Rendell inspires grant backlash in Pa.

The largesse late in his final term has focused renewed state scrutiny on "R-Cap" spending.

Posted: February 06, 2011

For eight years, Gov. Ed Rendell trumpeted a program that shelled out $2 billion for building projects, including sports stadiums, museum wings, hospital additions, and factory expansions.

The goal: Create jobs, stir the economy, and preserve Pennsylvania's heritage. Legislators pitched many of the projects, and the governor chose which got funded - typically without any debate or public discussion.

Now, a looming state deficit, a swelling debt load, and criticism of some of Rendell's last grants - $10 million each that was initially alotted for an Arlen Specter Library and a John Murtha Public Policy Center, for instance - have unleashed a new round of scrutiny on the Redevelopment Assistance Capital Program, called R-Cap.

Gov. Corbett has frozen at least 50 applications of projects already in the pipeline. House Majority Leader Mike Turzai (R., Allegheny) has vowed to block any bills proposing new grants.

And Auditor General Jack Wagner has quietly launched a probe into oversight of the so-called R-Cap funding.

"We have had concerns," Wagner said in an interview Thursday. "We want to find out if the R-Cap program is working as intended."

Critics compare the grants to earmarks, the pet-project line items added to the federal budget by members of Congress, or to the walking-around-money that state legislators get to spend on local programs such as fire companies and youth athletic leagues.

"It's exactly the same thing as WAMs, only on steroids," said Tim Potts, founder of the Harrisburg watchdog group DemocracyRising PA.

Started in 1986, R-Cap surged under Rendell. Between 2002 and 2010, the ceiling on state borrowing for capital projects quadrupled to $4 billion.

Projects that once were excluded - such as hospitals and apartment high-rises - became eligible for R-Cap money. The staff devoted to administering the program swelled from about six in 1999 to two dozen last year.

Rendell was always an unabashed supporter, arguing that the state needed to invest in its communities, particularly in tough times.

Steve Crawford, his former chief of staff, pointed to Warren, Pa., a northwestern town of 9,400, that received a $2.5 million grant to redevelop its downtown.

"The economic stimulus that comes to a town like Warren is critical," Crawford said. "Pennsylvania has small towns like that throughout. This program has in some places been a lifesaver."

But who gets the money and why has been a source of contention.

In his last two months in office, Rendell approved more than $500 million in R-Cap grants to more than 380 projects, according to data the state Office of the Budget released Friday.

The list included $11 million for the relocation of the Barnes Foundation gallery, $5 million for a mixed-use development on the site of the former Franklin Mint, $5 million for poultry producer Perdue to open a factory in Lancaster County, and $3 million for the Haverford Township YMCA. All but two of the 10 largest grants went to projects in Philadelphia.

Each of those is merely eligible to apply for the grant. Applicants undergo an extensive review by budget officials and must raise at least half the project's financing themselves. Once approved, they don't get a check up-front, but instead get reimbursed for expenses after the fact.

The grants are financed through bond issues, so they aren't included in the annual operating budget or counted as part of the deficit. But they are paid off over time - along with interests and fees - by the state's taxpayers.

Crawford cited the program as one reason the state ranked third nationwide in job growth in 2009. He dismissed any attempts to paint it as a pork-barrel fund. "One person's pork is another person's meat," he said.

But even some Democrats say R-Cap needs to be reviewed.

"There is a shroud of secrecy over it," said State Rep. Greg Vitali (D., Delaware). "There doesn't seem to be any sort of objective weighing of merits of competing projects."

A state legislator since 1993, Vitali said he had been unaware of the grant program until he had been in Harrisburg several years. He has since used it to help get $1 million for a community center on the site of the former Haverford State Hospital.

Vitali supports changing the system, but said there had never been a groundswell in Harrisburg to do so.

"Legislators are reluctant to challenge because everyone gets a little piece of it," he said. "So the fear is if you get vocal about it, your little piece goes."

After a project makes the budget list, the governor decides who gets money and how much. Crawford said Rendell typically made those decisions with legislative leaders from both parties.

But there's no hearing or public records of those discussions, so taxpayers have no way to know why, for instance, the state pledged $10 million toward a new Philadelphia headquarters for broker Janney Montgomery Scott, $1 million for a Fresh Grocer supermarket in the Cobbs Creek area, or $250,000 for a new outdoor athletic complex at Malvern Prep School.

State Rep. Kate Harper (R., Montgomery) said she had helped sponsor what became $7 million in R-Cap grants for Ambler Crossing, a project to turn an abandoned asbestos factory into a residential and retail complex. The cost of remediating the site had scared off developers for years, Harper said.

"That project needed government help," she said.

Harper's opinion of R-Cap changed, she said, when she saw the list of projects Rendell backed in his final months.

"When I saw the governor handing out checks right and left after the election, and before Corbett was sworn in, it was like, 'Stop already!' " she said.

In 2007, Wagner faulted Govs. Tom Ridge, Mark Schweiker, and Rendell for lax oversight of a $15 million grant for the Mountain Laurel Center for the Performing Arts in Pike County.

News reports had portrayed the project as a house of cards, propped up by questionable financing and an inflated estimate of the arena's size and revenue. After struggling for several years, the arena closed and was sold in 2008.

Wagner rapped Ridge for approving the grant and Rendell for not monitoring the project after releasing the funding. Wagner suggested it was an example of an unchecked grant system.

"The Governor's Office needs to improve its responsibilities under [R-Cap] with respect to grant approval and oversight," his report said.

Budget officials said they had since reorganized and improved their operations.

Rick Dreher, director of the state Bureau of Revenue, Capital, and Debt, said the office had never been charged with ensuring that projects succeeded, just helping them get off the ground. He contended that the failure in Mount Laurel was an anomaly, like "an operation that was a success - but the patient died."

Dreher estimated that fewer than 10 R-Cap projects had collapsed like that one. But he also acknowledged that there had been no comprehensive study to see if others delivered the economic benefit they promised.

"Is it time for that kind of review? Maybe it is," Dreher said. "The question becomes: Who does it, and what are the objectives, and who is going to pay for it?"

Wagner said his office would randomly choose projects that had received R-Cap funding, then review the records and interview personnel. He said he hoped to finish the audit by midyear.

Contact staff writer John P. Martin at 215-854-4774 or

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