Saturday, July 12, 2014
Inquirer Daily News

What Texans really hate about PA (and it's not gas taxes)

A transplanted Texan tells why Gov. Corbett's tax strategy might not be the best way to lure energy businesses here

What Texans really hate about PA (and it's not gas taxes)

Sid Smith's from Houston, and he still goes home to hunt and fish on his uncle's Texas ranch.

He makes his living from his Market Street office, leasing buildings in Center City, King of Prussia and other office centers, as managing partner for Newmark Knight Frank Smith Mack.

So you'd figure his Texas connections would make Smith a right guy to ask about Gov. Tom Corbett's plan to make Pennsylvania "the Texas of the natural gas boom" and convince energy giants to "headquarter" here, in exchange for not "scar(ing) them off" with the billion-dollar fees other states levy to drill natural gas, as rigs pump the deep Marcellus and proepare to probe the deeper Utica shale fields.

Pennsylvania was America's petroleum pioneer, but its sweetest wells long ago sucked dry. Oil giants born and financed here - Gulf Oil, Atlantic Richfield, Pennzoil - quit the Commonwealth and moved their high-paid bosses and job-rich contractors South and West, leaving only Philadelphia's shrunken Sunoco. Now Corbett hopes his zero-percent extraction fee will attract natural gas companies' head offices, not just their drill rigs and waste-recycling tanks.

Smith knows Texas, and he knows corporate real estate. Does Corbett's promise have him he prospecting for Houston and Dallas companies to move North? Are they ringing his phone?

Not so far. "We could find room for them. But they're not dying to come back," said Smith, smiling in his Market Street office, between maps of colonial Philadelphia and Texas topography.

Smith doesn't believe Pennsylvania's 0% gas-extraction fee, compared to Texas' 4% levy, is a convincing draw. The way Smith sees it, "companies want the gas, and they'll pay the tax."

But Pennsylvania may be passing up a good thing that could benefit all industries. Texas' energy taxes raise so many billions that the state manages without an income tax.

If Corbett really wants to make Pennsylvania like Texas, why doesn't he try that?

And who says extraction taxes are the main factor Texas energy bosses consider before selling their ranches and moving their Stetsons (an old Philly brand) up North?

When companies want to move to Houston, Smith says, a single regional agency handles real estate, leasing, licensing and tax questions. The weather may be steamy-Philly-August for  most of the year, the chain shops and restaurants have that drive-by Interstate-bypass lack of character - but for business it's one-shop stopping, enabling a tenant to quickly check costs and opportunities at multiple sites and make a solid decision.

By contrast, potential clients from simpler jurisdictions freeze in disbelief, Smith says, when he explains about the Philadelphia region's hundreds of boroughs, cities and townships, each with its planning and zoning rules; plus the competing county and state agencies, multiple property-tax districts, high business income tax rates and complex discounts, and other complications. Compared to Texas, tenants feel "we are over-governed," Smith says.

As an outdoorsman, Smith's also a little concerned about the impact of drilling byproducts and wastewater accumulating up in the hills in the rush to open more wells. "Ponds like that are never a good story on any property," he told me.

Yet Smith is a Philly believer. Smith steers decision-makers to the region's s lifestyle attractions: its standout private golf courses, its first-rate suburban and private schools, its vast medical establishment, its arts culture and cuisines. His firm's local properties include  the Wanamaker Building (where tenants include David Kramer's fast-growing Digitas-Razorfish advertising group), 1818 Market St., and 1101 DeKalb Pike in King of Prussia,

"There's a national misperception about Philadelphia. My friends from home are always impressed," Smith told me. Getting that story out, and doing more to simplify the government nuisance factor, could do more to boost Pennsylvania business than special treatment and wishful thinking for the gas industry.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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