growth in 2003, according to the U.S. Bureau of Labor Statistics.

Although the effectiveness of the state's role has been questioned, several state programs have had a positive effect, according to area business leaders. They include: Ben Franklin Technology Partners, Keystone Opportunity Zones, brownfield reclamation, opportunity grants and the creation of the Life Sciences Greenhouse. Business leaders also viewed overhauls of the state's unemployment and workers' compensation rules as dramatic improvements to Pennsylvania's business climate.

In 1984, most Pennsylvanians were employed in manufacturing, services and retail. That has changed in the past 20 years. Now it's agriculture, tourism and manufacturing.

In 1982, Thornburgh borrowed the name of the state's most famous inventor to create a nonprofit organization to help boost other manufacturing sectors and nurture technological innovation. Since then, Ben Franklin Technology Partners has been able to provide financial and technical support to more than 2,500 companies statewide. The program is credited with boosting the state's economy by $8 billion between 1989 and 2001, according to an independent study.

Ben Franklin Technology Partners provides seed funding for technology startups. It also helps manufacturers implement new technology. A company that sees a threat to its traditional line of business can get into activities with higher margins, said Steve Brawley, vice president of Ben Franklin Technology Partners of Northern and Central Pennsylvania Inc.

"Both are critical parts of transforming the economy," he said.

Retrain and nurture

Job-training programs took on new importance with the closing of steel mills, mines and factories. Computer skills became more in demand, and reading and writing skills had to improve.

"Now, people aren't just leaving high school and going to the mill," said Dave Patti, president of Pennsylvanians for Effective Government. The organization helps probusiness candidates get elected.

The CareerLink program, which helps retrain and find work for the unemployed, has been a tremendous help to contractors and other businesses, said Jack Zimmer, president of the Associated Builders and Contractors' Keystone chapter.

State officials also have tried to help displaced workers by encouraging entrepreneurship. Pennsylvania began to open smallbusiness development centers in 1980. The 16 university-based centers have helped to start more than 13,000. businesses, according to Pennsylvania Small Business Development Centers. The centers also helped companies get more than $1.3 billion to start up or expand.

Pennsylvania began to clean up brownfield sites through the help of the federal Superfund program, established in 1980. Chemical and petroleum companies paid an annual fee into the fund to identify and clean up sites contaminated with hazardous materials.

The brownfields program was intended to bring in new businesses that would create jobs. In 1995, Pennsylvania legislators passed laws to make its land-recycling program more attractive for companies to clean up brownfields. Companies did not have to return properties to pristine conditions for them to be used again. Since 1995, the landrecycling program has cleaned up more than 1,350 sites, according to the Pennsylvania Department of Environmental Protection.

Industrial resource centers, created 16 years ago, have helped buildup the manufacturing sector, said John Lloyd, president and chief executive officer of Mantec Inc., the center that serves Central Pennsylvania. Mantec opened in 1988.

The industrial resource centers help manufacturers use new technology and techniques to become more efficient.

As a former manufacturer, Lloyd also was a beneficiary. His company, Dallas-based Energy Converters Inc., which made electric heating elements, received training in humanresources compliance and manufacturing techniques. Ultimately, the training helped the company earn a patent and attract the attention of a larger corporation, Watlow Electric Manufacturing Co., which bought it in 1998, Lloyd said.

The Keystone Opportunity Zone program, created in 1999, gives tax breaks and exemptions to companies that opened in certain blighted areas during a 12- to-1 5year period,

The zones are one of the best ways to revitalize inner cities, said Clifford Jones, a former state senator, now vice president of Commerce Bank/Harrisburg, in East Pennsboro Township, Cumberland County.

Unfavorable climate

The effect of the centers and job-creation programs was dampened by an increase in corporate net income taxes and the capital stock and franchise tax, according to business leaders and some analysts.

Some critics, such as The Commonwealth Foundation, contend the programs drove up state spending and led to the higher taxes.

Businesses close or avoid Pennsylvania because of the tax climate, and then the state raises taxes to pay for more economic-development programs to bring them in, said Grant Gulibon, a senior policy analyst with the conservative Harrisburg think tank.

In the early 1990s, business taxes peaked to help the state balance its budget during the recession. The capital stock and franchise tax, a tax on the assets of mediumto large-size companies, went up to its highest level in 1991, to 12.75 mills. The corporate net income tax increased from 8.5 percent in 1987 to 12.25 percent in 1991.

Business leaders and owners have said those high taxes hurt their bottom lines and do more to keep out businesses than the state programs do to reel them in.

"There's a general feeling that Pennsylvania, from a tax perspective, has not recovered from that," said Michael McCarthy, president of the Pennsylvania Business Roundtable. The roundtable is a group of chief executive officers of large Pennsylvania companies that tries to influence public policy

It was not until the 1990s that officials developed reforms to roll back those taxes and implemented overhauls of workers' compensation and unemployment compensation to improve the business climate.

The corporate net income tax dropped to 9.9 percent in 1995. The capital stock and 'franchise tax, which is 6.99 mills, is scheduled to be phased out in 2011.

The state's unemployment compensation fund went broke in the late 1980s. State officials implemented reforms in the early 1990s to help stabilize rates, Companies were charged higher rates to pad the fund in good economic times. When the fund got too low, it would trigger a rate increase.

Last year employers paid their first rate increase since 1996.

The workers' compensation overhaul in 1996 cut back on fraud and waste, Patti said. It improved the qualifications of judges and those conducting hearings.

it also created a temporary program that offered discounts for safety programs, which helped business cut back on injuries and reduce their premiums, Zimmer said. Those discounts became permanent last year. "For the construction industry, it really rewarded proactive construction companies," Zimmer said.

Look ahead

Critics, such as the Pennsylvania Manufacturers' Association and Commonwealth Foundation, still take aim at certain stategovernment programs, calling the programs "corporate welfare." The two groups have opposed jobtraining grants and the opportunity grant program, created in 1996, which is designed to attract businesses to Pennsylvania with tax credits, loans and training.

The money could be used for tax cuts that would bring in new companies and jobs and make it easier for existing companies to do business, Zimmer said.

"We've put money into grants and incentives and stimulus packages ... we've done all those things," Zimmer said. "These are nice carrots, but we have some clubs you have to deal with."

Jones said Pennsylvania could use more programs like the We Sciences Greenhouse, a $100 million program to nurture the state's biotechnology industry.

Jones said the best thing state officials could do for the future is to push for more venture-capital investment. As manufacturing continues to move overseas, Pennsylvania's future is in start-ups, he said. "There are lots of fledgling companies - they're the key," Jones said. "We have to create something new"