News Release - 7 October 2003

Economic Recovery?
Survey finds turn-around yet to take hold in Pennsylvania

Despite conventional wisdom and national statistics pointing to an upsurge in the U.S. economy, major employers in Pennsylvania say the state’s business climate continued to deteriorate over the past six months as both sales and employment levels dropped.

Thirty-three percent of the chief executive officers responding to the Lincoln Institute’s Fall 2003 Keystone Business Climate Survey said business conditions in the state had gotten worse over the past six months compared to just 15% who felt the commonwealth’s economy had improved. The remaining 50% said business conditions have remained relatively unchanged since last spring.

“Although the numbers do not indicate a dramatic turn-around in the state’s economy, they are more positive than those reported by business leaders in the March survey,” said Lowman S. Henry, Chairman and CEO of the Lincoln Institute. “In the spring survey, 55% of the CEOs said business conditions in the state had deteriorated over the preceding six months. That number has dropped to 33% in the current survey. Meanwhile, the number of employers saying business conditions are stable has risen from 46% last spring to 50% today.”

Employers are also beginning to temper their optimism over the future course of the state’s economy. A plurality, 41% expect business conditions to remain about the same over the coming six months, while 35% expect conditions to improve. In the spring survey, 44% felt the coming six months would hold an improving economy.

Declining sales may be driving the growing sense that Pennsylvania’s business climate has become stagnant. Thirty-five percent of the major employers said sales at their company have dropped over the past six months compared to the 27% reporting increased sales. Most, 47% predict sales at their firm will remain constant over the coming six months, while 36% say sales will increase, and 14% are predicting further erosion in sales.

The drop in sales has produced a decline in employment opportunities. Thirty-four percent of the companies responding to the Keystone Business Climate Survey say they have lowered the number of employees at their company while 25% report increasing their employee roster. Thirty-nine percent said the number of people they employ remained constant over the past six months. Looking ahead, 24% are predicting they will add employees, while 20% expect further job cuts.

Pennsylvania also continues to experience a slow flow of jobs and operations to other states. Four percent of the respondents say they moved some of their operations elsewhere, while 2% said they moved production into Pennsylvania. More ominously, 22% of the major employers say they may consider moving some or all of their operations out of Pennsylvania over the coming six months – up from the 18% who said they were considering such moves last spring.

Job Approval Ratings

The slow pace of the economic recovery nationally coupled with the summer-long gridlock in Harrisburg has taken its toll on the job approval ratings of several key political players.

Governor Ed Rendell was the hardest hit as his positive job approval rating from the state’s biggest employers dropped by 10% since last spring – down to just 28%. His negative rating jumped dramatically from 32% in March to 48% in September. The business chieftains also expressed growing dissatisfaction with the job performance of the state legislature. Approval of the job being done by the state Senate dropped 10% to a 30% positive rating. The Senate’s negative rating went from 29% in March to 46% in the current survey. On the House side, the chamber’s positive rating dropped 8% to 33%, while its negative rating went up by 17 percentage points to 43%.

The other statewide official to see a major decline in his approval ratings was U.S. Senator Arlen Specter. The state’s senior Senator has never polled strongly with the state’s major employers. While his positive job approval rating went up 1% to 32%, Specter’s negative rating jumped 11 percentage points to 50%. The significant increase in the senator’s negative ratings is likely the result of aggressive campaign challenges being mounted from Congressman Pat Toomey in the upcoming Republican Primary, and Democrat opponents Congressman Joe Hoeffel and Lancaster businessman Charlie Crystle. By contrast, U.S. Senator Rick Santorum’s positive rating improved by 1% in the current survey to 60% positive against a 26% negative rating.

President George W. Bush’s job approval rating backed off 8% from his Iraq war high of 83% registered in the spring survey to 75% in the current survey. But, Federal Reserve Board Chairman Alan Greenspan got a vote of confidence for his role in handling the U.S. economy as his positive job approval rating among Pennsylvania’s major employers increased to 78%, up 2% from last spring. Positive ratings for the legislative branch of the federal government slipped by 4% for the Senate, and 6% for the House. Employers gave the United States Senate a 35% positive rating, while 52% hold a negative view of that body. The U.S. House of Representatives fared better with 47% holding a positive view of that chamber against a 39% negative rating.

ISSUES

Governor Ed Rendell has been unable to build support among the state’s major employers for his key proposals to overhaul the state’s tax system. Seventy-eight percent of the chief executive officers surveyed by the Lincoln Institute opposed his plan to increase the Personal Income Tax (PIT) from 2.8% to 3.75%. Of that number, 66% said they strongly disagreed with the plan.

The CEOs also registered, but by a narrower margin, their disapproval of the Governor’s plan to cut property taxes by shifting the tax burden to state-levied income taxes. Forty-nine percent said they opposed cutting property taxes and replacing the revenue with $1.5 billion in additional state subsidies. Forty-five percent said they agreed with that proposal.

There was, however, support for Governor Rendell’s efforts to allow the placement of slot machines at race tracks in Pennsylvania. Sixty-one percent said slots should be allowed at tracks while 36% were in opposition. Support for slots eroded when the component of licensing casinos in Pittsburgh and Philadelphia was added into the equation. Forty-nine percent said they would support more gambling with casinos in the mix, while 46% said they opposed legalization of casinos.

The gridlock which gripped Harrisburg over the summer and into the fall has contributed to a generally disaffected mood among participants in the Keystone Business Climate Survey. Who is to blame? Fifty-five percent blamed everyone in Harrisburg – the governor and the legislature. However, an additional 25% said Rendell was at fault for the lack of progress, while 6% blamed the Senate and 6% blamed the House of Representatives.

Despite the gridlock, Pennsylvania’s largest employers are not yet ready to embrace California-style recalls. Fifty-seven percent said they would not like to see a system of recall similar to that in California, while 33% said they would like Pennsylvanians to have recall and referendum rights.

Overall, the corporate leaders remained focused on key issues impacting business. Thirty-three percent said the economy and jobs are the most important issues facing Pennsylvania today, another 32% cited taxes and the state’s unfriendly business climate as their major concern. Health care was listed as the most important issue by 13% of respondents, and another 13% listed government waste as a concern.

The debate over whether or not free trade agreements like the North American Free Trade Agreement (NAFTA) are beneficial drew a divided response from the CEOs. Forty-nine percent thought NAFTA has been beneficial and should be kept in place, by 33% feel the agreement has harmed the U.S. economy and should be repealed. When it comes to higher tariffs to protect the domestic steel industry from unfair foreign competition, 50% agree such tariffs would be useful, while 47% feel they are harmful.

Looking ahead to next year’s hotly contested election for a U.S. Senate seat from Pennsylvania, 46% of the Republicans participating in the survey said they would vote for Congressman Pat Toomey in the April Primary while 31% registered support for incumbent Arlen Specter. Twenty-three percent said they remain undecided. The Democrat race has yet to take shape with 76% of the Democrats responding saying they are undecided in the Hoeffel/Crystle match-up.

Methodology

The Fall 2003 Keystone Business Climate Survey was mailed on September 12, 2003 to 4,000 businesses employing 50 or more people in their Pennsylvania operations. As of the survey deadline of September 30, 2003, a total of 202 responses were received. Complete numeric results of the survey can be found on-line at www.lincolninstitute.org and through www.patownhall.com.

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