Stuck in Neutral

PA business climate shows little improvement from last Spring

Neither the limited business tax cuts approved by the General Assembly and signed into law by Governor Ed Rendell, nor the state’s first effort at property tax reform are viewed by the Pennsylvania business community as having been very significant.  This as the Lincoln Institute’s Fall 2006 Keystone Business Climate Survey finds a continued negative view of the state’s economy and a pessimistic view of the future.

The Keystone Business Climate Survey is conduced in the Spring and Fall of each year and asks the owners and top managers of Pennsylvania businesses their view on business conditions in the state.  These are the people who actually are involved on a day-to-day basis in running Pennsylvania’s economy.

On the campaign trail Governor Ed Rendell and legislative leaders have been taking credit for a round of business tax cuts implemented approved earlier this year and point to those cuts as a sign of their commitment to improving the state’s economy.  Business leaders, however, don’t see it that way.  Almost two thirds, 61% said the tax cuts were insignificant, with 26% having described them as being “very insignificant.”  A total of 34% viewed the tax cuts as being significant.

Likewise, the limited property tax reform measure signed into law last summer is seen as having little impact on businesses.  Sixty-eight percent said the property tax reform measure was insignificant, 47% of those responding said it was “very insignificant.”  One quarter (25%) of the respondents labeled property tax reform as being significant, and only 4% said it was “very significant.”

Business Climate

The lack of significant progress on taxation is a prime factor driving the continued negative assessment of Pennsylvania’s overall economy.  In general, 34% of the business chieftains participating in the poll said business conditions have gotten worse in Pennsylvania over the past six months, while 12% said the state’s economy has improved. Another 53% said business conditions have remained stable.  That, however, isn’t saying much as confidence in the Keystone state business climate has been stuck for several years at the lowest point since the Lincoln Institute began conducting the survey in 1995.

There is limited optimism that the economy in Pennsylvania will improve over the coming six months.  Thirty-five percent say they expect business conditions to get worse, while 15% expect the economy to improve and 47% anticipate it staying about the same.

Employment levels have stagnated in recent months.  Sixteen percent of the businesses responding to the Keystone Business Climate Survey said they have added employees over the past six months, while 17% say they have fewer employees, and 66% said employment levels remain about the same.  Looking ahead 16% of the businesses said they expect to add to their employee compliments, 13% expect to employ fewer people, and 70% expect employment numbers to remain steady.

One of the factors driving employment levels down is the recently approved increase in the state’s minimum wage.  Twenty-eight percent of the employers said they are or will employ fewer employees as a result of the minimum wage increase. Not one company said it plans to hire more employees in the wake of that wage hike.  The majority, 58% say the minimum wage increase will either not affect them or have no impact on the number of people they employ.

The bright spot in the survey appears to be in sales.  Thirty-four percent reported increased sales over the past six months compared to the 31% that saw sales decrease. Sales remained constant at 33% of the companies.  Looking ahead, 37% predict increasing sales over the coming six months, while 20% say they expect sales to decline.

Transportation Infrastructure

A special commission is recommending to the Governor and the General Assembly that significant amounts of new revenue be dedicated to fund mass transit along with highway and bridge repair in Pennsylvania.  The General Assembly will address that issue when it returns from its election recess.  Seventy-seven percent of the business leaders responding to the Keystone Business Climate Survey said they agree that more money should be spent on the state’s transportation infrastructure.

However, that does not necessarily mean they support increased taxes.  Forty-four percent said that no taxes should be increased and the revenue found elsewhere in the state budget.  Should taxes be increase, however, 22% favored a hike in the state gasoline tax, 14% would agree to an increase in the sales tax, 3% favor an increase in the personal income tax, and 1% support an increase in corporate net income taxes.

Business leaders say the state’s transportation infrastructure plays a vital role in Pennsylvania’s economy.  Ninety-four percent say it is vital that we improve the quality of our roads and bridges while 75% say mass transit is important to the state’s economy.  Both the Southeastern Pennsylvania Transportation Authority (SEPTA) and Port Authority Transit (PAT) in Pittsburgh run annual operating deficits.  Seventy-four percent of Pennsylvania’s business leaders say streamlining operations is the first step that needs to be taken. After that, 6% favor giving SEPTA and PAT additional revenue and 4% say service cuts are in order.

Other Issues

There is strong support among Pennsylvania’s business community for enactment of a state constitutional amendment to limit the annual increase in state spending to the rate of inflation plus population growth.  Seventy-five percent of the business leaders surveyed said such an amendment should be approved, while 18% disagreed.

Education remains a critical component of the state’s economy.  Seventy-four percent of the poll respondents said the quality of potential employees would improve if parents in Pennsylvania were given more education choices for the children, such as charter schools.  Fifteen percent said more choices would not be helpful.

Job Approval Ratings

President George W. Bush’s job approval rating has rebounded from a drop in last spring’s Keystone Business Climate Survey.  Sixty-five percent of the respondents said they have a positive view of the job being done by President Bush, up from the 49% approval rating he posted in the spring survey.  U.S. Senator Rick Santorum’s job approval rating is also up.  Seventy percent approve of Santorum’s job performance up from 52% last spring.  U.S. Senator Arlen Specter and Governor Ed Rendell continue to lag.  Twenty-six percent hold a positive view of the job being done by Senator Specter, down from 29% in the last poll.  Governor Ed Rendell’s positive rating is up from last spring, but he received only a 19% job approval rating against a 73% negative rating.

Approval ratings for Pennsylvania’s General Assembly have improved marginally from their pay raise-driven low of last spring.  Nineteen percent of the business leaders participating in the Lincoln Institute survey say they have a positive view of the job being done by the state Senate, while 63% hold a negative view.  Last spring only 9% thought the Senate was doing a good job.  The Pennsylvania House of Representatives scored a 17% job approval rating, with 63% disapproving.  Likewise, only 9% had given the House a positive rating last spring.

Congressional approval ratings are not much better.  Twenty-one percent hold a positive view of the job being done by the U.S. Senate, 68% have a negative view.  Twenty-nine percent say the U.S. House of Representatives is doing a good job, 58% say they are not.

Election

Although statewide polls of the overall electorate show U.S. Senator Rick Santorum and Republican gubernatorial candidate Lynn Swann trailing in their respective races, they have strong support among the business community.  Seventy-nine percent say if the election were held today they would vote for Santorum over his Democrat opponent, State Treasurer Robert P. Casey, Jr.  Among business leaders, Lynn Swann received the votes of 72% of poll respondents, while 16% said they would back Governor Ed Rendell.

Methodology

The Lincoln Institute’s Fall 2006 Keystone Business Climate Survey was conducted electronically from September 20, 2006 through October 6, 2006.  A total of 191 business leaders responded to the survey.  Of that number, 74% were business owner, 13% were the CEO, COO or CFO of the business, 2% were the state level manager of the business, and 4% were the business’ local manager.