COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES
APPROPRIATIONS COMMITTEE PUBLIC HEARING
STATE CAPITOL HARRISBURG, PA
MAIN CAPITOL BUILDING 14 0 MAJORITY CAUCUS ROOM
WEDNESDAY, JANUARY 24, 2 018 8:30 A.M.
PRESENTATION ON SPECIAL FUNDS RELATED TO THE PA DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT
BEFORE: HONORABLE STAN SAYLOR, MAJORITY CHAIRMAN HONORABLE KAREN BOBACK HONORABLE SHERYL M. DELOZIER HONORABLE GEORGE DUNBAR HONORABLE KEITH J. GREINER HONORABLE SETH M. GROVE HONORABLE MARCIA M. HAHN HONORABLE DOYLE HEFFLEY HONORABLE SUSAN C. HELM HONORABLE R. LEE JAMES HONORABLE WARREN KAMPF HONORABLE FRED KELLER HONORABLE NICK MICCARELLI HONORABLE DUANE D. MILNE HONORABLE JASON ORTITAY HONORABLE MICHAEL PEIFER HONORABLE MARGUERITE QUINN
Debra B. Miller dbmreporting@msn. com 2
BEFORE (continued): HONORABLE BRAD ROAE HONORABLE JAMES R. SANTORA HONORABLE CURTIS G. SONNEY HONORABLE JOSEPH F. MARKOSEK, DEMOCRATIC CHAIRMAN HONORABLE TIM BRIGGS HONORABLE DONNA BULLOCK HONORABLE MARY JO DALEY HONORABLE MADELEINE DEAN HONORABLE MARIA P. DONATUCCI HONORABLE MARTY FLYNN HONORABLE ED GAINEY HONORABLE STEPHEN KINSEY HONORABLE LEANNE KRUEGER-BRANEKY HONORABLE MARK ROZZI HONORABLE PETER SCHWEYER
COMMITTEE STAFF PRESENT: DAVE DONLEY MAJORITY EXECUTIVE DIRECTOR
MIRIAM FOX DEMOCRATIC EXECUTIVE DIRECTOR 3
I N D E X
TESTIFIERS
~ k ~ k ~ k
NAME PAGE
DENNIS M. DAVIN SECRETARY, PA DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT...... 5, 7
SCOTT D. DUNKELBERGER EXECUTIVE DEPUTY SECRETARY, PA DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT...... 5, 7
SHERI COLLINS DEPUTY SECRETARY, OFFICE OF TECHNOLOGY & INNOVATION, PA DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT...... 5
RICHARD VILELLO DEPUTY SECRETARY FOR COMMUNITY AFFAIRS, PA DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT...... 55
SUBMITTED WRITTEN TESTIMONY
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See submitted written testimony and handouts online under "Show:" at:
http://www.legis.State.pa.us/cfdocs/Legis/TR/Public/tr finder public action.cfm?tr doc typ=T&billBody=&billTyp=&b illNbr=&hearing month=&hearing day=&hearing year=&NewCommit tee=Appropriations&subcommittee=&subj ect=&bill = &new title=& new salutation=&new first name=&new middle name=&new last n ame=&new suffix=&hearing loc 4
1 P R O C E E D I N G S
2 * * *
3 MAJORITY CHAIRMAN SAYLOR: We'll call the
4 Appropriations meeting and hearing to order.
5 And I want to thank Secretary Davin for coming
6 and agreeing to come and talk to the Committee today.
7 Before we begin, if everybody would please make
8 sure your cell phones are on vibrate or silence or turned
9 off. The hearing is being recorded, and I don't want it to
10 interfere with the broadcast of the hearing.
11 The purpose of the hearing today is to allow
12 Members an opportunity to ask questions and learn more
13 about the operations of the special funds under the
14 purview of the Department of Economic and Community
15 Development.
16 We're looking to get a better understanding of
17 how these funds function and how the moneys are expended,
18 and what revenue sources are utilized and why the balances
19 in these funds exist.
20 During our budget negotiations this past year in
21 the House, there were a lot of interesting things going on
22 as far as the transferring and discussions of transferring
23 these fund balances from various taxpayer special funds to
24 help fill the deficit caused by a decline in revenue during
25 the 2016-17 fiscal year. 5
1 As this Committee dug into the balances of these
2 various special funds, it became apparent that many
3 questions existed. This past year has been some difficult
4 times and discussions, and today we're about getting some
5 accurate information and current information on these
6 funds. And I'm hoping today presents a turning of the
7 page, that we have a more open and honest dialogue
8 concerning these funds.
9 I'm asking that Members and testifiers keep their
10 questions and answers as concise as possible, and we are
11 allowing Members 5 minutes per Member asking questions. So
12 we will keep very close watch on the 5 minutes.
13 With that, Secretary Davin and anybody else who
14 is going to provide testimony, would you please rise and
15 raise your right hand:
16 Do you swear and affirm that the testimony you
17 are about to give is true to the best of your knowledge,
18 information, and belief? If so, say "I do."
19 SECRETARY DAVIN: I do.
20 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: I do.
21 DEPUTY SECRETARY COLLINS: I do.
22 MAJORITY CHAIRMAN SAYLOR: Thank you.
23 SECRETARY DAVIN: Thank you.
24 MAJORITY CHAIRMAN SAYLOR: Very good.
25 Any comments to start? 6
1 MINORITY CHAIRMAN MARKOSEK: Yeah. Thank you,
2 Chairman.
3 Just to welcome everybody here today. Welcome to
4 the Secretary and to the Deputy Secretaries here today.
5 And just to echo the Chairman, I think we all
6 very much agree with transparency. These special funds are
7 special funds, and sometimes we don't look into them
8 perhaps as much as we should.
9 I will say that last summer, last early fall, we
10 had a potential budget that looked at special funds to use
11 vast amounts of money that presumably were in those special
12 funds. I think everybody in this room pretty much knew
13 they weren't. So we ended up with, of course, a budget
14 where we're borrowing a lot of money and doing some of
15 those kinds of things.
16 But I think at least certainly to find out what
17 special funds, what funding may be available in special
18 funds and how you use it and what you have planned to do
19 with it, would assist this Committee. Certainly I think we
20 understand that whatever funds that you do have, you are
21 using them in a very, very efficient manner, and we look
22 forward to hearing that.
23 I know you're doing a lot of good work in my area
24 and a lot of the areas of the Commonwealth, and we look
25 forward to hearing your testimony. 7
1 Thank you.
2 SECRETARY DAVIN: Thank you.
3 MAJORITY CHAIRMAN SAYLOR: With that, we'll move
4 right into questions, and I'll ask Representative Helm.
5 REPRESENTATIVE HELM: Thank you, Mr. Chairman,
6 and welcome.
7 I'm always interested in small business, so I
8 would like to talk a little bit about the Small Business
9 First Fund.
10 Please explain to the Committee what the
11 Small Business First Fund is, where the revenue comes from,
12 is there any complement associated with it, and if not, how
13 expenses are tracked against it. And then please outline
14 how moneys are expended, like what criteria is used and for
15 what purpose.
16 SECRETARY DAVIN: Sure, Representative.
17 And I have with me today, I have Deputy Secretary
18 Sheri Collins. She is our Deputy Secretary of Technology &
19 Innovation. And our Executive Deputy Secretary,
20 Scott Dunkelberger, who has run these programs, that
21 specific program for quite some time. So I'll ask Scott to
22 answer that question, please.
23 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Okay.
24 Well, there were several questions in there, so I'll try to
25 get to those. 8
1 The Small Business First program actually was
2 borne out of something that was called the Pennsylvania
3 Capital Loan Fund that was created back in the early 1980s,
4 I believe.
5 The Small Business First Fund is a program that
6 makes loans that are initiated through a statewide network
7 of local economic development groups who are boots on the
8 ground to identify small businesses in their community.
9 The program has been expanded over the years to
10 include not just manufacturing, but really there are four
11 accounts under Small Business First. One of those accounts
12 is for pollution prevention projects. One is working lines
13 of credit for export financing. There's an account called
14 the Community Economic Development Loan Fund, which is
15 specifically for the retail and service industries,
16 businesses in distressed areas of the State. And then the
17 general Small Business First Account is for manufacturing,
18 industrial, really all sorts of businesses that add to the
19 economic base of the community.
20 So important to know about this program as well
21 as the Manufacturing and Equipment Loan Program, the
22 demand for these funds rises and falls sort of with the
23 economy. What we fund under the program is working
24 capital, but mostly machinery and equipment and real estate
25 proj ects. 9
1 So as businesses are investing, they come through
2 the local economic development groups to the State, now to
3 the PIDA Board. This program was consolidated into the
4 Pennsylvania Industrial Development Authority in 2014. And
5 we provide financing typically for the second half of the
6 deal. So if a project is an $800,000 loan for real estate,
7 we can loan up to $400,000 of that. And we typically
8 partner with a bank or another lender, once in a while just
9 with equity, but mostly with other lenders, all right?
10 The program doesn't receive appropriations. It
11 was funded initially, I believe, through the PERF bond
12 issue that was passed by the voters in 1982 or '3, I
13 believe. So it only sustains itself through loan
14 repayments.
15 So we charge interest rates, albeit just below
16 market rate interest rates. To the extent that we make
17 good loans, the Revolving Loan Fund can grow.
18 REPRESENTATIVE HELM: All right.
19 Well, I know that you had ending balances of
20 28.2 million and 27.5 million. I just wondered, explain
21 why you have such large balances.
22 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: 28.2
23 and 2 8.5.
24 So let me talk about, through the recession that
25 we have come out of fairly recently, the balances under 10
1 Small Business First grow through loan repayments, all
2 right? And then when we hit economic expansion times, then
3 we do a lot of demand for a loan.
4 So, for instance, you know, again, Small Business
5 First is under the Pennsylvania Industrial Development
6 Authority. So far this year, we have approved 45 loans.
7 We have 37 more under consideration right now, and we're
8 only halfway through the fiscal year. We think that's
9 good.
10 The other reason for the balance is actually a
11 really good reason, we think. So we have partnered with
12 the Commonwealth Financing Authority to consider all of
13 the ag- and tourism-related loans that we do under
14 Small Business First, and it has been considerable. And we
15 have offered some information in here, exactly how much
16 money that we have transferred.
17 PIDA approves these projects, and we take them to
18 the CFA Board, and the Board has been gracious to approve
19 those. So it has helped out the Small Business First
20 Account in a very considerable way and allowed us to focus
21 the funds on economic-based projects. Those are, you know,
22 manufacturing and industrial, and that's where we are on
23 the balances.
24 REPRESENTATIVE HELM: Thank you.
25 I also have one question. 11
1 Secretary Davin, in your letter you gave us, it
2 says that the Department is presently reviewing more than
3 200 multimodal applications, requesting 253 million for
4 transportation projects all across Pennsylvania. And
5 there's one here, "Local." It says, 1.29 million for
6 mitigation of unsafe conditions on the heavily used
7 Chestnut Street Corridor in Harrisburg, Dauphin County.
8 I'm just curious, what is that exactly for, and is that a
9 loan, one of your 2 percent loans, or how does that work?
10 SECRETARY DAVIN: I don't even know. Do you have
11 that information?
12 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Um--
13 SECRETARY DAVIN: But can I just mention the fact
14 that that letter was from September of 2017 when we were
15 doing that. So those were numbers as of that particular
16 date.
17 REPRESENTATIVE HELM: Okay.
18 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So the
19 Multimodal Transportation Program, actually there are two
20 programs by the same name. One is in PennDOT; one is in
21 the Commonwealth Financing Authority.
