The battle for new industrial investment is fierce. Is southwestern Pennsylvania ready to compete?
As the economy transitions to a low-carbon and digitized future, Pennsylvania and Pittsburgh-area officials say they are hustling more than ever to land business that will facilitate the shift. But amid fierce competition with the rest of the country, the region has lost out on some high-profile opportunities, and local leaders say a more aggressive playbook is needed.
Breakthrough technologies such as robotics, artificial intelligence, alternative energy and carbon capture are poised to drive the evolution of manufacturing and energy, both top sectors in southwestern Pennsylvania. President Biden has signed legislation to help foot the bill.
“There's going to be so much opportunity when you think about all of these different areas of decarbonization and industrial innovation and [electric vehicles],” Pittsburgh Regional Alliance President Mark Anthony Thomas said. He noted that his organization has added a handful of new employees over the past two years to chase such investments.
“We have an active pipeline of over a hundred projects, and then we have hundreds of leads,” he said during a Zoom call with 90.5 WESA. “When I hang up, that’s what I’ll be focused on: new companies that we know are receiving rounds of funding or have sent signals that they're trying to expand or consultants that want to understand how our market is positioned.”
With its history of manufacturing and energy development and the innovation happening at its universities, Thomas said the region has strong selling points. He said politicians in the area have fully bought into to the prospect of spurring more industrial activity locally. “We have universal support with our elected officials, from the mayor to all the county commissioners, state reps. ... There’s more unison around economic growth than people can really see.”
“But then," he added, "there is the actual competitiveness, and I think that is what we're really trying to understand. And it is just becoming more aggressive [in] real time. It really is. When you think of the [federal] stimulus dollars that have created just a lot of opportunity for states that were even successful before COVID [and that] now have even more resources to be more competitive.”
Perhaps underscoring the challenge, Pennsylvania was left out of the search for two major facilities that will help to drive the transition to a lower-carbon world. In the same week in January, Intel named Ohio as the location for a $20 billion chip facility, and General Motors said it plans to build a $2.6 billion battery cell factory in Michigan. (The auto company had already begun to construct two battery plants in Ohio and Tennessee.)
While pandemic-era shortages of cars, home appliances and smartphones have illustrated the importance of semiconductors to everyday products, the components are also essential to the technology that will modernize manufacturing and build a clean energy future. Rechargeable batteries, meanwhile, are needed to power electric vehicles.
'Ripe for development'?
“I was stunned on the Intel project that we weren't in the running, given that Carnegie Mellon [University] is so incredibly strong in the technology areas that are important to Intel,” said Don Smith, president of the Pittsburgh-based Regional Industrial Development Corporation. The organization helps to market properties in the region to potential employers.
Intel’s new facility will be located outside Columbus, which like Pittsburgh, has experienced a high level of growth in its college-educated population over the past decade. The Columbus area shares Pittsburgh’s demographic challenges, too, because it’s located in a state whose population hardly grew over the past decade, possibly limiting the size of the broader workforce outside the capital city.
But officials at the Pennsylvania Department of Community and Economic Development said, in Intel’s search, the Keystone State’s hilly topography was a dealbreaker. They noted that the chipmaker’s new facility will occupy more than 900 acres in the relatively flat outskirts of Columbus.
“We don't have that site,” said DCED’s Acting Secretary Neil Weaver. But he said his department, which leads the state’s efforts to attract business, continues to meet with site selectors for other projects.
And although GM passed over the region in its multi-state search for a third battery manufacturing location, Thomas said the Pittsburgh Regional Alliance is in discussions with other battery makers. GM plans to announce a fourth battery site this year, but Thomas said for confidentiality reasons he could not disclose whether southwestern Pennsylvania is a contender.
He noted that prominent projects like GM’s and Intel’s will rely on a “broader supply chain [that] will stretch beyond state borders.” And with “a culture where manufacturing and hard labor are part of who we are,” he said, “we, in this part of the United States, can play in that game as well.”
“Southwestern Pennsylvania is ripe for development in these areas,” Weaver agreed. “Its location and … the infrastructure that's in place help make it ready to go for these types of projects,” he said, referring to the state’s proximity to large population centers and its access to natural gas.
DCED noted that in the last fiscal year its discussions with 100 companies resulted in 58 projects that created more than 9,500 jobs and retained nearly 34,000 more. The bulk of those gains are located in the southern and eastern parts of the state, however, with about 860 positions created and 4,400 retained in southwestern Pennsylvania.
As a whole, though, Pennsylvania outperforms all other states in the northeast for fostering a business-friendly climate, according to rankings that Site Selection Magazine published last year. The outlet scores states on a host of measures, including the level of investment in new and expanded facilities and the number of jobs created.
Not enough tools?
Despite Pennsylvania’s strong showing in the northeast, southern and midwestern states dominate Site Selection’s rankings nationally. Ohio, Michigan, and Indiana placed in the top 10, with southern states filling out the remaining seven spots.
Smith, of the Regional Industrial Development Corporation, said Pennsylvania struggles to stand out nationally due to long-dwindling investment in economic development and regulatory hurdles.
State budget data shows that funding for DCED, the face of economic development in Pennsylvania, has plunged by 80% since 2006. Weaver attributed the decline to economic recessions and a rise in Medicaid entitlements under President Obama’s Affordable Care Act. He said his department has the resources it needs to stay competitive.
But Smith said Pennsylvania hasn't kept up with states that are more aggressive in courting business with tax breaks, infrastructure investments, and streamlined regulatory processes.
“It's like the tiny homeowner's toolkit versus the advanced mechanic’s tool kit,” he said. “It's not just the case [that] you've got to layer money on every deal. But on these important and catalytic, galvanizing deals, the state needs to have the ability to respond and to respond quickly and flexibly because time is the enemy of every deal today.”
He noted that in 2016 the state compiled a massive incentive package as part of its successful campaign to convince Shell to build an ethane cracker plant in Beaver County that’s expected to employ 600 people permanently.
But in other cases, he said, “very complicated” regulations and high corporate taxes deter companies from choosing Pennsylvania.
Smith acknowledged that Gov. Tom Wolf has proposed slashing the state’s corporate net income tax rate, which today ranks as the second-highest in the country. But he said a slow permitting process that involves multiple agencies at varying levels of government also creates barriers.
“What we are doing is introducing more layers of review, more time and more cost, and most importantly for these big deals, more uncertainty,” Smith said. “It's the unpredictable costs and timelines that cause people to say, ‘Yeah, I'm going to look somewhere else.’”
He said that Pennsylvania could prevent project delays by adopting “pre-vetting” programs like Ohio’s, where a private economic development corporation certifies sites for development before companies have committed to them.
Thomas, of the Pittsburgh Regional Alliance, noted there are three decommissioned coal-fired power plant sites in southwestern Pennsylvania that the state could prepare for development, and Smith said there are other locations the state could add to its portfolio.
“We could be very competitive, very quickly. There just has to be the will to tackle … thorny problems,” Smith said.