Rendell approved $10 million for plant with long history of economic development gone wrong

After 34 years, the state of Pennsylvania is still trying to stimulate economic development at a manufacturing facility in Westmoreland County.

In his final month before leaving office, former Gov. Ed Rendell awarded more than $488 million in state grants through the controversial Redevelopment Capital Assistance Program (RACP). The grants included $10 million for renovations at a manufacturing facility in Westmoreland County which cannot seem to keep tenants, despite years of state government aid.

Mr. Rendell is the third consecutive Democrat governor to award major taxpayer-funded assistance to the facility, which has previously housed assembly plants for Volkswagen and Sony. The facility currently sits empty – as it has since Sony departed in 2008 – but the Westmoreland County Industrial Development Corporation (WCIDC), which owns the facility, is convinced the third time is the charm.

Gov. Tom Corbett promised to review any of Mr. Rendell’s last minute grants not “signed, sealed and delivered,” but the Westmoreland County RCAP grant was released by the state two weeks ago.

The 43-year old facility was built by Chrysler in 1969, but the car company pulled out before the plant was completed. Volkswagen moved in during 1976 with the help of $100 million in state assistance offered by former Gov. Milton Shapp (D), which included grants, highway and rail improvements and property tax exemptions.

At the time, Mr. Shapp said the arrival of Volkswagen was the “most significant economic occurrence in western Pennsylvania since the days of Andrew Carnegie.”

“We pulled a big rabbit out of the hat,” said Mr. Shapp, a reference to the Volkswagen Rabbit, one of the models built at the Westmoreland facility. The company hoped the new model would help them build a presence in the American automobile market.

While the Rabbit quickly became Volkswagen’s fastest selling car in Germany, the model never caught on in America, where it was considerably more expensive than similar cars manufactured by domestic and Japanese companies. Even re-tooled versions of the Rabbit – known as the Volkswagen Golf and later the Volkswagen Jetta – were unsuccessful.

By 1985, Volkswagen was operating the plant at only 40 percent capacity and sales continued to decline, forcing the company to close the Westmoreland location completely in 1988, little more than a decade after it opened.

With the 2.5 million-square-foot facility sitting vacant, former Gov. Robert Casey (D) signed off on $40 million in taxpayer-funded incentives in 1990 to convince electronics manufacturer Sony to move in. In return, Sony promised to employ 2,200 people at the plant, where they intended to manufacture color televisions.

Like Volkswagen, Sony survived at the location for less than two decades.

By 2007, Sony cut the number of jobs at the plant nearly in half after deciding to move television manufacturing to Mexico. Two years earlier, Mr. Rendell approved a $1 million grant with Sony in return for an agreement they would keep 1,800 jobs in the state.

The Sony plant closed for good in 2008.

Raymond Christman, state secretary of commerce under Mr. Casey, told the Pittsburgh Post-Gazette in 2007 there was never an explicit deal signed by Sony to employ as many people as they had promised. Without such an agreement in place, the state was unable to recover any of the economic development funds paid to the company.

Jake Haulk, president of the fiscally conservative Allegheny Policy Institute, said the state government’s attempt to pick winners and losers generally results in the waste of taxpayer dollars.

“It’s easy to say, ‘well, we had the Sony jobs for 15 years,’ but what was the opportunity cost of the money spent there by the state and local governments? It’s the unseen costs that are important,” said Mr. Haulk.

To make matters worse, government subsidies create the expectations of future handouts in the business community, said Mr. Haulk.

“If you create the proper positive business environment, you don’t have to do too much economic development,” said Mr. Haulk.

Gary Tuma, spokesperson for Mr. Rendell, last week said Mr. Rendell believes economic development spending did more good than harm for the state, even though some investments do not work out.

Mr. Tuma also said the state is better insulated from losses this time around.

“The RACP program requires matching funds from private investors. So the state puts in no more than half,” said Mr. Tuma. “We’re not at great risk because if the project fails to get off the ground, they do not receive the state funds.”

The WCIDC hopes to avoid the mistakes of the past as well. Instead of renting the facility to a single tenant, the authority is looking several smaller companies to use the space, the Pittsburgh Post-Gazette reported last week.

“If we’re successful and get eight businesses in there, are they all going to go out of business at the same time? Probably not. We’re inflation-proof,” said Larry Larese, the WCIDC’s executive director.

The WCIDC is also looking for another $20 million to complete renovations on the plant and attract potential tenants. There are currently no tenants in place.