22 So right now, we had approved all of the money
23 that we have for multimodal transportation back at the
24 November meeting of the Commonwealth Financing Authority.
25 So it may have been a pending application at that point, or 12
1 it may be with PennDOT. I'm not sure. But we haven't
2 started to take new applications for multimodal projects at
3 the CFA at this point.
4 REPRESENTATIVE HELM: All right.
5 SECRETARY DAVIN: But, Representative, that
6 specific one, we can get information back to you, and
7 Mr. Chairman, through the Chair.
8 REPRESENTATIVE HELM: All right. Thank you.
9 MAJORITY CHAIRMAN SAYLOR: Very good.
10 Representative Kinsey.
11 REPRESENTATIVE KINSEY: Thank you, Mr. Chairman.
12 Good morning, Deputy Secretaries, Secretary.
13 SECRETARY DAVIN: Good morning.
14 REPRESENTATIVE KINSEY: Mr. Secretary, can you
15 explain to us what the term "special funds" actually means
16 and/or what it covers?
17 SECRETARY DAVIN: I think the term was provided
18 by the Appropriations Committee in terms of specific funds
19 that we have within the programs within the Department.
20 These are programs that had been utilized for,
21 you know, many years here now for loans, for grants. And I
22 think part of this was for, just to give some additional
23 information, the idea was, the request was for additional
24 information on these particular loans since they had
25 balances within these. 13
1 And frankly, the fact that these loan programs
2 have balances is a good thing. That means that we have
3 money to lend and provide to the citizens and the
4 businesses of Pennsylvania.
5 So this is something that, you know, we are
6 coming here today to answer questions specifically about
7 these particular programs and project budgets.
8 REPRESENTATIVE KINSEY: Great. Thank you.
9 Is there anyone on your team that can talk about
10 the economic impact that these loans have had on the
11 Commonwealth in regard to the growth of businesses, the
12 addition of job opportunities for---
13 SECRETARY DAVIN: Sure.
14 REPRESENTATIVE KINSEY: ---for constituents who
15 reside in our Commonwealth?
16 SECRETARY DAVIN: Sure. Absolutely.
17 I think, you know, all the loan programs and the
18 programs that we have indicated here provide specific
19 advantages to businesses in the Commonwealth of
20 Pennsylvania, and also communities in the Commonwealth of
21 Pennsylvania.
22 For instance, you know, we have, between myself
23 and my staff, we have visited hundreds of companies across,
24 all across the State of Pennsylvania, in every single
25 district in Pennsylvania. 14
1 And the interesting thing right now, over the
2 course of the past few years, the economy and job creation
3 has really been a focus of these communities and a focus of
4 these especially manufacturers and small manufacturers.
5 A lot of people don't realize this,
6 Representative, but in Pennsylvania and in other States in
7 the United States, we're making small plastic components
8 again. And this has been happening for the last few years,
9 and it's because Pennsylvania manufacturers are
10 competitive, not only within Pennsylvania and within the
11 United States but globally.
12 And these funds provide a unique opportunity for
13 us to help them continue to grow. It provides an
14 opportunity to help them continue to look at the best
15 technology, the best equipment, to provide funding to help
16 them secure the best equipment possible so they can be
17 successful with their particular products and their
18 opportunities in the United States and also globally.
19 REPRESENTATIVE KINSEY: Thank you, Mr. Secretary.
20 And one last part of my question is, do we have
21 data that could support the growth of businesses in the
22 Commonwealth?
23 And again, I'm not sure when the special funds
24 were initiated---
25 SECRETARY DAVIN: Right. 15
1 REPRESENTATIVE KINSEY: -- you know, by this body
2 here, but do we have data that can speak to the fact that
3 there has been business growth with these special funds
4 versus prior to the issuance of such funds?
5 SECRETARY DAVIN: Absolutely. And I think some
6 of the information is in the information that we have
7 provided already.
8 REPRESENTATIVE KINSEY: Okay.
9 SECRETARY DAVIN: But we track that. We track
10 with respect to all of our programs, and this is just a
11 subset of all of the programs that we have in the
12 Department of Community and Economic Development.
13 But we track within all those programs the amount
14 of jobs that are created---
15 REPRESENTATIVE KINSEY: Okay.
16 SECRETARY DAVIN: -- the amount of investment,
17 the amount of leverage that these funds, these State funds
18 provide, private leverage, private dollars that come into
19 these particular projects and these companies.
20 So we have that information. We'd be happy to
21 provide that to you.
22 REPRESENTATIVE KINSEY: Great.
23 Thank you very much, Mr. Secretary
24 SECRETARY DAVIN: Thank you.
25 REPRESENTATIVE KINSEY: Thank you, Mr. Chairman. 16
1 MAJORITY CHAIRMAN SAYLOR: All right.
2 Representative Dunbar.
3 REPRESENTATIVE DUNBAR: Thank you, Mr. Chairman.
4 And thank you, Secretary and Deputy Secretaries,
5 for being here.
6 I don't think any of us are here to discuss or
7 debate the outcomes associated with the funds that you have
8 under your purview. I think really what we're trying to
9 figure out is the balances that are there: are they
10 sufficient; are they in the best interests of the
11 Commonwealth, how they're being utilized.
12 Specifically to follow up on Representative Helm
13 on the Small Business Fund and the Machinery and Equipment
14 Loan Fund, both of those essentially had money taken out of
15 them in the past, just recently. Wasn't it like '14-15?
16 SECRETARY DAVIN: 2 014; right.
17 REPRESENTATIVE DUNBAR: And it was quite a
18 substantial amount of money. It was like 85 million from
19 the Machinery and Equipment Loan Fund.
20 After that money came out, did that affect
21 anything that you were doing?
22 SECRETARY DAVIN: Absolutely.
23 REPRESENTATIVE DUNBAR: How so?
24 SECRETARY DAVIN: If you noticed, that was prior
25 to me coming there. I came in January of 2015. 17
1 But what happened, a couple of things. Number
2 one is, we had to shut down the programs for a while until
3 other funds came back into the programs through repayments
4 and other things. There were no appropriations for those
5 particular programs at all.
6 The biggest issue that I see that happened with
7 that was that the amount, the total amount, I believe, was
8 $180 million with the Small Business First and the
9 Machinery and Equipment Loan Fund, and a lot of that
10 funding that was transferred by the Legislature was already
11 committed. And these are commitments that were made by our
12 Governor's Action Team and through our PIDA program
13 already. And--
14 REPRESENTATIVE DUNBAR: But just to interrupt,
15 because I appreciate what you're saying, but when I look at
16 your cash receipts and disbursements, I don't actually see
17 that story that you're telling me here. Because your fund
18 balance continues, after the 85 million came out of the
19 Machinery and Equipment Loan Fund, it has again begun to
20 increase in the balance relatively substantially, so it
21 seems like there are dollars there.
22 I just want to make sure what you're telling me
23 is what's on this page in front of me.
24 SECRETARY DAVIN: It is on the page in front of
25 you. 18
1 So the issue for us is the fact that we think
2 there's a tremendous opportunity to utilize these
3 particular programs -- MELF, the Machinery and Equipment
4 Loan Fund, and the Small Business First Fund.
5 What ended up happening when that transfer was
6 made is we lost credibility. The State of Pennsylvania
7 lost credibility with manufacturers in the State of
8 Pennsylvania that we made those commitments to, and we had
9 to call back each one of those manufacturers and each one
10 of those companies and say, the State of Pennsylvania is no
11 longer good for the commitment that the State of
12 Pennsylvania made.
13 REPRESENTATIVE DUNBAR: Okay.
14 SECRETARY DAVIN: That's an issue -- and let me
15 just finish, Representative.
16 So that's an issue for us, not only with the
17 employers in the State of Pennsylvania, but it's also an
18 issue when the Governor's Action Team makes commitments of
19 those funds and then we have to call those companies that
20 we are making those commitments to, that are pledging to
21 create jobs, that are either coming to Pennsylvania or
22 pledge to come to Pennsylvania or companies that are in
23 Pennsylvania, Pennsylvania companies that are looking at
24 increasing the number of jobs.
25 And what happens is and what had happened then is 19
1 that we get a reputation, the State of Pennsylvania gets a
2 reputation for making commitments and then no longer
3 honoring those commitments. And we have worked very hard
4 in the past 3 years to take care of that and to fix that
5 issue with respect to companies that are looking to come to
6 Pennsylvania and companies that are in Pennsylvania.
7 And we're seeing a growth projection, and in here
8 we tell the story. We tell that story, but we also show
9 the fact that we have growth projected within both of those
10 accounts that will exceed, you know, what we have
11 available.
12 REPRESENTATIVE DUNBAR: And I will agree with
13 everything you said there as far as Pennsylvania needing to
14 be more business friendly and making a positive statement
15 towards that. Let me try just a quick different way.
16 What's the most you have disbursed out of this
17 account, the Machinery and Equipment Loan Fund?
18 SECRETARY DAVIN: Go ahead.
19 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So let
20 me explain what happened, and that will get to your answer,
21 I believe.
22 There was $10 million left in the Machinery and
23 Equipment Loan Fund after the transfer of $85 million in
24 2014, all right? We had 42 pending applications in-house
25 at that time for $53 million, all right? So we were able 20
1 to take care of about 10; we had $10 million left. The
2 rest of them, we had to go back and say, I'm sorry, we
3 don't have funding for you. Now, these are businesses that
4 already packaged. They had half from the bank and they
5 were looking for the other half from us based on the real
6 angst there's going to be funding there to do. So they had
7 to go back to their other lenders and say, okay, we need
8 the other half of this loan, all right?
9 Then we shut the program down, the Machinery and
10 Equipment Loan program, and we shut it down for a couple of
11 years, because all we had left were the loan repayments
12 from the existing portfolio that we had, all right? So we
13 needed to let that balance build up so when we start taking
14 applications again, we can fill the order. We don't want
15 ever people to come to us on a loan and say, well, no,
16 sorry, you went through this application process; we don't
17 have a loan for you -- all right? -- because they have got
18 to work with their bank to get the other half of it, all
19 right?
20 When we opened the program back up for business,
21 the maximum loan amount prior to this was $5 million per
22 loan for equipment -- all right? -- and our target was
23 manufacturers. And when we opened up, our maximum loan
24 amount was $400,000 so that we could try to help as many
25 manufacturers as we could, all right? 21
1 When we reopened the program, we're still in the
2 recession -- all right? -- and interest rates are really at
3 historic lows. So what was going on a lot, A, as the
4 Secretary pointed out, we lost credibility. B, banks were
5 hungry for loans, and still are, all right? However,
6 private interest rates are rising, all right? So we
7 actually had banks, you know, come to borrowers. They got
8 wind of companies coming to us, you know, looking for
9 low-interest-rate loans, and said, you know what? We'll do
10 the whole deal; we really like you. And that's great. The
11 deal gets done, all right? But our balances continue to
12 rise then with that.
13 So we asked last year for the PIDA Board to
14 increase the maximum loan amount under MELF up to
15 $1 ^ million. Again, sort of sticking our toe in the water
16 to see how we would do with that, and we have gotten
17 response from that, all right? I mentioned we have got
18 37 pending applications. Some of those are MELF loans, all
19 right? So we're going to ask the Board to also increase
20 that now again, okay? We're on a pretty good footing.
21 Here's the big issue that everyone needs to
22 understand. We had a portfolio of 211 active loans -- all
23 right? -- back in 2009 right after the recession started,
24 all right? When the funding was taken out of that, we
25 weren't able to initiate new loans, so all we had was that 22
1 portfolio. That portfolio has been paid off, and the
2 remainder of the portfolio, there are 78 active loans
3 remaining in the portfolio that will mature in about
4 2 ^ years, all right? So after that, there is no income,
5 all right? The only income is the portfolio, because we
6 don't get, you know, appropriations for it.
