How Much Could the State Receive By Investing in Industrial Sites?

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March 25, 2024

 

 

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PGH Works Research: How Much Could the State Receive By Investing in Industrial Sites?

Summary: Pennsylvania needs help to compete with states where it is cheaper and easier to turn land into business parks and industrial sites. Gov. Shapiro has proposed $500 million in his budget to help with that competitive disadvantage. By providing space for new companies to locate or expand in Pennsylvania, the state could see a return of up to $5 for every $1 invested, according to a new tax analysis by Pittsburgh Works Together.

Background: The same hills and vistas that make Pennsylvania so attractive also make it a challenge to create sites for factories and other businesses. Consider this photo, the Ohio location just outside Columbus where Intel is planning a $20-billion computer-chip facility.

Then look at this photo of the Starpointe Business Park in Washington County, built atop a ridge about 22 miles west of Downtown Pittsburgh.

Flattening hilltops and filling valleys can double the cost of development in some areas of Pennsylvania. Prepping an old industrial site for a new business can be even more expensive.

But if a company is considering sites in other locations, a Pennsylvania developer can’t pass along that extra cost and hope to win the deal – and the jobs it brings to the community.

Pennsylvania is seeing the effects. Since the pandemic, Ohio’s economy has grown 50% faster than Pennsylvania’s1, though Pennsylvania has added more jobs overall.2

To address the competitive imbalance, Gov. Shapiro has proposed $500 million for industrial and commercial site development in his 2024-25 budget for a program called PA SITES. It is similar to a program started by Gov. Rendell in 2004 called Business in Our Sites. That program was instrumental in driving industrial development throughout the state, particularly in the three-county area around Pittsburgh International Airport.

An industrial site investment program would provide a hefty return to the state treasury, thanks to the new wage and sales tax the state would collect as a result of the new jobs created at the development sites. For a typical project, the payoff could be as high as $5 for each $1 invested by the state. That’s true even if the state borrowed money to finance the program, as the governor has proposed.

Consider this example: A 20-acre site is developed to house a 200,000-square-foot factory employing 200 people. Flattening the site, building the necessary roads, and installing power, water and sewer lines costs $250,000 per acre, or $5 million total. Pennsylvania provides $2.5 million, or half the development cost, to make the site financially competitive with Ohio.

Over 20 years, the state would pay out $4.4 million in principal and interest to pay off the initial $2.5 million investment.

But the 200 manufacturing jobs created on the site, along with the new jobs created in the supply chain and throughout the economy to support the new factory and its workers, would result in $22.2 million in additional wage and sales tax revenue for the state over that same 20 years.

That’s a 500% return on investment. And the state would be collecting more in new taxes than it would be paying out in debt service from the first year of the plant’s operation, depending on how quickly the jobs ramp up.

 


Scenario Assumptions:

  • $5 million site development costs, half ($2.5 million) from the state in Year 1
  • Financed by 20-year bond, 6% interest rate
  • 200 workers at facility, full employment in Year 3
  • 176 indirect jobs throughout the rest of the economy (Multiplier = .88)
  • 3% Annual Inflation
  • Direct Job Wage: $72,152 (PA state average manufacturing wage)
  • Indirect Job Wage: $53,870 (80% of state average private-sector wage)
  • Effective taxable income: 90%
  • % Wages Spent on Tax Eligible Purchases: 20%

 


 

Pittsburgh Works Together is a business-organized labor-workforce-economic development alliance working to grow jobs and expand the industries that are the foundation of our economy, including energy, manufacturing, and construction, to provide opportunity for all residents. To learn more, please visit pghworks.com.

 

Media Contacts:

Ken Zapinski

412-352-4364; ken@pghworks.com

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