Keystone Manufacturing Initiative

16-Bill Legislative Package Addresses Tax and Overhead Issues

By Tim Hayes

When the operating system in your computer works, it works fine. Speed, ease, a taken- for-granted level of dependability and comfort, all at your fingertips.

But let some spyware sneak through your defenses, and that feeling of a smoothly coordinated system can get debilitated. Instead of streaking through cyberspace, your poor PC must lurch through seaweed. What you need is a sickle, a machete, to hack away that muck and get your system racing again.

Think of the manufacturing sector in Pennsylvania as a humming, purring, strong and swift operating system. Then an onslaught of taxes, regulations, added costs and litigation gets thrown at this system over many years, to the point where manufacturing – still the state’s big dog in terms of importance to the economy – nonetheless has been slowed, bowed and very nearly mowed down.

According to the state’s Department of Labor and Industry, Pennsylvania has lost more than 47,000 manufacturing jobs in the past two years – or roughly 2,000 a month. Service sector jobs, which typically don’t pay as well, have risen 14 percent over the past decade, while Pennsylvania ranks 45th nationwide in terms of the “five essential indicators contributing to economic freedom” – fiscal, regulatory, judicial, government size and welfare spending – as determined in a study conducted by Clemson University, the Pacific Research Institute and Forbes magazine.

Many contend that the manufactur-ing sector in the Commonwealth needs a sharp blade to slice away the onerous burdens that add nothing to the vibrancy and health of manufacturing companies, their owners and employees. Governor Ed Rendell has posed his package of bills to address this, but preceding that effort came a separate 16- bill legislative package from the Republican Caucus in the General Assembly known as the Keystone Manufacturing Initiative, or KMI.

KMI, promoted by its sponsors as “incremental yet fundamental reforms that will help Pennsylvania businesses compete and prosper in the 21st century economy,” contains legislative proposals providing business tax relief, protection against frivolous lawsuits, regulatory reforms, and changes in worker’s compensation and unemploy-ment compensation. State Rep. Mike Turzai (R-Allegheny) is recognized as the prime force behind KMI in the Pennsylvania House.

“I was a business attorney before getting into politics, and I represented manufacturing concerns,” said the lawmaker. “I came to appreciate that manufacturing creates good- paying jobs. I really got to know people at all levels, and talked with them about their competitive problems. Things like worker’s compensation, unemployment compensation, how it affects morale of owners and employees.

“Manufacturing owners are the people in our communities trying to run successful businesses while also being concerned with their families, Little League, school boards,” said Turzai. “You never read about these people, but they make everything happen in our economy. So we asked owners of manufacturing facilities – what would make you stay in Pennsylvania?

“They said worker’s compensation rates here are three times what they are in North Carolina and Virginia and business taxes are significantly higher here too,” he recounted. “They also told us, ‘We’re trying to do good, but nobody in government is asking us how to make it better to stay here.’”

Armed with that initial feedback, Turzai and a set of fellow legislators introduced the KMI package in January 2004. Turzai chaired a task force that held seven hearings across the state, taking testimony from manufacturers.

“Reaction was very positive, but when we explained that we were taking an incremental approach, the manufact-urers we met in the hearings said they wanted us to be even more bold and sweeping,” Turzai said. “When we rolled out the package again this year, it was more comprehensive and took more sweeping action.”

Of the 16 bills introduced through KMI, six have been passed out of the House and are now being considered by the Senate – three tax relief measures, two addressing health care savings accounts and one regulatory reform bill requiring state agencies to seek small business input before new regulations can be put into effect.

“We hope to have worker’s comp and unemployment comp bills moving through the legislative process this fall,” said Turzai. “We support whatever the state can provide to help manufacturers,” said David Washburn, Policy Advisor to State House Minority Leader Bill DeWeese (D-Fayette, Greene, Washington). “Our leadership is committed to helping the manufacturing community thrive.”

KMI shows promise in helping Pennsylvania to remain competitive in retaining and attracting manufacturers, according to one of the state’s largest manufacturing entities, US Steel.

“KMI recognizes the value of the manufacturing sector in Pennsylvania’s economy, the fact that we still have a strong manufacturing base here,” said Chris Masciantonio, Head of Governmental Affairs at US Steel. “We need to improve the competitiveness of our manufacturing climate by attracting investment in the existing manufact-uring base and energizing those companies here already to expand. It is as important to focus on the good manufacturing jobs we have already, as it is to attract new manufacturing jobs, if we are to be as competitive as possible here.

“US Steel operates in eight different states, and there are a lot of factors to consider when deciding where to invest,” said Masciantonio. “Taxes, unemployment and worker’s compensation, the regulatory environ-ment and litigation climate, incentives for job training – and these are all issues KMI addresses.”

One bill in particular that companies like US Steel appreciate would modify the state tax code by eliminating the cap on net operating loss carry-over from the current $2 million, providing greater opportunity for Pennsylvania firms to achieve long-term profitability – especially startups experiencing losses in their early years, or cyclical firms experiencing losses during economic downturns.

“If state government can enact the reforms included in the KMI – reducing the costs of hiring an employee, moderating the state tax burden, making state-imposed regulations more reasonable, reducing lawsuit abuse and otherwise bringing costs in line with our competitors – Pennsylvania’s elected officials can show they are serious about our economic future,” said David Taylor, Vice President of the Pennsylvania Manufacturers’ Association.

“I do love it here, but for far too long we’ve had an us-versus-them mentality in Pennsylvania,” Turzai said. “The fact is we’re all in this together. If we don’t work to reduce overhead costs in a concerted effort, employers here are not going to stay or expand. Employers want to pay family sustaining wages. This isn’t a wage issue, it’s an overhead costs issue.

“The best thing government can do is to enable a climate where the private sector can create jobs,” he said. “We in government don’t create these jobs, employers do.”