7 So another transfer out of this program, while
8 there's a balance there -- all right? -- is really the end
9 of the program.
10 REPRESENTATIVE DUNBAR: And still, what was the
11 most you have ever issued out in loans in 1 year, was the
12 question.
13 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Okay.
14 So we'll have to get that for you, all right?
15 REPRESENTATIVE DUNBAR: Okay.
16 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: The
17 program goes back to, you know, the 1980s, so we'll find
18 out what the most was that we have disbursed out of the
19 program.
20 MAJORITY CHAIRMAN SAYLOR: Again I remind the
21 testifiers to please answer the question specifically, not
22 to go off, because it takes up times of the questions, and
23 that goes for both sides.
24 So at that point, I recognize Representative
25 Gainey. 23
1 REPRESENTATIVE GAINEY: Hello, Mr. Secretary and
2 Deputy Secretaries. Thank you for your time this morning.
3 Chairman, thank you.
4 My question is, it seems like these special,
5 especially when we talk about the Small Business First
6 Fund, it has done a lot of great things. Is there a way we
7 could get a list of how some of these special funds have
8 improved the business environment? Meaning, how many jobs
9 they created; the investments they made in neighborhoods or
10 communities or townships to show the development and
11 growth. Because I think the conversation is always, well,
12 what does these special funds do?
13 And I think sometimes we have a difficulty when
14 we don't tell our story, and sometimes we get so in-house
15 that we forget that we have to tell a story, particularly
16 the Legislature to let them know how these special funds
17 work and the success that's coming out of it. And so I
18 think that if we told the story a little better,
19 particularly listening to some of the comments that you
20 guys have made today, I think that story would debunk a lot
21 of those things that are being said about what's going on
22 with the special funds.
23 I think you guys have a story. I think you need
24 to tell it, and one way of telling it is to demonstrate how
25 many projects you have done through these special funds in 24
1 the State of Pennsylvania, here's the economic impact that
2 comes from it, and also the jobs that were created.
3 Because one thing that both sides of the aisle could agree
4 on is that we want to create jobs, and if we have special
5 funds, like the Small Business First Fund that is creating
6 jobs, we need a list. We need to know the number of jobs
7 that was created so that we can see the impact that it has
8 made in the Commonwealth of Pennsylvania.
9 SECRETARY DAVIN: Thank you, Representative. And
10 we certainly will do that.
11 We definitely track the number of jobs for each
12 of the programs that are created as a result of that. But
13 we can also look at how these impact the communities.
14 And the other thing that sometimes doesn't get
15 included in some of the information that we provide is
16 that, you know, we may not include the impact to the
17 communities. We may not include the fact that other
18 businesses opened up around these jobs. We may not include
19 some of the ancillary suppliers that these projects
20 created. So we can take a look at that, and we'll provide
21 that to you.
22 REPRESENTATIVE GAINEY: And also he talked about
23 the number of loans that were still in the portfolio that
24 hadn't been covered. I think that's a story, too, on why
25 you need the money, why you have to continue to add the 25
1 money, to be able to provide the type of service that is
2 going to grow business in Pennsylvania.
3 So I think by telling the story, talking about
4 how many jobs you created out of these loans, I mean the
5 special loan funds, it does a great job throughout this
6 Commonwealth of making sure we know exactly how special
7 these special funds are.
8 SECRETARY DAVIN: Absolutely.
9 And I would also add on to that, Representative,
10 the fact that, you know, we have these funds that are
11 disbursed through these accounts, and all the projects are
12 disbursed through Boards, and these Boards have public
13 meetings every single month and we provide all that
14 information at the public meeting. So this is done in a
15 very transparent way.
16 REPRESENTATIVE GAINEY: Thank you.
17 MAJORITY CHAIRMAN SAYLOR: Thank you.
18 Representative Ortitay.
19 REPRESENTATIVE ORTITAY: Thank you, Mr. Chairman.
20 Good morning, everyone.
21 SECRETARY DAVIN: Good morning.
22 REPRESENTATIVE ORTITAY: I have a couple
23 different areas I want to cover.
24 I'm looking through the sheet here, and, you
25 know, when we go back and forth and look at the total 26
1 amounts that are in these special accounts, and then I look
2 through the other where there are contracts pending or
3 applications pending. For the Ben Franklin Fund, we see,
4 you know, 6 months, 6 to 12 months. Industrial sites, we
5 see basically the same thing except with 12 to 16 months.
6 I'm just wondering, is there a way to get the
7 applications processed faster? To get the money out there
8 quicker? Anything along those lines?
9 SECRETARY DAVIN: Yeah. That's actually a good
10 point, and I think that we have worked really hard to do
11 that.
12 There are a variety of reasons why sometimes
13 there is a gap between when we are approving the programs,
14 the funds, and the actual closings happen. A lot of that
15 is based upon other funds that have to be secured by the
16 developers or by the companies.
17 REPRESENTATIVE ORTITAY: Those are the matching
18 funds.
19 SECRETARY DAVIN: Yes. Yes; exactly.
20 So that happens, and sometimes that provides some
21 type of a delay.
22 And then it's also companies getting all their
23 paperwork together and getting enough information together
24 that we require to make sure that we provide, you know, we
25 get this closed as quickly as possible. 27
1 I think one of the things that you'll see if you
2 talk to some of the recipients of the loan programs is the
3 fact that we have come a long way over the course of the
4 past, you know, probably 10 years in terms of customer
5 service, and that's really what we're focused on.
6 We're focused on, you know, we're dealing with
7 businesses and we are working to act like a business as
8 much as we can, even being, you know, a Commonwealth
9 Department. But we want to act like a business, so we want
10 to be able to provide the best customer service. And when
11 you talk to some of the recipients of these programs,
12 you'll see that.
13 REPRESENTATIVE ORTITAY: Okay.
14 SECRETARY DAVIN: Or hear that.
15 REPRESENTATIVE ORTITAY: I guess that I would
16 just ask you guys and challenge you guys to streamline your
17 process, if you can. I'm sure you guys are already in the
18 process of doing that. But if you could make whatever
19 requirements less just to make it more efficient---
20 SECRETARY DAVIN: We'll do what we can.
21 REPRESENTATIVE ORTITAY: -- that would be my ask.
22 The other area. I know that we have talked a lot
23 about the Machinery and Equipment---
24 (Clock timer.)
25 REPRESENTATIVE ORTITAY: Thank you, Mr. Chairman. 28
1 (Laughing. )
2 REPRESENTATIVE ORTITAY: We talked about that
3 loan, that loan fund, and I guess I'll pose this question:
4 You know, why would a business come to the Commonwealth for
5 a loan when they can go to the private sector?
6 I know, Scott, that you had talked about the loan
7 interest rate environment that we're in right now, coming
8 out of the recession. But why would a company utilize this
9 program?
10 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So
11 there are two primary reasons, all right? One is access to
12 capital, and that is, you know, the bank says, we'll lend
13 you this piece of it; that's as far as we can go. And the
14 restrictions on banks, as you know, increased significantly
15 after 2008, all right? So our role is even more important
16 there.
17 The other part, the reason that we offer just
18 below market rate -- and we try to be about a point and a
19 half to two points below market rate, all right? -- is to
20 help with their cash flow so that they can save money on
21 debt service and reinvest it back in their business, hire
22 more people, do more job training, upgrade on their own.
23 Those are the two reasons.
24 REPRESENTATIVE ORTITAY: So are they coming to
25 you guys as a lender of the last resort, basically? 29
1 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: In the
2 case of access to capital, yes. In the case of, okay, we'd
3 like to get the low interest rate in addition, you know, to
4 our bank financing to save the interest money so we can
5 continue to grow.
6 REPRESENTATIVE ORTITAY: So in certain
7 situations, they could go to a bank. They would just be
8 paying a higher interest rate as opposed to what we would
9 be offering them here.
10 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Right.
11 REPRESENTATIVE ORTITAY: Okay. All right. Thank
12 you.
13 Thank you, Mr. Chairman.
14 MAJORITY CHAIRMAN SAYLOR: Thank you.
15 Representative Daley.
16 REPRESENTATIVE DALEY: Thank you, Mr. Chairman,
17 and thank you for being here.
18 I represent the borough of Ambler in Montgomery
19 County, and the borough of Ambler has a Superfund site
20 which has been, it's on its road to recovery so that
21 they're doing the regular checkups. But it also then has
22 the brownfields, a site, and has been working with Act 2
23 funds to reclaim some of this land.
24 So just in a recent meeting I had with DEP and
25 the EPA regarding these sites, one of the statements that 30
1 was made, because there is a developer that is working with
2 the Montgomery County Redevelopment Authority. They've
3 gotten the Act 2 funds. They have been able to move
4 forward to actually do a development on this old asbestos
5 site.
6 And they had a slide show, and one of the slides
7 showed that all across Pennsylvania, there are industrial
8 sites that are sitting there and not able to be reclaimed
9 because of the cost of doing it. And so my questions
10 really both go to the Industrial Sites Cleanup Fund and the
11 Industrial Sites Environmental Assessment Fund. And in
12 just reading the description of the two of these, I mean,
13 it's very interesting that the Act 4, which is the
14 environmental assessments, helps municipalities when the
15 owner of the property can't be found in doing an
16 assessment, and then that the Act 2 helps with the land
17 recycling.
18 And so my question is, because, I mean, we're
19 also seeing that you are receiving more applications for
20 grants than you are for loans. Could you talk about that a
21 little bit, and, you know, why you think that's happening.
22 And are there steps that the Legislature could do to
23 continue with actually reclaiming land from real
24 environmental degradation and not being usable across the
25 State to being reclaimed and be able to contribute to the 31
1 economy?
2 SECRETARY DAVIN: Yes, Representative. And now
3 it's probably more critical than I have ever seen it.
4 So I come from Pittsburgh and Allegheny County,
5 developing brownfield sites throughout Pittsburgh and
6 Allegheny County along the Three Rivers in southwestern
7 Pennsylvania and other places near our airport. One of the
8 issues that we have right now is the fact that we have a
9 tremendous opportunity, and that opportunity happened in
10 June of 2016 when Royal Dutch Shell agreed to build an
11 ethane cracker plant, the first of its kind, in the
12 northeast, in Beaver County, right outside of Pittsburgh
13 and southwestern Pennsylvania.
14 We immediately put together -- and this is very
15 relevant, Mr. Chairman. We immediately put together a team
16 to look at the downstream opportunities of that
17 announcement. In other words, it was a great thing in and
18 of itself. That announcement was a great opportunity, but
19 we wanted to look at what that meant for further
20 opportunities, not only in southwestern Pennsylvania but
21 all throughout Pennsylvania.
22 So we worked with the Team Pennsylvania
23 Foundation and got a world-renowned consulting firm,
24 IHS Markit out of Houston, Texas, to do a study to show us
25 what the opportunities were, and those opportunities were 32
1 great for Pennsylvania. And again, not just southwestern
2 Pennsylvania but all throughout Pennsylvania.
3 They showed a couple of things. They looked at
4 the amount of ethane that was being produced in the
5 Marcellus Shale and the Utica Shale just in Pennsylvania,
6 and they looked at the opportunities to attract -- what
7 that would attract. And based upon the ethane that was
8 produced, we could attract up to four additional ethane
9 cracker plants. It is unlikely all four, if that would
10 happen, would take place in Pennsylvania. They may be in
11 Ohio; they may be also in West Virginia, but we have that
12 opportunity. We also have the opportunity for other
13 downstream companies like plastics and fertilizers and
14 things like that.
