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Part 3: The Truth on Senate Claims About Boeing

Among Mark Twain’s many quotable quotes is the sage advice to always tell the truth – that way you don’t have to remember what you said.

In the vast arena of fact and fiction, it’s a given that politics could use a lot more of that practice. But even politicians don’t usually stretch the facts so far as two ofSouth Carolina’s most powerful state senators did when they defended an incentives package the General Assembly passed for the Boeing Co. in October.

Relax and have a beverage. This is going to be a good one.

When the Boeing deal was sealed, the South Carolina Policy Council released a statement applauding the aerospace titan’s decision to expand in thePalmettoState. But the Policy Council, a nonprofit free-market think tank inColumbia, took issue with the incentives and the way the Legislature crafted and passed them.

In an unusual response, Senate President Pro Tempore Glenn McConnell, R-Charleston, and Senate Finance Committee Chairman Hugh Leatherman, R-Florence, pushed back in the form of a five-page (double-spaced) statement distributed to news media outlets across South Carolina.

Given a healthy dose of truth squading, the McConnell-Leatherman response seems to lack veracity on two key points and veer into misrepresentation on a third, as follows:



  • · That members of the Legislature were provided with a cost-benefit analysis of the incentives package before voting on it;

  • · That Boeing cannot receive the benefits of the incentives until the company meets thresholds in job creation (3,800) and capital investment ($750 million); and

  • · That the specifics of the deal were diligently explained in a Senate Finance Committee meeting.


Quite to the contrary, lawmakers crammed the incentives package through a special two-day legislative session late last year. The package was designed to buy an airliner plant forSouth Carolina. That factory is now under construction inNorth Charlestonadjacent to two existing Boeing facilities and could begin operating sometime in 2011. It will be one of two sites where the company’s next-generation passenger jet, the 787 Dreamliner, is assembled. Boeing’s other 787 fabrication line is inEverett,Wash.

 

Several ofSouth Carolina’s biggest big-name politicians have described the new Boeing plant as the largest industrial deal in the history of thePalmettoState. To formalize it, the S.C. Department of Commerce is in the process of finalizing a written agreement with the company.

Some news reports have listed the price tag of the incentives – a combination of state bonds and tax breaks – at as much as $450 million. But the official record so far has cited no total cost. And no one can say with authority what the tab for lawmakers’ giveaway on behalf ofSouth Carolinataxpayers and businesses will be. For reasons ranging from state law granting confidentiality to the dollar value of tax credits claimed to the sheer magnitude of the package, accurately quantifying it is next to impossible.

In the Policy Council assessment to which McConnell and Leatherman responded, Ashley Landess, president of the organization, applauded Boeing’s larger presence in the state. No doubt, the Policy Council found no fault with the company for playing by the rules as the Legislature has written them. But Landess criticized the incentives as a secret deal crafted by a handful of politicians “to take money fromSouth Carolinabusinesses and give it to a billion-dollar company.”

“Boeing’s decision to expand inSouth Carolinais good news,” she said. “Unfortunately,South Carolinataxpayers will have to pay them to do it.” Instead of creating jobs, Landess said, the Legislature “increased the cost of government at the expense of already struggling citizens” who cannot afford the subsidies.

Pushing back in their statement, McConnell and Leatherman asserted that an analysis of the deal by the S.C. Board of Economic Advisors “was provided to the members of the General Assembly, and that analysis showed that with the projected income tax from the plant and its employees alone would more than pay for the incentives and would result in a net gain to our economy.”

However, a random check by The Nerve with 10 legislators – Republicans and Democrats, prominent lawmakers and back benchers – indicates that members of the Legislature in fact did not receive such a cost-benefit analysis.

“We didn’t have any analysis that I can recall,” says Sen. David Thomas, R-Greenville.

Says Sen. Larry Martin, R-Pickens, “I didn’t have a copy of anything.”

Rep. Joe Neal, D-Richland: “I didn’t see anything.”

Sen. Mike Rose, R-Dorchester: “Absolutely nothing.”

Five of the six other members interviewed for this story responded similarly. They are: Sens. Creighton Coleman, D-Fairfield; Paul Campbell, R-Berkeley; Tom Davis, R-Beaufort; and Reps. Curtis Brantley, D-Jasper, and B.R. Skelton, R-Pickens and a retiredClemsonUniversityeconomics professor.

Coleman says that while he did not see a BEA analysis, he did see “talking points” outlining job creation, investment amount and other details.

Sen. Vincent Sheheen, D-Kershaw, could not recall off the top of his head what he had pertaining to the Boeing legislation. “I know there was some back and forth about that,” Sheheen says. “I do remember getting e-mails.”

Under the S.C. Freedom of Information Act, The Nerve asked McConnell and Leatherman for copies of any written correspondence, including e-mails, related to when a BEA analysis was provided to lawmakers before they voted on the Boeing deal. The request included any accompanying communications, prior to the vote, referring to the analysis McConnell and Leatherman cite in their statement.

