PA rescues refinery town, gives $30M to Delta
Grant to Delta justified by job retention
By Melissa Daniels | PA Independent
HARRISBURG — Oil helped build Pennsylvania.
It helped feed the industry's workers by giving them jobs, such as those at the old ConocoPhillips refinery in Trainer, Delaware County.
But these days, the oil industry is unpredictable. Crude oil is costing more, shrinking an already low profit margin. More than one refinery in Pennsylvania has felt the pain.
Recent events show that state government isn’t afraid to step in with taxpayer dollars to make sure those private-sector jobs stay in the commonwealth.
Earlier this month, Delta Airlines announced its subsidiary, Monroe Energy, would buy the ConocoPhillips refinery.
Before the purchase, hundreds of pink slips had been readied, threatening the community at its economic core. A Department of Labor and Industry report says every 100 jobs at the refinery leads, indirectly, to 1,800 jobs.
The purchase, with an initial cost of $180 million, was bolstered by a $30 million state subsidy — called an Opportunity Grant — from the Department of Community and Economic Development.
Opportunity Grants are funded with appropriations from current and previous years. As a whole, DCED received $214.8 million in the 2011-12 state budget, and $303.5 million the previous year.
The department says it had not funded a refinery or drilling extraction, but this was a special case.
Delta's hope is to save on its annual $11.8 billion jet fuel bill by integrating a refinery, a landmark business move that made national headlines. Locally, the purchase was a saving grace for the town, and Delaware County.
Ask Senate Majority Leader Dominic Pileggi, R-Delaware, what the refinery means to his constituents. It's an example, he said, of the Opportunity Grant being used in the right way, because it's about more than jobs.
It's about a way of life.
“There are multiple generations of families that have been employed in that trade, in that profession, and if we were not able to keep that refinery open that entire culture built up over a hundred years, that entire set of skills, would’ve gone away,” Pileggi said.
But the Trainer refinery is not the only challenge for the region. The Sunoco-owned Marcus Hook refinery, also in Delaware County, fell idle, some 600 jobs gone. The refinery used to supply 190,000 barrels of oil throughout Pennsylvania, New Jersey and New York — by truck, barge and pipeline.
Sunoco’s 335,000-barrel producing refinery in south Philadelphia, one of the largest on the East Coast, needs a buyer, too. Otherwise, it will meet the same fate at the end of July.
Now, the question is how many tax dollars will Gov. Tom Corbett's administration commit, when hundreds, even thousands, of more Pennsylvanians are subject to the unknowns of a volatile industry.
A recent $5.3 billion acquisition of Sunoco by Texas pipeline company Energy Transfers Partners, and an agreement with venture capital firm the Carlyle Group, gives some hope that these situations will be resolved, Pileggi said, with much more available capital on the scene.
But whether the state will pitch in again is based on the transaction, he said.
“There needs to be a proposal before a judgment can be made as to what role, if any, the state should have in the implementation of the proposal,” Pileggi said.
Such decisions are made case by case, said Kelli Roberts, spokeswoman for Corbett. But the administration has its eye on Marcus Hook, and on the Philadelphia refinery, and “is still invested” in the future of the refineries.
Roberts would not comment on specifics of any communications.
“It’s not a one-size-fits-all situation,” she said. “We take the investment of taxpayer dollars very seriously.”
As it is, Pennsylvania is a high-spending state for economic development, and also a high-tax state, said Nathan Benefield, director of policy analysis for the Commonwealth Foundation, a think tank that promotes free-market policies.
Giving out incentives to a business like Delta, he said, uses funding that could be spent elsewhere if incentives weren't piecemealed in the first place.
"We need to have the community development incentives to make it attractive for business in Pennsylvania, but if we got rid of that and lowered the tax rate, we would make it more competitive for all businesses," Benefield said.
Such incentives, like Opportunity Grants, are often coupled with standards tied to job creation and corresponding private investment. In this case, both are supersized. The grant to Monroe Energy is contingent upon the retention of 402 employees for the next five years or more, and fulfilling a commitment to invest $350 million at the site, including the initial purchase price.
If the stipulations aren’t met, the grant turns into a loan with a 10-year repayment period at 3 percent interest.
The $30 million grant wasn't without precedent, said Steve Kratz, spokesman for the DCED. Delaware gave a $25 million grant for a refinery purchase in 2009.
Taking into account what was at stake — and the private investment coming from Delta — the significance of preserving Trainer's economy outweighed the cost of a taxpayer grant, said Kratz.
“This was a case of basically saving a town, saving a way of life in our community, saving thousands of jobs and really keeping fuel and oil prices under control,” he said. “If that shut down, that’s going to have a widespread effect not only on Pennsylvania but the entire Northeast.”