15 The interesting thing that we're finding as we're
16 going out and we're marketing that throughout the country
17 -- and we're marketing that to site selectors and marketing
18 Pennsylvania as a place to do business because of this
19 prolific resource, the third largest resource in the world
20 -- is that they are looking at some of these former
21 brownfield sites, interestingly enough, because these
22 former brownfield sites, they're flat. They're on rail.
23 They're on highway. They're on rivers. They have an
24 abundance of power coming to them. So they're looking at
25 those. So now more than ever, we need to provide these 33
1 funds to help clean up those sites.
2 The other thing we have been doing is we have
3 been reaching out to the coal-fired power plants that have
4 been decommissioned, and there are a number of those in the
5 United States but also in Pennsylvania.
6 The interesting thing about some of these
7 coal-fired power plants is the fact that they don't want to
8 do anything with the sites, because they don't want to know
9 what the issues are related to those. So we have to sell
10 them on the Act 2 program. We have to work with them on
11 the fact that we want to help them clean those up, and we
12 want to make sure that we have the opportunity to provide
13 those particular sites to the users that want those sites,
14 that we're actually working with to locate.
15 So now more than ever, these are critical funds.
16 And, you know, these, like the other funds we're talking
17 about, you know, what I see happening is we're going to
18 come back to the Legislature in a couple of years and ask
19 to reallocate additional funds for these programs.
20 REPRESENTATIVE DALEY: Well, that was part of my
21 question, actually. I mean, I know that Growing Greener
22 actually provided a lot of funds for the grants, and we can
23 see that there were more disbursements than receipts in the
24 2017-18 period. So do we need to be looking at Growing
25 Greener III, or you don't--- 34
1 SECRETARY DAVIN: Yeah. And I can't speak to
2 that specific Growing Greener. I'm not sure exactly what
3 the components of Growing Greener III would be. But what I
4 can tell you is, we are going to need funding to help to
5 clean up these properties in a couple of years once these
6 funds are depleted, once we're utilizing these, and we will
7 deplete these funds in the next few years.
8 REPRESENTATIVE DALEY: So what I'm--
9 MAJORITY CHAIRMAN SAYLOR: Representative, your
10 time is up. That was the alarm that went off.
11 REPRESENTATIVE DALEY: Oh, I didn't know.
12 MAJORITY CHAIRMAN SAYLOR: I wanted to give you a
13 little extra time, but.
14 REPRESENTATIVE DALEY: Thank you. I appreciate
15 that.
16 MAJORITY CHAIRMAN SAYLOR: If you need more,
17 we'll do it again.
18 REPRESENTATIVE DALEY: Thank you.
19 SECRETARY DAVIN: Thank you.
20 MAJORITY CHAIRMAN SAYLOR: Representative Kampf.
21 REPRESENTATIVE KAMPF: Good morning,
22 Mr. Secretary.
23 SECRETARY DAVIN: Good morning.
24 REPRESENTATIVE KAMPF: Maybe just a little bit
25 more on the industrial sites, and I guess it's the 35
1 Industrial Sites Assessment Fund.
2 I mean, it looks to me like in the Industrial
3 Sites Cleanup Fund, you know, '14-15, '15-16, '16-17,
4 there was an $18 million balance. And then in the
5 Industrial Sites Environmental Assessment Fund, there was
6 a $15 million balance, a $16 million balance, and a
7 $16 million balance in the same 3 years and not a lot of
8 expenditures. So to the, you know, maybe the -- well, to
9 me, looking at that -- how about that?
10 (Laughing.)
11 REPRESENTATIVE KAMPF: To me, it sort of looked
12 like there was some resources there that weren't being
13 deployed.
14 Now, I hear your statement. I got, you know, I
15 got the graft, I guess, the graph that you -- graft; I just
16 said "graft." I didn't mean to say "graft" -- the graph
17 that you all sent yesterday to us that shows, you know,
18 significant additional commitments and plans.
19 Will you at least agree with me to the
20 uninitiated -- the recent past history suggests that there
21 was some money that was sitting there, wasn't being
22 deployed, and perhaps might have been useful for the
23 taxpayer in balancing a budget.
24 SECRETARY DAVIN: Do you want to go, Scott?
25 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So 36
1 what's the same as the loan programs? People develop
2 real estate when there's a demand for the real estate. So
3 we went through the worst recession that we have had since
4 the Great Recession. There wasn't a lot of demand to
5 develop real estate, let alone brownfield sites, which are
6 even more expensive than developing greenfield sites.
7 So as with the loan programs, the funds build up
8 during times of recession, and that's over time. That's
9 not just the past recession, all right? So that's why
10 you'll see now that funds are being utilized. People are
11 redeveloping old industrial sites -- all right? -- and
12 funds are being drawn down.
13 One of the other answers with the Industrial
14 Sites Cleanup Fund is, when that program was passed in
15 1995, there was a provision put into the law that only
16 20 percent of the funds could be used as grants. The issue
17 with these brownfield sites is, they have very negative
18 costs. Think of the money that you have to spend just to
19 get to zero, just to get to a level playing field with a
20 greenfield site, and that's why they need a subsidy, all
21 right?
22 And so---
23 REPRESENTATIVE KAMPF: Mr. Dunkelberger, could I
24 just, because the first comment you made made me think of
25 something. 37
1 So if we go back to, say, '06, '07, '08, based on
2 what you said, we're going to see more significant outlays
3 from these funds. Is that what I'm going to see when I go
4 and look at that?
5 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Right.
6 It's going to go up and down with the economy.
7 REPRESENTATIVE KAMPF: But in those years, that's
8 what I'm going to see if I get that information?
9 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: We'll
10 get you the information, all right?
11 REPRESENTATIVE KAMPF: Okay.
12 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: And
13 we'll look at '04, '05, '06, '07 and see that.
14 REPRESENTATIVE KAMPF: If you could.
15 And just one last.
16 I heard on your testimony about the Pennsylvania
17 First Fund and having to shut down the program and then
18 reopen it. It doesn't make sense to me, though, then that
19 you would have recently reduced the interest rate. Now,
20 that's my understanding, that you went from, say, slightly
21 below market down to 2 percent.
22 I mean, if there was a lot of pent-up demand and
23 you had to shut it down, why would you need to then lower
24 the rate?
25 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So-- 38
1 REPRESENTATIVE KAMPF: Or do I have that
2 wrong?
3 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So
4 the 2 percent interest rate is about 2 to 2 ^ percent
5 where people were borrowing -- all right? -- when we
6 started this last year, when we opened this up for that
7 last calendar year, all right? So the Fed has upped the
8 interest rate, bumped the interest rate up in the fall, and
9 private interest rates have followed because of that. So
10 when we went to 2 percent, it was from a 2 ^ percent fix
11 for 7 years, all right?
12 So while it seems like a very low interest rate,
13 we keep track under, you know, our loan programs exactly
14 every month where our borrowers are borrowing so that we
15 know, you know, we're going to stay a point and a half to
16 two points below. The 2 percent was about two or a little
17 more than two, all right?
18 So as we got to the end of the year in December
19 and the interest rate had risen, the 2 percent looked
20 really great, all right? Hence, we got 37 applications in
21 December, because just that little bit of gap really made a
22 difference for businesses, who then could save the cash
23 flow and reinvest in their business in a time of economic
24 expansion.
25 MAJORITY CHAIRMAN SAYLOR: Very good. 39
1 REPRESENTATIVE KAMPF: Okay. So from that, I
2 just hear a piece of it was to attract more potential
3 customers.
4 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: That's
5 part of it.
6 Again, when we do that, we're helping businesses
7 preserve cash flow so that they can expand -- all right? -
8 and that's what we're doing.
9 REPRESENTATIVE KAMPF: Okay. Thank you.
10 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Yep.
11 MAJORITY CHAIRMAN SAYLOR: Mr. Secretary, prior
12 to the budget hearings starting, we would like to have,
13 since all these funds are in question and you're making
14 statements that say that if we look back to 2005-2006,
15 we'll see a different picture, would you please supply
16 that information to the Committee in the next 2 weeks so
17 that we have that information and can disburse to all the
18 Members on both sides of the aisle the information on what
19 dollars were being expended from these programs at that
20 time---
21 SECRETARY DAVIN: Absolutely.
22 MAJORITY CHAIRMAN SAYLOR: ---so that we have a
23 comparison.
24 Very good. With that, we go to Representative
25 Dean. 40
1 REPRESENTATIVE DEAN: Thank you, Mr. Chairman.
2 And thank you, Secretary, Deputy Secretaries.
3 Welcome.
4 I apologize for being a little delayed coming in,
5 so I hope I'm not repeating what has already been asked
6 about. But I'm interested in the Municipalities Financial
7 Recovery Revolving Aid Fund.
8 So what I wanted to know as we sit here as
9 appropriators is, number one, what this fund does and how
10 many municipalities in distress it has helped, it is
11 helping, we anticipate it will need to help.
12 And I'm looking at a chart that shows just a
13 couple of years' snapshot of its cash flow and its funds,
14 and it doesn't look like the trajectory is the right one if
15 we really are, as a State, in need of helping financially
16 distressed municipalities.
17 So could you give us a little, the backdrop, and
18 then where the health of the fund is.
19 SECRETARY DAVIN: Sure.
20 We think that the fund is in a good place
21 right now. We currently have about, a balance of about
22 $7.1 million in committed projects, and then under-review
23 projects of about 3.9. So we're a little over $3 million
24 that we believe that's available for additional
25 allocation. 41
1 This has been absolutely critical to communities
2 that are in Act 47, distressed communities. And one of the
3 things that we have seen over the course of the past few
4 years is the fact that we are seeing more and more
5 communities come out of Act 47, specifically because of the
6 use of these funds.
7 These funds are utilized for a variety of
8 different things: consultants to help these communities
9 with their financial recovery. These funds are utilized to
10 determine issues related to public safety, municipal works
11 operations, and things like that. Absolutely critical.
12 In 2015, there was a balance of, I believe, of
13 about $11 or $12 million in the program. We are utilizing
14 it now probably better than, we think better than we ever
15 have.
16 One of the reasons is, we have within that
17 department Rick Vilello, who is the Deputy Secretary of our
18 Community Affairs. He's been doing a great job of getting
19 out and having staff get out to all these communities to
20 really determine what their needs are.
21 So we have, as I mentioned, a number of these
22 communities coming out of Act 47 probably quicker than they
23 would have come out of Act 47. We are scheduled at some
24 point in time in the next few weeks to take Pittsburgh, the
25 city of Pittsburgh, out of Act 47, which was, you know, in 42
1 no small measure due to the fact that we had these funds
2 and were able to deploy some of these funds, and also to
3 the folks in Pittsburgh and these other communities that
4 have come out of Act 47 working so hard.
5 They are absolutely critical funds that are
6 needed for these communities in order to help them get
7 through their issues.
8 REPRESENTATIVE DEAN: What if we didn't have this
9 fund? Or what if we took too much out of it?
10 SECRETARY DAVIN: Sure. I mean--
11 REPRESENTATIVE DEAN: Specifically, maybe paint
12 the picture of a municipality. What would happen?
13 SECRETARY DAVIN: Painting a picture. I mean,
14 it's as simple as communities going into bankruptcy.
15 And I think -- and I come from Allegheny County.
16 We have had a number of communities, because of the
17 collapse of the steel industry, that have gone into Act 47.
18 And to look at these communities now, some that have come
19 out of Act 47, like Clairton that has been in Act 47 for
20 over 30 years, if they would have gone into bankruptcy, who
21 knows what would have happened to these communities.
22 And they really, you look at them, and they
23 would have had a tremendous amount more, I believe, of
24 vacancies, of dilapidated homes, of municipal works that
25 were no longer working, poor police protection, poor 43
1 fire protection -- a variety of things.
