Tuesday, June 12, 2012

Cost of Proposed Shell Tax Credits

Our friends at the Pennsylvania Budget and Policy Center have done some analysis of the trade offs in the proposed tax credits the governor wants to offer Shell Oil to put an ethylene "cracker" plant in Pennsylvania.  Here is their brief summary:

The new Resource Manufacturing Tax Credit is not the only tax benefit Shell would receive under the governor’s plan. Act 16 of 2012, enacted in March, exempts Shell’s cracker facility site in Beaver County from corporate income and property taxes for 15 years. During that time, Shell would likely have unused Resource Manufacturing Tax Credits that it could sell for cash — up to $66 million a year.

Act 16 requires Shell to create 400 jobs. This is consistent with the jobs created at similar cracker plants. If the Resource Manufacturing Tax Credit is enacted, the 400 permanent jobs at the plant will come at a hefty price to taxpayers, $165,000 per year per job, or $4.125 million per job over the 25-year life of the program. Shell also expects 10,000 construction jobs to be created during site development, but that would be a short-term boost to employment.

While proponents have claimed this project will create tens of thousands of jobs, much of those are estimates of jobs that might be created in spinoff industries or in unrelated businesses, like restaurants and shops. The job numbers are speculative and dependent on the decisions of other companies that are not receiving this special tax credit. With the precedent of such generous tax treatment for Shell, other companies might demand tax credits as well.

To the extent that the cracker facility does attract jobs to the region, the workers who fill them will hail from Ohio and West Virginia as well as Pennsylvania, but only the commonwealth’s taxpayers will be paying for Shell’s tax breaks.

You can read their full report on their website.

Only one company, Shell Oil, currently has plans to develop a cracker plant in the gas-rich Marcellus Shale. The proposed tax credit would be a windfall for Shell, whose parent company, Royal Dutch Shell, is the second largest company in the world, with revenue of $484 billion in 2011 and profits of $31 billion.

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