Pennsylvania’s last-minute $2 billion tax credit proposal, explained

In the final days of this year’s legislative session, state lawmakers jammed through a $2 billion tax credit package that aims to provide incentives for hydrogen producers, milk processors and semiconductor manufacturers to invest in Pennsylvania. 

The proposal, which has yet to be signed into law by Gov. Tom Wolf, is being referred to as the Pennsylvania Economic Development for a Growing Economy program, or PA EDGE. It would provide roughly $1.97 billion in tax breaks over a 25-year span.

The last-minute legislative package was championed by GOP leaders, who said the credits will spur billions of dollars’ worth of private investment throughout the commonwealth. However, the opaque nature of the bill’s development, as well as the speed at which it was advanced through the General Assembly, irked lawmakers and advocates alike. 

Here’s everything we know about the bill and the potential impact it could have throughout the commonwealth: 

What does the PA EDGE program do?

The PA EDGE program establishes three new tax credit programs in the state: one for milk processors, one for semiconductor manufacturers and one to attract a “hydrogen hub” to the state. The bill, House Bill 1059, would also expand the existing Local Resource Manufacturing Tax Credit – by an extra $30 million annually – to companies that commit to using dry natural gas to produce petrochemicals or fertilizer.

The milk processing tax credit would provide tax breaks of up to $15 million per year over an 8-year span and would go to companies that purchase and process Pennsylvania milk, and would make a $500 million investment to build a milk processing facility in the state. 

Also included in the measure is a new tax credit for semiconductor manufacturers and biomedical researchers. The PA EDGE program would apply to companies that make semiconductors, conduct biomedical research or manufacture biomedical products. This program, known as the Semiconductor Manufacturing and Biomedical Manufacturing and Research Tax Credit program, would allow for up to $20 million worth of tax credits each year, totalling $100 million over a five-year period, per a House Appropriations Committee analysis of the bill. 

The cornerstone of the legislation, a tax credit to incentivize the construction of a regional hydrogen hub in Pennsylvania, would provide the biggest break of them all – up to $50 million in credits each year, for a total of $1 billion in tax credits over a 20-year span.

What is a hydrogen hub?

The Regional Clean Hydrogen Hubs Tax Credit is designed to attract a regional hydrogen hub to Pennsylvania – but what, exactly does that mean?The answer can be found in President Joe Biden’s $1 trillion federal infrastructure package, which was signed into law last November. As a part of the infrastructure bill, the Biden administration allocated $7 billion in federal funds to encourage the buildout of “regional clean hydrogen hubs.”

The U.S. Department of Energy defines hydrogen hubs as a “network of hydrogen producers and consumers, and the connective infrastructure located in close proximity.” According to the department, hydrogen can be produced by a range of energy sources, including wind, solar, nuclear and methane.

The state-level credit will go to companies that purchase hydrogen made in Pennsylvania, as well as companies that buy natural gas in order to manufacture hydrogen. Eligible facilities must be located within a Regional Clean Hydrogen Hub designated as such by the U.S. Department of Energy. 

The term “hub” includes hydrogen producers, hydrogen consumers and any connective infrastructure located nearby. Companies seeking the credit must make a $500 million investment to build hydrogen-related facilities and create at least 1,200 new jobs.

How did the PA EDGE program come to be?

HB 1059 was approved by lawmakers along bipartisan lines in a 139-59 vote. Even though the measure passed with plenty of support, it also generated a fair amount of controversy for how it was advanced through the legislative process. 

The bill, which was largely negotiated behind closed doors, was introduced and passed by lawmakers all in a single day – a fact that miffed Democrats and Republicans alike. 

The bill’s language was amended into an existing bill – House Bill 1059 – and passed by both chambers on the last legislative session day before the midterm elections next month. 

Democratic state Rep. Sara Innamorato, who voted against the bill, tweeted that the bill was passed with “little-to-no public input or debate” while also framing the proposal as a handout to the natural gas industry.

Republican state Rep. Jason Ortitay, who also voted against the bill, took issue with the process in which the bill was developed, telling City & State that he wasn’t even aware that the legislation was in play until two days before it was voted on. Even then, he didn’t see the final bill language until Wednesday, Oct. 26 – the same day lawmakers voted on it.

“It would have been nice to vet this instead of the Senate loading up an amendment and sending it over,” he said. “A little bit more time would have been nice.”

“My opinion is, this should have been done with the budget. It should not have been crammed down our throats on the last day,” Ortitay added. 

Who supports it?

Shortly after the bill passed, GOP leaders in the House and Senate praised the PA EDGE tax credits as a tool that will encourage businesses to base their operations in Pennsylvania. 

Senate Majority Leader Kim Ward, a Westmoreland County Republican, said the credits will signal that the state is “open for business.”

“Such an investment will have a multiplier effect in revenue generation and job creation with regional outcomes across the commonwealth and consists of $141.6 million in tax credits annually,” Ward said in a statement. 

House Speaker Bryan Cutler similarly heralded the tax credit package as something that will transform the state’s economy. “The impact of this change cannot be overstated,” Cutler said in a statement. “The package will result in billions of dollars in career-creating investment in industries that will put our commonwealth at the center of where the world is heading.”

“These are industries at the forefront of economies on an international scale. These tax credits put Pennsylvania in the driver’s seat in the race to attract worldwide leaders in these industries and, in return, change the course of prosperity for thousands of Pennsylvania families,” Cutler added. 

A large collection of Democrats and Republicans overwhelmingly supported the legislation, despite worries from lawmakers on both sides of the aisle. 

Some business leaders are already eyeing the Pittsburgh region for a hydrogen hub, with Toby Rice, president and CEO of EQT Corp., suggesting that “Appalachia is ideally suited to lead the charge in clean hydrogen production,” according to the Pittsburgh Business Times. 

Who opposes the PA EDGE program?

Even though the package passed with plenty of support to get it to the governor’s desk, there was still a vocal minority of lawmakers – as well as a collection of interest groups – that opposed the bill for different reasons. 

Free-market-minded Republicans, along with the Commonwealth Foundation, a free-market think tank, publicly opposed the bill. Commonwealth Foundation Vice President Stephen Bloom told Spotlight PA that the organization opposes “handouts to the politically selected.”

Ortitay echoed that sentiment: “We’re picking winners and losers here. The government should not be picking winners and losers. This is not something that we should be in the business of doing,” he said. He argued that further lowering the state’s corporate tax rate could benefit all businesses, not just a select few industries. 

The bill created some strange bedfellows in terms of who opposed it, because not only did a contingent of conservatives oppose the bill, but so did environmentalists in and out of the legislature. 

Rob Altenburg, the director of the PennFuture Energy Center, told City & State that the package lacks significant investments in renewable sources, arguing that it doesn’t set Pennsylvania on a path to net-zero emissions. 

“The discussions we’ve had around a hydrogen hub in western Pennsylvania have all been around steam reformation of methane – using fracked gas. That is not clean and that does not have a pathway to get to net-zero,” he said.

The fact that the bill was moved through the legislative process in a day didn’t help matters, Altenburg said. “Over the weekend, we started hearing about what was in it and about what was moving, and we didn’t actually see language until this week,” he said. “Even then, we didn’t see the final language until hours before it was going to pass.”

Altenburg also criticized the annual $30 million expansion of the Local Resource Manufacturing Tax Credit, which he called a “fracked gas subsidy.”

What happens next?

The bill now awaits a signature from Wolf, who is reported to have negotiated the deal with legislative leaders, according to Spotlight PA. 

Wolf has not commented publicly on the plan since it was passed. A spokesperson for Wolf told City & State that the governor is currently reviewing the bill.