2 You know, I can't tell you how important I think
3 these funds are to be able to help these communities, and
4 help them get over their issues and over the problems that
5 they have experienced.
6 REPRESENTATIVE DEAN: And isn't it true also that
7 if some of these distressed municipalities weren't helped
8 or if we cheated them of the funds needed to revitalize and
9 to avoid bankruptcy and reclaim themselves and redevelop
10 themselves as Pittsburgh has done, they would suffer
11 greater credit downgrades; local taxpayers would see an
12 increase in their taxes. And the important thing that we
13 all talk about is the attracting of businesses to
14 particular municipalities in need of jobs and growing their
15 economies. Isn't that all part of the ball?
16 SECRETARY DAVIN: It's all part of it,
17 Representative.
18 And I think, you know, the worst thing that can
19 happen in those cases is those communities are abandoned,
20 because what happens, they're in bankruptcy. Those
21 communities are abandoned. It becomes the State's problem,
22 the county's problem. The municipalities don't have any
23 money to do that.
24 But think of the thousands of properties that are
25 there. Think of the dilapidated properties. These would 44
1 become, you know, war zones, and we really think that these
2 types of funds are critical to helping to reduce that as
3 much as we can.
4 REPRESENTATIVE DEAN: Thank you.
5 Thank you, Mr. Chairman.
6 MAJORITY CHAIRMAN SAYLOR: Representative James.
7 REPRESENTATIVE JAMES: Thank you, Mr. Chairman.
8 Thank you, Secretary, Deputy Secretaries.
9 I'm at the table to your right--
10 SECRETARY DAVIN: Oh, I'm sorry. I'm looking
11 over here.
12 REPRESENTATIVE JAMES: -- if you're looking for
13 me.
14 In a former life, I was a commercial loan officer
15 in a western Pennsylvania bank, and for the benefit of any
16 bankers in the room, I never made a bad loan; some of them
17 went bad.
18 (Laughing.)
19 REPRESENTATIVE JAMES: Bankers' story.
20 To kind of segue onto some of the previous
21 questions, I wonder if you would characterize your current
22 relationship with Commonwealth banks and bankers? When I
23 was doing commercial loans, organizations such as yours
24 provided the last piece of the puzzle, and I'm concerned
25 that local banks are getting their fair share and doing 45
1 their job and profiting thereby.
2 And then if you would also tell me a little bit
3 about your, the characteristics of your credit
4 investigations and your collections and write-offs, if any.
5 I assume there are, but those sorts of "down in the weeds"
6 type things.
7 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Okay.
8 I'll try to do that in the 3 ^ minutes that's left.
9 So for years -- and PIDA, the Pennsylvania
10 Industrial Development Authority, was created in 1956 to
11 do real estate projects, loans -- all right? -- and to do
12 50 percent of it. So we had to -- and I wasn't here in
13 1956, to be clear, all right?
14 SECRETARY DAVIN: Keep telling yourself that.
15 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So we
16 had to establish a relationship with banks -- all right? -
17 to partner on deals, and for a very long time we had a
18 great relationship with banks. And it was really when 2008
19 in the banking industry, the regulations on them changed
20 dramatically, dramatically in 2008, and so in addition to
21 being a recession and not a lot of deal flow, the kinds of
22 deals that they could do was much less finite -- or much
23 more finite.
24 So that's when we started seeing banks that we
25 had partnered with for a long time taking all of the deal 46
1 -- all right? -- when they found one that they could do.
2 And I understand why, and it makes sense, and the interest
3 rates were such that it made sense for the business, too,
4 all right?
5 So now that has eased up. We're back into
6 economic growth again. I would say the whole banking world
7 has changed and all of the consolidations that happened in
8 banks, you know, have dramatically changed. So, you know,
9 we have different relationships.
10 Our Department of Banking and Securities put our
11 loan folks in front of two associations in the last year to
12 talk to them in great detail about the product that we have
13 and to try to establish new relationships with those folks
14 so that going forward, we would have the banker thinking
15 about, ah, we can go to PIDA, to the State, to get the
16 other part of this deal. So that's what we've been doing
17 with that.
18 And, you know, absolutely we had defaults. You
19 know, sort of the part of us doing the second part of the
20 deal sometimes means that that's what we have, and that's
21 why banks like us to do that, all right?
22 So where we have a mature portfolio, like the
23 main account under the Pennsylvania Industrial Development
24 Authority where there are 398 active loans in there, you
25 know, our default rate is 3 percent, which is really great, 47
1 all right?
2 SECRETARY DAVIN: And the underwriting, also.
3 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Oh;
4 okay. And -- okay. So let me talk to the underwriting
5 part of it.
6 So what we did, when we did the consolidation
7 with the Pennsylvania Industrial Development Authority and
8 put all the accounts there and made sure that all of the
9 loan applications went through our local economic
10 development partners? We felt that's how we would get the
11 best applications and provide the best customer service?
12 We also sat down with them and established, here's our
13 manual for underwriting standards. If it's this kind of
14 company and it's an equipment, you need to hit this, all
15 right? If it's real estate and it's this age of a company
16 and this type of company, you need to hit this. There's
17 some flexibility there. But the idea was that we would
18 then get applications when they came to us that we could
19 fund. So that's the streamlining we have done with the
20 underwriting part of it.
21 REPRESENTATIVE JAMES: Thank you.
22 MAJORITY CHAIRMAN SAYLOR: Representative
23 Krueger-Braneky.
24 REPRESENTATIVE KRUEGER-BRANEKY: Thank you,
25 Mr. Chairman. 48
1 My chair was hiding in the back, so I'm coming to
2 the microphone.
3 And thank you, Mr. Secretary, for joining us here
4 today.
5 So I've heard from manufacturers in my district
6 in Delaware County about how important the Machinery and
7 Equipment Loan Fund is for them. And then I recently had a
8 conversation with your staff about a minority-owned company
9 in Delaware County and the Small Business First Fund and
10 what could be done to keep them from moving to New Jersey,
11 which was trying to attract them pretty aggressively. And
12 as someone who worked in economic development for 15 years
13 before I ran for the State House, I'm very, very familiar
14 with the work of Ben Franklin Tech Partners and the impact
15 they have had in the southeastern region.
16 So I really would like you to put this in
17 perspective today, because all three of these programs are
18 programs that benefit our Pennsylvania-based small
19 businesses. And yet, every year as we're going through the
20 budget process, we're talking about tax credits and
21 infrastructure investment for multinational out-of-State
22 fossil fuel companies and all the rest.
23 So, you know, the funds we're talking about
24 today, it's about 82 million. Can you put that in
25 perspective for us. How does that compare to what we have 49
1 spent in tax credits for out-of-State companies?
2 SECRETARY DAVIN: I couldn't tell you exactly.
3 I don't know how much we have spent for tax credits on
4 out-of-State companies specifically. But I can tell you
5 that the majority of the jobs that are created are small
6 businesses, small- and medium-sized businesses in
7 Pennsylvania.
8 The large ones, the large companies, they get the
9 headlines because they're so big and there are a lot of
10 jobs that are associated with those, and that's great for
11 Pennsylvania. And we will do everything we can to work
12 with them to make sure that Pennsylvania is in a good
13 competitive spot to attract them.
14 But the small- and medium-sized businesses to us
15 are just as important, again, because collectively, they
16 provide more jobs. They provide more job creation to
17 Pennsylvania than the larger ones do. So we want to -
18 that is why we think and we feel so passionate, and you can
19 hear that in my voice and in Scott's voice, about these
20 programs, about how important these programs are to the
21 citizens and the businesses of Pennsylvania.
22 And the fact of the matter is that we're in an
23 uptick, we think, and we have been this way for a couple of
24 years now, that the economy is really starting to get
25 better and better and better. 50
1 And as I mentioned before, we have been -
2 myself, the other Deputies, and their staff -- have been
3 traveling around Pennsylvania, working with small companies
4 and medium-sized companies to find out what the need is.
5 This is a tremendous need. These funds are absolutely
6 critical.
7 The fact of the matter is, you know, with respect
8 to the Machinery and Equipment Loan Fund and Small Business
9 First, the State of Pennsylvania took money away from
10 small- and medium-sized manufacturers and businesses, in
11 some cases when the State of Pennsylvania made commitments
12 for those funds.
13 So we're re-creating, we're working on the
14 credibility of the State of Pennsylvania, and we think
15 we're in a position right now, especially since the economy
16 is going a lot better than it has, as Scott mentioned,
17 during the recession, it's getting in a better place, and
18 these funds are more critical now than ever. And not only
19 these funds that we talked about, the three that you
20 mentioned, but also the other funds for communities and
21 also for brownfield sites.
22 REPRESENTATIVE KRUEGER-BRANEKY: So I agree with
23 you on this, and I'm still just trying to get some
24 perspective on how much we're spending in tax credits on
25 out-of-State multinational companies. 51
1 So the cracker plant, for example. How much was
2 spent in tax incentives on that?
3 SECRETARY DAVIN: I'm not so sure that there's
4 any now, because it's based upon the amount of product that
5 they produce, and they're not in a production mode right
6 now. They are in the construction phase right now. They
7 won't even be producing anything probably until 2020. So
8 at that point in time, they'll start to take advantage of
9 the tax credits based upon the amount of ethane that they
10 produce.
11 REPRESENTATIVE KRUEGER-BRANEKY: And
12 approximately what kind of benefit would they be eligible
13 for in 2020 and after?
14 SECRETARY DAVIN: I'd have to get back to you
15 with the specifics of that. But there is a certain amount
16 of tax credit based upon the amount of ethane that's
17 produced. I don't have that number with me right now, but
18 I can certainly provide that to you.
19 REPRESENTATIVE KRUEGER-BRANEKY: Okay.
20 And then what about infrastructure investments
21 for the natural gas company. How much is DCED spending on
22 that?
23 SECRETARY DAVIN: That's hard to calculate right
24 now in terms of specific infrastructure, because we're
25 talking about a variety of different programs. 52
1 For example, the Commonwealth Financing Authority
2 has the PIPE program.
3 REPRESENTATIVE KRUEGER-BRANEKY: Mm-hmm.
4 SECRETARY DAVIN: That is essentially the last
5 mile, natural gas program that brings natural gas to
6 residences, to businesses, to schools. And I don't know if
7 that would be part of what you're asking for. The
8 Legislature appropriated about $25 million, I think, into
9 that particular program.
10 We just had a Commonwealth Financing Authority
11 board meeting yesterday and approved two projects, two
12 great projects that are now providing natural gas to
13 residences, to businesses, and to schools.
14 REPRESENTATIVE KRUEGER-BRANEKY: Okay.
15 SECRETARY DAVIN: So we can certainly try to
16 accumulate that information and put that together for you.
17 REPRESENTATIVE KRUEGER-BRANEKY: I would
18 appreciate that.
19 And I see, Mr. Chairman, my time is up. But I
20 think it would be very helpful for the Members of this
21 Appropriations Committee to have some real data on how much
22 we're investing in out-of-State companies versus the small
23 businesses that provide jobs here in Pennsylvania.
24 Thank you.
25 SECRETARY DAVIN: Sure. 53
1 MAJORITY CHAIRMAN SAYLOR: Great.
2 Representative Boback.
3 REPRESENTATIVE BOBACK: Thank you, Mr. Chairman.
4 Good morning.
5 SECRETARY DAVIN: Good morning.
6 REPRESENTATIVE BOBACK: My questions are more for
7 clarification.
