Pennsylvania's newly elected governor plans to scale back his government's role in economic development, a philosophy that could mean the state will lend its tax-exempt status to large companies less often.
Throughout his campaign for governor, Republican Tom Ridge targeted the state's Department of Commerce as ripe for cutbacks in both programs and staff. The department oversees the state's Economic Development Financing Authority, which lends Pennsylvania's tax-exempt status to private companies that make capital investments promoting the state's economy.
A spokesman for Ridge could not be reached for comment, and Ridge himself has not specified what he will do with the department or the authority's bonding program.
But Ridge's conservative economic views have some in the state predicting and hoping that the new governor will reduce the agency's bonding power, or at the very least make it more difficult for large companies to qualify for tax-exempt status.
"It's more direct and efficient ... to say to business, 'Come here, our taxes are low,' than to say, 'Come here, our taxes are high, but if you need to float a big bond issue, we'll do it,'" said Jim Broussard, president of Citizens Against Higher Taxes, a watchdog group.
Critics like Broussard point to a $100 million authority financing on behalf of Sun Co., which underwriters say is scheduled for pricing this week.
Sun Co., a billion-dollar oil company known also as Sunoco, is incorporated in Pennsylvania. The company will use the proceeds of the sale to finance construction of a wastewater treatment facility at its Marcus Hook refinery in Delaware County. The company will pay interest and principal on the bonds.
But a tax-exempt financing for a large oil concern with easy access to the capital markets has taxpayer activists and even some investment bankers saying that the authority should rethink its priorities.
Mark Schwartz, a former investment banker at Prudential Securities Inc., helped develop the authority eight years ago. Schwartz said the agency was initially designed to help small companies, not the Sunocos of the world, gain access to the capital markets and save money by using the state's tax-exempt status.
State taxpayers, Schwartz said, should not be subsidizing large companies that can afford to issue taxable bonds on their own.
"This agency was not established to help companies like Sunoco," Schwartz said. "Sunoco can access the market on its own, and if this thing exists for firms like Sunoco, it should be changed."
Officials from Sun Co. would not comment.
However, Anne Brennan, project manager at the economic development authority, said Sun Co.'s project meets public use and job retention standards, and thus qualifies for the state's tax exeruption. The wastewater treatment plant will control pollution, retain 853 jobs, and create 474 construction jobs, Brennan said.
According to standards set by the federal government, the Pennsylvania authority can generally issue up to $600 million of tax-exempt private-activity bonds per year. The Sun Co. issue comprises one-sixth of the authority's annual bonding limit.
So far in 1994, the authority has issued more than $432 million of both taxable and tax-exempt bonds, according to Securities Data Co. The authority has no taxing power.
Goldman, Sachs & Co. is lead manager on the Sun Co. deal and filled the same role for two other taxexempt deals by the authority this year, for a total of $494 million, according to Securities Data. Standard & Poor's Corp. rates both Sun Co. and the issue BBB-plus. Moody's Investors Service rates Sun Co.'s senior unsecured debt Baal.
But taxpayer groups say this issue and others like it are examples of so-called corporate welfare. They argue that the government issues bonds for businesses because businesses are hamstrung by high taxes. Bring taxes down, these groups say, and businesses will be able to finance their own projects.
The Sun Co. deal "is a more circuitous way of getting the same job done," said Sean Duffy, president of the Pennsylvania Leadership Council, a taxpayer activist group. "We need to lower taxes and then the state doesn't have to get in the way."