Shapiro wants to eliminate three ‘niche’ tax credits — supporters believe they should be expanded

The Democratic governor wants a more flexible tax credit that’s focused on job creation.

By CHARLOTTE KEITH
Spotlight PA

HARRISBURG — For the second year in a row, Gov. Josh Shapiro is asking Pennsylvania lawmakers to scrap three tax credits that state officials say are ineffective and replace them with a new program focused on creating high-paying jobs.

The tax credits, which offer a combined $10 million in incentives per year, aim to encourage waterfront development, and create jobs in manufacturing and the video game industry. But according to the governor’s recent budget proposal, they are “duplicative” and “too niche or too small to make a real impact.”

Boosting Pennsylvania’s business climate has been a major focus for Shapiro. The Democratic governor regularly touts his administration’s track record of securing major investments from companies in exchange for state grants, loans, and tax incentives.

The proposed change stems from a wide-ranging assessment of Pennsylvania’s incentive programs, Community and Economic Development Secretary Rick Siger told lawmakers in a budget hearing last year.

Demand for the waterfront tax credit program lagged, the video game tax credit was too small, and the manufacturing tax credit was underused, Siger said. Replacing them with a more flexible tax credit tied to job creation would fill “a real gap in the toolkit,” he said.

The Independent Fiscal Office, which is tasked by law with assessing whether Pennsylvania’s tax credits are meeting their goals, had previously recommended major changes to each of the three programs.

They make up a tiny fraction of the more than $1 billion in tax credits that Pennsylvania gave out in the last fiscal year, state data show.

Shapiro first proposed the change last year, but it was not included in the final budget deal. Companies and organizations that benefit from the tax credits in their current form oppose the plan.

Nick Madonna, founder and president of PHL Collective, a video game company based in Philadelphia, said scrapping the industry’s tax credit program would be “misguided.”

“It just seems very shortsighted and not in line with what a lot of other, more forward-looking states are doing,” he said.

Supporters agree that some of the programs are too small — but argue the solution is to expand rather than eliminate them.

In a statement, state Sen. Devlin Robinson, (R., Allegheny), said he introduced legislation that would grow the waterfront development tax credit because he has seen firsthand how it has helped projects in the Pittsburgh area. Robinson added that he was “concerned” by the push to eliminate the video game tax credit.

“Targeted or ‘niche’ investments don’t weaken a program’s impact,” he said. “They strengthen communities across this Commonwealth by incentivizing the very industries that make them flourish.”

Waterfront development

The three tax credits DCED wants to eliminate were created in 2016 as part of a wide-ranging bill that expanded existing incentive programs and added more than half a dozen new ones.

One aims to spur waterfront development by giving tax credits to companies that donate to nonprofits undertaking such efforts. It’s unique to Pennsylvania: No other state has an incentive program with such a specific focus on waterfront properties, the fiscal office’s review found.

The program is “a really wonderful public-private partnership,” said Heather Saeger, interim CEO of the Schuylkill River Development Corporation in Philadelphia, one of five nonprofits approved by the state to participate in the program.

The organization has taken part every year since the program opened, Saeger said. The nonprofit’s main goal is to complete the southern portion of a trail that spans almost the entire riverfront across five counties.

The program started with $1.5 million in tax credits available per year. In 2022, state lawmakers approved an increase, to $5 million per year.

However, demand appears to have lagged: In the 2024-25 fiscal year, the state awarded less than $2 million in credits across three projects, state data show.

The program has been underused because the tax credits aren’t generous enough, state Rep. Emily Kinkead (D., Allegheny) said during a February budget hearing.

The credit currently covers only 75% of a company’s donation to a nonprofit. Kinkead has introduced legislation that would increase that to 90%, and double the amount of credits available to $10 million per year.

Redeveloping waterways is crucial for reversing Western Pennsylvania’s population decline, Kinkead said at the hearing. Eliminating the tax credit program, she said, “would seem to continue to put a damper on our ability to really utilize the kinds of resources that are uniquely available” in the region.

Job creation questions

Another tax credit the Shapiro administration says is not working focuses on the video game industry.

The program, which is capped at $1 million per year, is simply too small to be effective, Siger told state lawmakers last year.

“To me, there’s no evidence that credit is somehow creating significant growth in the video game industry,” he said.

Of the 19 states that offer incentives to video game companies, Pennsylvania’s program is one of the smallest, according to the Independent Fiscal Office’s review. The credits mostly go to firms that are already established in the commonwealth, the review found, making it unlikely that the program is bringing in new jobs.

The video game industry in Pennsylvania is relatively small compared to states like California and New York. But supporters say the tax credit represents a smart long-term investment.

Jake Witherell, chief operating officer of Schell Games, based in Pittsburgh, said the program has allowed the business to take on new projects and steadily grow. The company currently has around 150 employees, mostly in Pennsylvania.

“These are real dollars that are meaningful to a company of our size,” he said.

The third program state officials want to roll back offers $4 million in tax credits per year for companies that add manufacturing jobs — a long-held goal of state officials and lawmakers. To qualify, companies must increase their annual payroll by $1 million and retain the new jobs for at least five years.

The fiscal office concluded, however, that it’s unlikely the program incentivizes job creation, because it is not generous enough. Companies that claim the credit would likely have created those jobs anyway, its review found.

The review recommended changing the tax credit’s rules, converting it to a grant program, or redirecting the funds to another, more efficient, economic development program.

Siger previously told lawmakers the credit was “very complex and therefore not fully subscribed.”

The ultimate fate of the programs will likely hinge on the outcome of state budget negotiations between the Shapiro administration and lawmakers in Harrisburg ahead of the June 30 deadline.

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