8 I need to know, with Local Government Capital
9 Project funds, Industrial Sites Cleanup funds, when we call
10 it a fund then, does that infer that it's a low-interest
11 loan? That's not just money given to a county or to a
12 municipality, it's a small loan? Because we're calling it
13 a fund.
14 SECRETARY DAVIN: No, not necessarily,
15 Representative.
16 So there are loan programs and there are grant
17 programs---
18 REPRESENTATIVE BOBACK: Mm-hmm.
19 SECRETARY DAVIN: -- within these particular
20 programs that we're talking about today, the seven programs
21 that we're talking about today. The Local Government
22 Capital Project Fund is actually a loan program, and then
23 the Industrial Sites Cleanup Fund is a grant program.
24 And as Scott mentioned previously, for these
25 industrial sites, what ends up happening is the fact that 54
1 they have a negative value right now. So no private
2 developer would even look at these unless the State steps
3 in, and frankly, the local districts step in, to help
4 provide some type of subsidy to write down the cost of the
5 cleanup of some of these, some of these projects in some of
6 these areas.
7 And so in that case, it's a grant. And then the
8 other one that you mentioned was a loan.
9 REPRESENTATIVE BOBACK: But you also have grants
10 online -- correct? -- for municipalities, boroughs, to
11 apply for?
12 SECRETARY DAVIN: Yes, we do. Yes, we do.
13 REPRESENTATIVE BOBACK: And how are they made
14 aware of these grants, because my office is always
15 bombarded by fire companies, again, municipalities, looking
16 for money, of course.
17 SECRETARY DAVIN: Right.
18 REPRESENTATIVE BOBACK: And I do send them to
19 your site, but is there another way, I mean, that they
20 don't need to call my office? This should be out there for
21 them, shouldn't it?
22 SECRETARY DAVIN: Sure. We do our best to try to
23 get that information out to every single municipality in
24 the State of Pennsylvania. I can't remember the number of
25 municipalities that we have. 55
1 DEPUTY SECRETARY VILELLO: 2560.
2 SECRETARY DAVIN: 2560. Thank you, Rick. I knew
3 he would know that.
4 So we try to get this information out to every
5 single municipality and all the agencies throughout the
6 State of Pennsylvania through our Community Affairs
7 department.
8 Certainly, you know, we are also trying to build
9 up our website to make it as easy for municipalities to go
10 through and look through and find out exactly what they
11 need, the information that they need, and we'll continue to
12 do that.
13 And certainly if you have anybody that asks you
14 questions, direct them to the website, or you can direct
15 them to us.
16 REPRESENTATIVE BOBACK: I appreciate that.
17 Last question regarding the Local Government
18 Project Fund.
19 According to my records -- correct me if I'm
20 wrong -- there was an ending balance of approximately
21 $4 million, and that was for the fiscal year ' 15-16 and
22 then '16-17 with minimal expenditures.
23 Now, based on what you're telling us today, are
24 you inferring then that that money is allocated, it just
25 has not been--- 56
1 SECRETARY DAVIN: No, not that particular fund.
2 So that, I was speaking to the Municipalities
3 Financial Recovery Revolving Aid Fund. That was what the
4 previous question was.
5 So this is a program that we are looking at right
6 now, and this is a program to help municipalities purchase
7 equipment. And one of the issues that we have had with
8 this program is that legislatively, it's designated that
9 you can only provide X amount of dollars per a piece of
10 equipment, and the interest rate is based upon, is factored
11 in the legislation.
12 So we're looking into that, and we want to be
13 able to actually make some suggestions on changes in the
14 legislation to make it easier and more functional for
15 municipalities to use. And it's about $3.7 million, as you
16 mentioned, almost $4 million, and we think that funding can
17 really be utilized throughout Pennsylvania. It's not a lot
18 of money, we know that, but we want to be able to utilize
19 it the best that we can.
20 REPRESENTATIVE BOBACK: Please look me up,
21 because I'd be very interested in legislation like that.
22 SECRETARY DAVIN: Okay.
23 REPRESENTATIVE BOBACK: More money for my
24 municipalities, of course.
25 Thank you very much. 57
1 SECRETARY DAVIN: Sure.
2 REPRESENTATIVE BOBACK: And thank you,
3 Mr. Chairman.
4 MAJORITY CHAIRMAN SAYLOR: Representative Roae.
5 REPRESENTATIVE ROAE: Thank you, Mr. Chairman.
6 And thank you, folks, for coming today.
7 SECRETARY DAVIN: Sure.
8 REPRESENTATIVE ROAE: I just had a couple of
9 questions.
10 When we evaluate programs and we look at funding
11 and, you know, we hear talk about, okay, this program
12 creates this many jobs and retains, you know, that many
13 jobs and so on, I was just wondering, what is done to make
14 sure jobs aren't getting double counted?
15 Because, like, if we talk to Small Business
16 Development Center people, they'll say, oh yeah, we talked
17 with this company; we've been helping them advance their,
18 you know, revised business plan, and they think it's going
19 to create 10 jobs. And then we talk to Ben Franklin, and,
20 oh yeah, they worked with that same company; it's going to
21 create 10 jobs. And then the local economic development
22 people say, oh yeah, we've been working with them; it's
23 going to create 10 jobs. And then the Industrial Resource
24 Center, you know, it's going to create 10 jobs. So we
25 think 40 jobs got created, but it was really 10. 58
1 What's done to make sure these jobs aren't
2 getting double counted and triple and quadruple counted?
3 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Part
4 of the streamlining that we have done, and it has actually
5 been a model for State Government and is now being used
6 other places in State Government, is our electronic
7 Single Application process. So folks have to apply for
8 any grant, loan, tax credit, loan guarantee, online, all
9 right?
10 And so when it comes in, there's a master -- all
11 right? -- for this, and then anything else, every other
12 piece of the puzzle, is added on as a supplement to that.
13 But at the end of the day, it's the same job, so that's how
14 we have addressed that issue at DCED.
15 REPRESENTATIVE ROAE: So do, like, local
16 development, you know, county development agencies, do they
17 report to that also? And do the Small Business Development
18 Centers? Everybody is reporting to that?
19 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So the
20 local economic development groups, like the Crawford County
21 Alliance?
22 REPRESENTATIVE ROAE: Right.
23 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: They
24 are the portal, the applicant, on behalf of companies for a
25 lot of them, so yes. 59
1 The Small Business Development Centers? No.
2 They get half of their funding from the Federal Government
3 and half from the State, and they provide technical
4 assistance to businesses and other services, especially
5 small businesses.
6 REPRESENTATIVE ROAE: So they don't--
7 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: But
8 they don't typically report into our Single Application.
9 REPRESENTATIVE ROAE: They do or do not?
10 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: They
11 do not.
12 REPRESENTATIVE ROAE: So that job could get
13 counted twice.
14 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Um--
15 REPRESENTATIVE ROAE: If they worked with
16 somebody, we help them create 10 jobs; you guys, we help
17 create 10 jobs. But it's not 20 jobs, it's really 10.
18 SECRETARY DAVIN: So not by our Department.
19 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Not by
20 us.
21 SECRETARY DAVIN: Not by our Department.
22 So when you look at some of these things, as
23 Scott mentioned, some of the local, folks on the local
24 level and the counties and the municipalities and some of
25 the organizations on the local level, they have their own 60
1 metrics that they have to abide by, and they have to report
2 to their county commissioners or county executive or
3 whatever. We can't control that.
4 We control what the funds that our Department go
5 through, and we work very hard to make sure that that
6 doesn't happen. Because you do have -- you're absolutely
7 right. You do have multiple funding programs in a lot of
8 cases for these projects and for these businesses and
9 things like that. And we look at only one. We look at the
10 metric, the one job that's created with all these different
11 programs.
12 REPRESENTATIVE ROAE: Okay.
13 And then my second question is, how many total
14 businesses are there in Pennsylvania? I mean, is it
15 100,000? 500,000? What's the number about, do you know?
16 SECRETARY DAVIN: There are a lot.
17 REPRESENTATIVE ROAE: I mean, I have looked at
18 different sources. I saw one source that said 300,000.
19 Another source said 100,000.
20 SECRETARY DAVIN: Right; right.
21 We can get that information to you.
22 REPRESENTATIVE ROAE: Okay.
23 SECRETARY DAVIN: I mean, we do track some of
24 that information and look at that kind of globally, you
25 know, and then it's all broken into some of the different 61
1 NAICS codes that are provided for each individual--
2 REPRESENTATIVE ROAE: Okay. Because the time is
3 almost up, so I don't want to -- I want to ask one more
4 thing before the time is up.
5 But I guess my question is, like say it's 200,000
6 businesses in Pennsylvania. How many businesses a year get
7 money from loan funds that you guys do, roughly? I mean,
8 is it a couple hundred---
9 SECRETARY DAVIN: I couldn't tell you that
10 exactly. We can certainly compile that information for
11 you.
12 REPRESENTATIVE ROAE: But it's not tens of
13 thousands of companies.
14 SECRETARY DAVIN: It's not tens of thousands.
15 REPRESENTATIVE ROAE: It's not even thousands, is
16 it?
17 SECRETARY DAVIN: No; no.
18 REPRESENTATIVE ROAE: So sometimes -- I mean, not
19 to be a cynic. I'm kind of a cynic about everything, not
20 just your department. Everything, name it: education,
21 environmental, everything.
22 SECRETARY DAVIN: I wouldn't have got that.
23 (Laughing.)
24 REPRESENTATIVE ROAE: No. But no; sometimes we
25 look and it's like, okay, 99 percent of the companies in 62
1 Pennsylvania have never received a grant or a loan through
2 DCED. Or maybe 99.9 percent--
3 SECRETARY DAVIN: That's your number. I don't
4 know what the number is.
5 REPRESENTATIVE ROAE: Right, but -- well,
6 that's your numbers, I think, because you said there' s
7 not thousands of -- you know, if there are 300,000
8 businesses---
9 SECRETARY DAVIN: Those are your numbers. We can
10 provide you that. We can provide you the actual numbers.
11 REPRESENTATIVE ROAE: Okay. And I guess my point
12 is, what can you tell us as Legislators, if most businesses
13 have never received a grant or a loan and they succeed, and
14 we all want job growth and economic development, but give
15 us a quick sales pitch. Why should we keep this stuff
16 going?
17 SECRETARY DAVIN: So it's as easy as this: You
18 know, we would love to, from a business perspective -- and
19 I'm saying this with him sitting right next to me. We
20 would love him to be out of business. We would love to
21 have the opportunity for Pennsylvania to not be in this
22 situation.
23 We would love to have a very low tax structure.
24 We would love to have, you know, an issue where there are
25 no communities that are having severe problems. We would 63
1 love to have a State that doesn't have any brownfield
2 sites. That's not reasonable. That's not going to happen.
3 We have that, and this is what we're dealt with.
4 There are a lot of communities that really, and a
5 lot of businesses that really need our help. There are
6 businesses, as Scott mentioned, that have a tremendous
7 opportunity to grow in Pennsylvania, and the banks won't
8 lend them 100 percent of the funding. They'll lend them a
9 portion of the funding, and that's where we come in and
10 provide the remainder.
11 We also have, we're in a competition with not
12 only the States around us, not only other States in the
13 United States, but globally for companies. And these are
14 businesses in Pennsylvania in some cases, and these are
15 businesses outside of Pennsylvania that are looking for
16 Pennsylvania.
17 So these programs are critical for us to be able
18 to put Pennsylvania on a competitive level where we are
19 better -- and we think we are -- much better than any of
20 our surrounding States, better than other States, and
21 better than other countries. So we want to be able to take
22 advantage of that. We need these programs to be able to do
23 that.
