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Bad news brewing? Yuengling mulls a move

Gallery: Bad news brewing? Yuengling mulls a move

HARRISBURG, Pa. (AP) — It's enough to drive Pennsylvania economic development officials to drink.

The thought of D.G. Yuengling & Son, America's oldest brewery and a quintessential Pennsylvania brand, building a brewery outside of the Keystone State for business reasons.

Yet, company owner and president Dick Yuengling Jr. says such a move is possible as the company explores its expansion opportunities over the next two years or so.

But are Pennsylvania's economic policies really to blame for taking the fizz out of its business growth?

It depends on who you ask — and the states to which Pennsylvania is compared.

"That's a good topic for discussion," said David Black, president and CEO of the Harrisburg Regional Chamber & CREDC. "Everything is relative."

Dick Yuengling didn't talk specifics in bemoaning Pennsylvania's business climate in a Patriot-News story last week. In a follow-up interview, he had some positive words for what he saw as the pro-business efforts of Gov. Tom Corbett's administration.

But as someone who attempts to sell Pennsylvania to local, regional and national businesses on a daily basis, Black mentioned several deal-derailing roadblocks to more robust business growth.

Black cited the state's 9.9 percent corporate net income tax rate, among the highest in the nation, and its slowly dying capital stock and franchise taxes, which assess businesses simply because they exist, regardless of money being made.

And he referenced Pennsylvania's "bad rap" as an organized labor state where prevailing wages can rule, sometimes raising the cost of construction.

On the positive side, Black said, many small businesses pay at the state's personal income tax rate, which at 3.09 percent is competitive nationwide.

In short, it's a mixed bag that could use a top-to-bottom makeover for marketing purposes.

"Most tax-rate structures in states are based in history," Black explained. "Obviously, when Pennsylvania was a big industrial leader in the 20th century, corporate taxes worked well. However, we have slowly had to move away from the model — perhaps too slowly. The theory, which I support, is to keep tax rates low for all." '

CEOs smack Keystone State

In a host of nationwide business rankings, Pennsylvania often plummets to the middle of the pack, or worse.

For example, the 2012 Thumbtack.com Small Business Survey branded Pennsylvania as average when it comes to business friendliness. It's overall C rating saw the state coming in 27th in economic health, 39th in optimism about the future and 35th in growth rate.

Likewise, the state landed at 26 in the 2011 Forbes' Best States for Business ranking.

Pennsylvania scored highest — sixth place — in the perception of quality of life. And it ranked a respectable 19th in economic climate. But that was as good as it got.

Forbes rated Pennsylvania a middling 27th in growth prospects and government regulation, then sank in terms of the all-important categories of business cost and labor supply categories, finishing in the mid- to high-30s in both.

Perhaps there was no worse news for Pennsylvania's business prospects than the annual business leaders' survey published by Chief Executive.

The candid CEOs surveyed by the publication pummeled Pennsylvania, branding it with a dismally distant 43rd ranking in its 2012 listing of best business states. Even worse, the state fell four spots from the 2011 list.

 he survey of 650 business leaders slammed Pennsylvania for its "numerous, piddly taxes" and its heavy-handed regulation of even "very small 1-2 person businesses."

It rated the state's tax structure as "poor," placing Pennsylvania in league with the likes of California, Illinois, Massachusetts and Ohio.

The publication's bottom line: "None of these states are business friendly. Government is bloated with excessive cost and resulting high taxes in these states."

Ouch! So maybe Dick Yuengling has a point.

 

Fighting perceptions

Pennsylvania has a perception problem dating to the 1970s' national economic "malaise," the rusting of its once-sterling steel industry and the rise in southern states' growth and aggressiveness as economic engines, Black insists.

He says Pennsylvania has been effectively fighting these perceptions since getting serious about its business climate in the late 1990s with pro-growth economic development policies and a sharper focus on interstate competitiveness.

Since then, Pennsylvania has "gotten looks" from projects that never would have peeked at the state before.

And Pennsylvania has enjoyed growth across broad business sectors, with Black citing several local companies such as ArcelorMittal and DuraBond Pipe in manufacturing and TE Connectivity and related AMP legacy companies in electronics.

"You fight perception with reality," Black said. "Pennsylvania needs to talk with Dick Yuengling and try to legitimately debunk some of his perceptions with reality."

After all, he said, a similar strategy worked when the Shell Cracker facility selected western Pennsylvania over Ohio. The Hershey Co. opted to double-down on Derry Township by expanding its West Hershey plant rather than re-locate to Virginia.

Even the fifth-generation beer maker said in a follow-up interview that his mind is far from made up about building outside of Pennsylvania for the family-held company's fourth brewery.

"Pennsylvania has treated us well for years," Dick Yuengling said, citing a tax credit for small breweries that helped fuel the company's initial growth spurt.

Last year, America's oldest brewery became the nation's largest American-owned brewer, with a move into Ohio that pushed Yuengling sales to about 2.5 million barrels, enough to eclipse Boston Beer Co.'s Sam Adams.

Although Yuengling competes in just 14 states, sales could approach 3 million barrels by year's end, pointing up the need for another brewery sooner rather than later.

With an eye toward continued growth, Dick Yuengling said he likely would begin thinking seriously about building a brewery toward the end of next year.

However, he declined to give a timetable for making the decision, much less building the brewery.

"We're just not going to do anything right now; we don't have to," said Yuengling, referring to uncertainties surrounding the presidential election, various federal regulations and the weak national economy.

"I just think the country is a mess," he said.

 

Home brewing

The element of time is the single-biggest reason that Black isn't ready to write off Yuengling's new brewery as landing in another state.

There will be plenty of time for state and local economic development types to woo the beer maker, most likely to a spot in western Pennsylvania, where it could supply the brand's westward expansion.

"Yuengling makes a point, but the good news is Pennsylvania will have some time to work on him," Black said. "We are overall the most competitive in the Northeast states. We have a good water supply needed for beer making, along with a history of beer making versus other (Southern) states that are better known for bourbons and moonshine."

Dick Yuengling confirmed that at least one state economic development official already had reached out to him in wake of his initial comments about building outside Pennsylvania.

"If they want to talk to me, fine," Yuengling said. "The Corbett administration has been doing a better job."

And at least one western Pennsylvania landowner is offering his industrial-zoned tract as the future home of the next Yuengling brewery.

John Michael Horanic of Westmoreland County said he has 43 acres zoned for light industrial use, bubbling with artesian springs, accessible to all utilities, and just waiting for what he called a "green use" like brewing Yuengling beer.

"And it's my beer, too," Horanic said of the Pennsylvania brand that he planned to lobby state officials to support.

Because if Pennsylvania lets Yuengling's business and jobs slip away, Horanic said, "Our state is not just cutting off its nose to despite its proverbial face — they're lopping off their whole head!"

While it's nice to be wanted, Dick Yuengling said a final decision remains relatively far off. And it might not come down to an objective measure of business climate or tax incentives.

The final analysis of where Yuengling builds its next brewery might have more to do with a strategic location that cuts its shipping costs rather than reduces its tax bill.

"It could be western Pennsylvania, but transportation costs are huge," Yuengling pointed out. "That's a big factor. It's expensive to deliver beer a great distance, so you make an attempt to move close to your new market areas.

"In other words, the spinning beer bottle pointing the way for Yuengling's expansion has yet to settle on a direction.

 

 

Information from: The Patriot-News, http://www.pennlive.com/patriotnews

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