Cracker Plant Tax Credit Expensive for Taxpayers While Promising Few Permanent Jobs

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Legislature should delay action until hearings can be held and all the details are scrutinized

Governor Tom Corbett’s administration has proposed giving $1.65 billion in state tax credits over 25 years to companies that build and operate ethylene cracker plants in Pennsylvania. Only one company, Shell Oil, currently has plans to develop such a plant in the gas-rich Marcellus Shale. The proposed tax credit would be a windfall for Shell, whose parent company, Royal Dutch Shell, is the second largest company in the world[1], with revenue of $484 billion in 2011 and profits of $31 billion[2].

The new Resource Manufacturing Tax Credit does not impose any requirements, such as additional jobs or new capital investment, as a condition for receipt of the credit. A report on the effectiveness of the credit would be due in 2042.  

The Resource Manufacturing Tax Credit is not the only tax benefit Shell will receive under the governor’s plan. Act 16 of 2012, enacted in March, exempts Shell’s cracker facility site in Beaver County from corporate income and property taxes for 15 years. During that time, Shell will likely have unused Resource Manufacturing Tax Credits that it will be able to sell for cash — up to $66 million a year.

Act 16 requires Shell to create 400 jobs. This is consistent with the jobs created at similar cracker plants. If the Resource Manufacturing Tax Credit is enacted, the 400 permanent jobs at the plant will come at a hefty price to taxpayers, $165,000 per year per job, or $4.125 million per job over the 25-year life of the program. Shell also expects 10,000 construction jobs to be created during site development, but that would be a short-term boost to employment.

While proponents have claimed this project will create tens of thousands of jobs, much of those are estimates of jobs that might be created in spinoff industries or in unrelated businesses, like restaurants and shops. The job numbers are speculative and dependent on the decisions of other companies that are not receiving this special tax credit. With the precedent of such generous tax treatment for Shell, other companies might demand tax credits as well. 

To the extent that the cracker facility does attract jobs to the region, the workers who fill them will hail from Ohio and West Virginia as well as Pennsylvania, but only the commonwealth’s taxpayers will be paying for Shell’s tax breaks.

The proposed tax credit had been kept secret until recently, and there are still many unanswered questions. The credit has become part of the 2012-13 budget negotiations, but lawmakers should delay any action on this proposal until public hearings can be held and more time is allowed to review the complex details.

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Endnotes

[1] Fortune Global 500, 2011, reported online at CNN Money from the July 25, 2011 issue of Fortune Magazine, http://money.cnn.com/magazines/fortune/global500/2011/snapshots/6388.html.

[2] Royal Dutch Shell plc, 4th Quarter and Full Year 2011 Unaudited Results, February 2, 2012, http://www-static.shell.com/static/investor/downloads/financial_information/quarterly_results/2011/q4/q4_2011_qra.pdf.