24 REPRESENTATIVE ROAE: All right. Thank you so
25 much. 64
1 SECRETARY DAVIN: Yep.
2 MAJORITY CHAIRMAN SAYLOR: Representative Keller.
3 REPRESENTATIVE KELLER: Thank you, Mr. Secretary
4 and Deputy Secretaries. It's good to see you again today.
5 SECRETARY DAVIN: Good to see you.
6 REPRESENTATIVE KELLER: Actually, I'm going to go
7 back to just one fund as an example. But the Machinery and
8 Equipment Loan Fund, which we discussed I think at length,
9 a couple people, how do we determine which business would
10 qualify for this? I mean, we obviously have many
11 applicants, I would assume, and do they all get funded if
12 they apply, or how does that work?
13 SECRETARY DAVIN: Scott, do you want to take
14 this?
15 REPRESENTATIVE KELLER: Quickly, if you can.
16 SECRETARY DAVIN: Yes; fast.
17 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Okay.
18 I'm getting a reputation for not being quick?
19 Sorry about that.
20 SECRETARY DAVIN: Hurry up.
21 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So
22 there are statutory requirements that they need to meet -
23 all right? -- in terms of job creation, retention, and
24 match, all right? That's number one.
25 REPRESENTATIVE KELLER: Okay. 65
1 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: They
2 need to be financeable. We need to be able to look the
3 taxpayers in the eye and say, you're going to get paid
4 back, all right?
5 REPRESENTATIVE KELLER: Okay.
6 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: And
7 specifically in the legislation, these types of industry
8 sectors.
9 Those are the main things.
10 REPRESENTATIVE KELLER: Okay. So do we have
11 businesses that we turn away for this that might meet those
12 qualifications, or does---
13 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: We're
14 not turning away anyone who meets those eligibility
15 criteria right now.
16 REPRESENTATIVE KELLER: So we have enough money
17 to fund all of those?
18 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Right
19 now we do, yes.
20 REPRESENTATIVE KELLER: Okay. Because my concern
21 was that I heard you say that there would be maybe some
22 that didn't get funded, and I was wondering how we would
23 have determined that. Because if I remember, you said the
24 interest rate for these loans is like 1 ^, 1 to 1 ^ percent
25 below the market? 66
1 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Yeah.
2 REPRESENTATIVE KELLER: Is that correct? So that
3 would give a business a competitive advantage if they are
4 producing the same thing that another business is that
5 isn't getting the benefit of that loan.
6 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Mm-hmm.
7 REPRESENTATIVE KELLER: And I'm wondering, do we
8 do any analysis to figure out if sometimes these loans
9 might have a negative impact on jobs from another
10 Pennsylvania business that would -- you understand where
11 I'm coming? You know, if we're both making the same thing
12 and I get a loan and you don't, you know, could I take some
13 of your employees because I'm more competitive; I have a
14 little bit of an advantage? Do we see any of that
15 happening?
16 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So we
17 would love to help every business that comes to us, and we
18 have capacity right now, all right?
19 So what's in this for the taxpayers is jobs, all
20 right?
21 REPRESENTATIVE KELLER: Well, ultimately---
22 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So
23 that's the critical part.
24 REPRESENTATIVE KELLER: I get that, and I'm about
25 jobs, too. I'm a small businessperson, and, you know, I 67
1 come from a business background. But my point is, if we
2 give these incentives to one business over another
3 business, are we just shuffling some jobs, and do we have
4 numbers on whether we have tracked that?
5 SECRETARY DAVIN: So part of that is that, you
6 know, Scott and his department, Jared and the other ones,
7 they look at every single project as a unique project. And
8 they have to qualify under the criteria, and the criteria
9 is very specific to what they need to comply with.
10 This was set up, as Scott mentioned, back in the
11 fifties to give Pennsylvania an advantage. Not just to
12 give one specific business an advantage, but to give
13 Pennsylvania an advantage.
14 And again, one of the things that we mandated
15 3 years ago when I first came here is the fact that we
16 wanted to go out into the business community. We wanted to
17 meet with businesses, talk to businesses, talk with
18 business organizations, chambers of commerce and folks like
19 that, organizations like that, to find out what the needs
20 were, and there is a need for this type of financing.
21 You know, I got to tell you, if there are
22 companies that think that they don't get the advantage
23 because their neighbor or a company that is making the same
24 thing got an advantage, they would contact us.
25 REPRESENTATIVE KELLER: Yeah. 68
1 SECRETARY DAVIN: We would be the first people
2 that they would contact.
3 REPRESENTATIVE KELLER: Yeah. Because, you know,
4 I can go back into the late eighties and early nineties. I
5 come from the manufacturing background of kitchen
6 cabinets---
7 SECRETARY DAVIN: Mm-hmm.
8 REPRESENTATIVE KELLER: ---and there were some
9 tax credits for a company.
10 SECRETARY DAVIN: I know a guy that does the same
11 thing.
12 REPRESENTATIVE KELLER: Well, I just--
13 SECRETARY DAVIN: Did the same thing.
14 REPRESENTATIVE KELLER: Well, I'm not going to -
15 I can tell the joke that I'm the politician that actually
16 made the cabinets. That's just my little joke there.
17 SECRETARY DAVIN: That's fine.
18 REPRESENTATIVE KELLER: But anyhow, I look at
19 that and I say, there's one person that was given tax
20 credits that actually competed with our company because
21 they got some tax credits, and that's my concern, that
22 we're not actually just shifting a job from one place to
23 another.
24 SECRETARY DAVIN: There's no doubt. And we take
25 great pains not to do that. 69
1 REPRESENTATIVE KELLER: Okay.
2 SECRETARY DAVIN: You know, there are other
3 programs that are out there right now. Like, there's this
4 discussion going on with the Community Revitalization
5 Investment Zones, the CRIZ, that some people think that
6 that does exactly that. And that's one of the issues with
7 that particular program, that you have like competing
8 organizations -- businesses, restaurants -- that one gets a
9 benefit because they are located in a CRIZ and the other
10 one doesn't get the benefit.
11 Those are the things that we're looking at all
12 the time. And again, that is not the intent of what we're
13 trying to do and that is not the intent of the programs,
14 and we don't believe that that's happening with these
15 programs.
16 REPRESENTATIVE KELLER: Okay; just to understand
17 my concern. I want to make sure that when we're looking at
18 jobs, it's a net gain--
19 SECRETARY DAVIN: That's a good point; yes.
20 REPRESENTATIVE KELLER: -- and we're following up
21 on those things. That's why if there were funds here that
22 we could, you know, if we're looking at all these funds and
23 some that we could take money from or whatever, I just want
24 to make sure that we're looking at them all.
25 SECRETARY DAVIN: Yes. 70
1 REPRESENTATIVE KELLER: That they're not
2 negatively impacting any citizens of the Commonwealth.
3 SECRETARY DAVIN: Absolutely.
4 REPRESENTATIVE KELLER: Thank you.
5 SECRETARY DAVIN: Thank you.
6 MAJORITY CHAIRMAN SAYLOR: Very good.
7 Representative Heffley.
8 REPRESENTATIVE HEFFLEY: Thank you, Mr. Chairman.
9 Thank you for the opportunity.
10 Just, earlier somebody had commented about tax
11 credits, and I just wanted to point out that I serve on the
12 Ben Franklin Board, and it has been just a great
13 opportunity to learn a lot about how that program works.
14 And actually, a lot of Innovate In PA is funded through a
15 tax credit, and that is coming back for economic
16 development.
17 One of the things about the Bens, what really
18 worked out in our area is, when Agere or Lucent
19 Technologies left the Lehigh Valley, we had a lot of talent
20 there, and this incubator system really has helped a lot of
21 those folks to start their own small businesses.
22 So I support, you know, programs like that. I do
23 have some of the concerns with, you know, obviously when
24 we're looking at opportunities to fund, to make sure that
25 our schools are adequately funded, and you look over here 71
1 and you have money that's sitting, that isn't being used
2 at this moment because maybe the economy isn't drawing
3 those loan programs down, that, you know, is it worth it to
4 go to the taxpayers and say, we're going to take your
5 money, or do we look at shifting some of those funds
6 around? So that's a discussion we'll have internally going
7 on forever.
8 SECRETARY DAVIN: Mm-hmm.
9 REPRESENTATIVE HEFFLEY: One of the questions I
10 had is, looking at all these different programs -- two;
11 actually, two questions.
12 The first one is, so DCED provides funding for
13 economic development, and one of the delays that we're
14 having is, our regulatory practice or our regulatory system
15 here in the State of Pennsylvania is awful, quite honestly,
16 the time that it takes to get a project done.
17 So is there communication between the Departments
18 to say -- I mean, I have projects that have been held up
19 for 6 years. They do bog-turtle studies. So you have the
20 Fish and Boat Commission, the Game Commission, DEP,
21 everybody doing these redundant studies. And you can only
22 do it a certain time of the year, so if you don't get it in
23 this year, you got to wait another year, and then they want
24 another study. So now you're 3 years backed up on a study,
25 hundreds of thousands of dollars in engineering costs. 72
1 Are there discussions between the Departments?
2 Because here you are, trying to get this money out to
3 create jobs, and there are other agencies. I mean, what
4 kinds of discussions internally are there through the
5 Departments to try to streamline these problems? Do you
6 communicate and say, you know, to the Secretary of DEP or
7 to the other commissions and say, we need to step up these
8 processes, because we got all this money sitting on the
9 sideline and these jobs that can't be created.
10 SECRETARY DAVIN: Right.
11 So I communicate with, we have a standing meeting
12 once a month with the Department of Environmental
13 Protection to talk about common issues that we have, and
14 it's a good opportunity for me to tell Secretary McDonnell
15 exactly what we're seeing out in the field, because we're
16 in the field.
17 And frankly, I came from the field. This is what
18 I used to do, is develop properties and things like that in
19 the Pittsburgh region. And it was completely, you know, 5,
20 10 years ago, completely a mess in terms of what they would
21 do. And a lot of it was based upon, you know, the oil and
22 gas industry coming in. It was a huge new, you know,
23 opportunity for Pennsylvania, but it also provided some
24 issues related to permitting, and a lot of the attention
25 was paid towards that. 73
1 And I think DEP has done a tremendous job. And
2 not just me. I go out and I talk to developers. I was
3 just at the Commonwealth Financing Authority meeting
4 yesterday and talked to one of the developers that we were
5 providing funding to in Westmoreland County, and he said
6 the DEP has been tremendous to work with, great to work
7 with. They are really working -- the Governor has mandated
8 from 3 years ago that DEP fix their permitting requirements
9 and make sure that they make, do the permitting on a timely
10 basis, and I think they have done a great job.
11 There's still a lot of work to do, and I think
12 Secretary McDonnell will tell you that. But they have come
13 a long way in terms of what they are doing to provide the
14 permitting within the appropriate period of time,
15 appropriate amount of time. And if we hear any issues, we
16 hear any concerns, any comments, they go directly to DEP.
17 I take them -- and the staff takes them to their contacts
18 -- I take them directly to the Secretary of DEP, and they
19 respond.
20 REPRESENTATIVE HEFFLEY: And you work the same
21 way? Because I still see a lot of projects that are held
22 up, I mean, whether it be about PennDOT, DEP, or any of
23 these, the Fish.
24 Like, for example, the Fish and Boat Commission
25 who does a lot of the NPDES studies, I mean, they don't 74
1 really answer to anybody, quite honestly. But sometimes, I
2 mean, you don't even know what the issue is; they just tell
3 you you can or you can't do something and you got to wait
4 and do another study.
5 I mean, is there communication between all -- I
6 mean, DEP requires, they sign off on everything, but these
7 other agencies that do these, you know, do these checks---
8 SECRETARY DAVIN: Yeah. Representative, that is
9 a great question. We work with every single agency on
10 those. And especially as they relate to projects that
11 we're involved in and projects that we're funding, we work
12 directly with them.
13 So one of the things is, sometimes we're in a
14 position to hear some of those comments or concerns, and
15 then we take them directly to that agency and work with
16 that agency to make sure that those are addressed.
17 REPRESENTATIVE HEFFLEY: All right. Well, I
18 would just encourage you to continue to move that process
19 forward, because I still think it's a very slow process in
20 the Commonwealth, and we have quite a few projects that are
21 really being delayed.
22 SECRETARY DAVIN: Right.
23 I would just offer, if you have any projects that
24 are in those categories, please let us know, and we'd be
25 happy to work with the other agencies about those. 75
1 REPRESENTATIVE HEFFLEY: Thank you.
2 MAJORITY CHAIRMAN SAYLOR: Representative Milne.
3 REPRESENTATIVE MILNE: Thank you, Mr. Chairman,
4 and good morning, Secretaries.
5 SECRETARY DAVIN: Good morning.
6 REPRESENTATIVE MILNE: I wanted to return to the
7 function the Department does exercise with acting in a
8 bank-like capacity in some respects with the programs that
9 you administer, and one of the key benchmarks for banking
10 -- and again, I know you're not directly a bank, but to
11 draw the analogy some here -- is default rates. And I'm
12 wondering if you could speak to what kind of default rates
13 you have experienced and you have seen during your time.
14 And maybe some historical perspective as well.
15 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: So I
16 mentioned a little bit earlier PIDA, which is by far our
17 largest portfolio, the PIDA account loan, money for
18 real estate projects, and the default rate right now is
19 3 percent, and historically it has been between 2 and
20 3 percent, so that's a great story.
21 So as you move down the line, the Machinery and
22 Equipment Loan Fund, now we're loaning the second half of a
23 loan on equipment, which is like, you know, a boat. It's
24 not worth quite as much tomorrow as when you bought it
25 today, all right? 76
1 And so the other part of the Machinery and
2 Equipment -- I'm going to give you the number in a second.
3 The other part of the Machinery and Equipment Loan Fund is,
4 we have got this very old portfolio, or mature portfolio,
5 as I mentioned, because we haven't been able to initiate a
6 lot of loans, all right? We have gone from 211 loans down
7 to 7 8.
8 A lot of the loans have been paid off, and so we
9 have got 16 loans out of the 17 that are left that we're
10 working with that are probably going to default on ours,
11 all right? And one of the reasons they are left is
12 because, you know, we have been working with them to try to
13 help them, you know, be patient, to pay, to not foreclose,
14 things like that, so.
15 And then the final piece of it is the Small
16 Business First Account. As I mentioned, there is actually
17 four accounts under there, and they are all for small
18 businesses. For all four combined, it's 11 percent within
19 there.
20 Obviously the riskiest loans that we have is our
21 community and economic development loans, and a lot of that
22 is for startups and for retail and commercial businesses.
23 So that rate is higher than, you know, our loans to
24 manufacturers. But for that Small Business First Account,
25 it's 11 percent. 77
1 REPRESENTATIVE MILNE: Do you have concerns about
2 default rates in any other programs under your agency?
3 Besides the ones you have just identified.
4 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Well,
5 these are our loans, you know. As you know, you were the
6 prime sponsor of the bill to consolidate all of the
7 programs into PIDA. So that's--
8 REPRESENTATIVE MILNE: Right. For a more
9 efficient use of tax dollars. That's right.
10 Do you have concerns in general about default
11 rates? What is your interpretation of these trend
12 lines?
13 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Well,
14 look, it's the taxpayers' money, so obviously, A, we need
15 to pay it back; and B, we can't survive unless it is paid
16 back because we don't get appropriations.
17 So we're always -- and within our loans area, we
18 have two people that do nothing but, you know, stay on top
19 of loans that may be 30 days delinquent or 60 days
20 delinquent, wherever they may be, so that they know we
21 haven't forgot about them.
22 So, yeah, we're very much attuned to that.
23 REPRESENTATIVE MILNE: And do you have
24 recommendations -- and I would appreciate this question,
25 maybe getting back to us. But do you have recommendations 78
1 that you would like to be thinking about and sharing with
2 us about how we can all work together to improve the
3 default rates even better?
4 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Um--
5 REPRESENTATIVE MILNE: And I know that's a big
6 question and on the spot.
7 EXECUTIVE DEPUTY SECRETARY DUNKELBERGER: Well,
8 we're happy to have the discussion with you about, should
9 our niche be, you know, as a gap lender, as access to
10 capital, because that's where you get into this. If we're
11 going to be, we'll do the second half of your deal -- all
12 right? -- along with that is going to come some of this.
13 So we try to mitigate that and keep the fund as healthy
14 while fulfilling our mission, you know, to provide access
15 to capital.
16 REPRESENTATIVE MILNE: Great. Thank you.
17 Thank you, Mr. Chairman.
18 SECRETARY DAVIN: Thank you.
19 MAJORITY CHAIRMAN SAYLOR: Representative Daley
20 for a follow-up question, one question.
21 REPRESENTATIVE DALEY: Thanks, Mr. Chairman. And
22 one question. All right.
23 So I want to go back to the Industrial Sites
24 Cleanup funds, and I really am interested in having a very
25 clear explanation of how grants to municipalities, actually 79
1 then related to an industrial site cleanup, can be the
2 important first step to being able to work with businesses
3 that would eventually be able to get loans. Because the
4 grants are not available for the most part to the
5 businesses, but they are, and especially to cities of the
6 third class or Act 47 municipalities. So these are grants
7 that can really potentially help the municipality attract
8 business to come in and be able to do a reclamation of
9 land.
10 And so I'm looking at it as a tool, and I want to
11 make sure that that's a good understanding, because to me,
12 it also seems like then they leverage those funds to really
13 make a recovery. And I'm struggling to make that one
14 question. I think that that's my one question. I hope I'm
15 clear.
16 SECRETARY DAVIN: No; that's absolutely clear.
17 And I think it's a good question, and I think from our
18 standpoint, and again, I go back to my experience in the
19 city of Pittsburgh and Allegheny County and southwestern
20 Pennsylvania as a whole.
21 We have done a great job of developing brownfield
22 sites through the use of the programs that DCED had. And
23 other places have done that: Bethlehem, Philadelphia. You
24 know, I can name of number of places -- Erie -- that have
25 done that and are continuing to do that. 80
1 These are critical sites. Some of these sites,
2 and I'll tell you, just within Pittsburgh, you know, years
3 ago, nobody built anything along the riverfronts except for
4 businesses, and those are our brownfield sites. Now you
5 can't build housing on the riverfront and entertainment
6 facilities and retail, recreational, you can't build them
7 fast enough, because that's where people want to be. So
8 they provide us a tremendous opportunity.
9 They are also, though, not feasible, as Scott
10 mentioned before, because they have a negative value. No
11 developer is going to touch a site like that when there's
12 another site, a greenfield site, that has a positive value.
13 They have a negative value, and that's where we step in.
14 And that's why a program like the Industrial Sites Cleanup
15 Fund and the Industrial Sites Environmental Fund and Reuse
16 Fund is critical to helping fix these sites and clean up
17 these sites.
18 Pennsylvania has an abundance of them because
19 Pennsylvania has been a leader in manufacturing for, you
20 know, 150 years. And, you know, while some of that
21 manufacturing---
22 MAJORITY CHAIRMAN SAYLOR: Mr. Secretary, I'm
23 going to cut you short there. It's a long answer. I got
24 one more Member for a question quick.
25 SECRETARY DAVIN: Sure. 81
1 MAJORITY CHAIRMAN SAYLOR: But we're ready to
2 gavel in the House, so.
3 SECRETARY DAVIN: Oh, okay. Sorry.
4 REPRESENTATIVE GREINER: Thanks, Mr. Chairman.
5 Thank you, Mr. Secretary.
6 MAJORITY CHAIRMAN SAYLOR: Quick question.
7 REPRESENTATIVE GREINER: Yeah.
8 And you can provide me -- I would like you to
9 maybe provide these answers to us, if possible.
10 I would like to know, I'm more concerned today, I
11 was more concerned, as my colleague from Westmoreland
12 County said, I'm more concerned about the process. Or I'm
13 less concerned about the outcomes today, because I know
14 that's important, but I want to know about the process.
15 I would like to know how many special funds and
16 restricted accounts your agency oversees. So if you can
17 get that information back to us.
18 What financial guidelines do you have in place to
19 ensure your agency is not overcommitting projects.
20 And then thirdly, and I think we're struggling
21 with this, because we talk about these excess funds. I
22 know Chairman Markosek talked about transparency. Can you
23 provide the Committee with a 3-year prospective cash-flow
24 statement for each fund under your purview.
25 SECRETARY DAVIN: Sure. 82
1 REPRESENTATIVE GREINER: And just real quickly,
2 going back to Representative Kampf. He talked about--
3 MAJORITY CHAIRMAN SAYLOR: Representative, I'm
4 going to have to have you submit that. The Speaker has
5 gaveled in, so we need to move on.
6 Mr. Secretary, we will submit questions.
7 Representative Sonney has a question as well.
8 SECRETARY DAVIN: Be happy to.
9 MAJORITY CHAIRMAN SAYLOR: So we will submit some
10 questions to you for answers.
11 Before I adjourn the meeting, I just wanted to
12 make a few quick comments.
13 One, I wanted to thank you, Mr. Secretary, and
14 your staff for adjusting to our early time this morning due
15 to the Speaker calling us into a 10 o'clock session instead
16 of the normal 11.
17 I did want to also mention real concerns I have
18 over the fact that we did not get from you that we had
19 requested the start of and when a project is awarded.
20 Those dates we didn't get. We would like to have those
21 yet, when those grant programs that you had sent over. You
22 did not give us start dates on those grants and when they
23 are to be completed. We need that information yet.
24 Also, one last comment from me is that we lost
25 10,000 jobs last year in Pennsylvania, and the concern I 83
1 have -- and I'm not blaming DCED, by the way. But what I
2 am concerned about is -- and Mr. Secretary, I think you
3 talked about this -- is a real concern whether we in
4 Pennsylvania are adjusting to meet the needs of our
5 business community and our local communities.
6 Industrial site cleanup; I see these funds have
7 surpluses in them. And I understand where Secretary
8 Dunkelberger talked about the recession, and I do get that,
9 but other States are growing in jobs at the same time.
10 And I'm just interested, as I said, and Chairman
11 Markosek heard me say this in a PlanCon commission, is we
12 in Pennsylvania address something and then we wait another
13 20 years before we address it again, and I would really
14 love to see the Department and others come forward with
15 ways to change these programs to make sure that we can
16 start gaining some of these companies back into
17 Pennsylvania.
18 And I think the economy is going to help us, but
19 we have got to be more competitive in the way that we do
20 some of these things. Site cleanups, I think there are a
21 lot of industrial site cleanups that need to take place.
22 I'm not an expert on how we get more of it done, more jobs
23 created, but I do think we need to see recommendations on
24 where we're not meeting what other States might be doing.
25 So I would ask the Secretary and your staff to 84
1 see, as you have been traveling, what do we need to change.
2 What do we need to change in Pennsylvania to make for sure
3 we are the number-one manufacturing State in the country;
4 we are a State that is growing in jobs as competitive as
5 any other State in the nation.
6 So I want to thank you today for coming, and I
7 look forward to seeing you soon. Again, thank you very
8 much.
9 SECRETARY DAVIN: Thank you.
0
1 (At 10:00 a.m., the public hearing adjourned.) 85
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