The senators “are not in possession of any documents that are responsive to your request,” Michael Hitchcock, lawyer for the Senate, wrote in response to the request.

Responding to questions from The Nerve on Jan. 7, McConnell questioned whether lawmakers asked for an analysis. “If somebody had a question, the information – in my opinion – was available,” he said.

Timing is Everything

McConnell and Leatherman also claim that “in order to access the incentives, Boeing would have to create thousands of jobs and invest hundreds of millions of dollars,” and “there is no cost to our state unless many jobs are created and an enormous investment is made.”

Based on those statements, it would be fair for the public to conclude that Boeing cannot receive a dime of the incentives until the company has hired the workers and invested the money.

That does not appear to be the case, though.

As something of an insurance policy for the state, the law does contain what’s known as a “claw-back” provision. Such a mechanism involves a government recouping subsidies from a company that fails to fulfill its part of an incentives agreement.

But if that were to happen with Boeing, the statute says only that the S.C. Department of Revenue “may assess” any taxes due if the company does not adhere to the job creation and investment requirements. The law does not say the department “shall,” “will” or “must” assess taxes due in such a scenario.

Moreover, the Department of Revenue will not release information related to a claw-back the agency might have undertaken. Such facts are considered confidential under state law, according to Revenue.

In closely reading the statute spelling out the enticements for Boeing, it seems clear that the company can begin cashing in on most if not all of the carrots long before meeting any job creation or capital investment benchmarks.

It is true of up to $170 million in state-issued economic development bonds, which, in the virtually certain scenario that Boeing utilizes them, taxpayers will have to pay back with interest.

Although the legislation does not specify what the bonds would be used for, they likely would finance construction of the plant and infrastructure, based on similar bond issuances in the past.

With regard to the bonds for Boeing being issued, the legislation says only that “the state Budget and Control Board shall adopt a resolution providing for the issuance of bonds pursuant to the provisions of this chapter.”

Said resolution must detail the amount of the bonds and the principal and interest payments required to retire them. But the language of the law does not tie the bonds to employment or capital investment.

It does do that for the other incentives – an income tax break and sales tax exemptions. The latter apply to construction materials, computer equipment, and aircraft fuel used for test flights and transportation of airliners, prior to their completion, from one manufacturing facility to another.

But contrary to what McConnell and Leatherman claim, the law says the tax breaks can be awarded up front.

When it comes to income taxes, the statute authorizes the S.C. Department of Revenue to enter into a 10-year “allocation and apportionment” agreement with a taxpayer planning to create at least 3,800 new full-time jobs and invest a minimum of $750 million in a single county. “The taxpayer may begin operating under the agreement beginning with the tax year in which the agreement is executed,” the law says.

Meanwhile, the taxpayer has seven years to meet the job and investment requirements.

The one other stipulation: The Coordinating Council for Economic Development, consisting of the heads or board chairs of 10 state agencies, must certify that the taxpayer’s planned facility “will have a significant beneficial economic effect on the region for which it is planned and that its benefits to the public exceed its costs to the public.”

To qualify for the sales tax exemptions on aircraft fuel and construction materials, “the taxpayer shall notify the [D]epartment [of Revenue] before the first month it uses” the breaks.

Again, with seven years to meet its end of the bargain.

As for buying computer equipment tax free, “these exemptions apply from the start of the investment in or construction of” the plant. The job creation and capital investment timeline on this one is five years. After that, it applies in perpetuity if those two criteria are met.

Asked to review the legislation per when Boeing can access the incentives, Department of Revenue spokeswoman Adrienne Fairwell confirmed that the company can do so on the front end.

Said McConnell in response, “Well, it appears there’s a difference of opinion.”

McConnell and Leatherman let forth against the Policy Council assessment of the incentives package on Oct. 30, two days after the Legislature unanimously and with essentially no debate signed off on it during the special session.

Ostensibly the main purpose of the session was a pressing need to tweak a provision of state law that was blocking millions of dollars in federal jobless benefits forSouth Carolinians.

But in reality, much more was at play in the emergency gathering of the honorables. And along those lines, the Boeing legislation had all the trappings of a backroom deal, from the hurried nature in which it was ushered into law to secret, Leatherman-led negotiations that culminated in the form of – literally – a ceremonial gold coin.

Shiny and silver-dollar sized, the coin features an airliner imprinted over the inverted triangular image of the state and the words “South Carolinaaerospace” on one side. On the other: “South Carolina” above the state seal and the Web address of the S.C. Department of Commerce.

Copies of the coin, along with similarly hued lapel pins in the shape of a winged Palmetto tree, were distributed to lawmakers right after they approved the package with nary a dissenting vote – an almost unheard of outcome.

“We never do anything unanimously,” Rep. Neal says.

Says Sheheen in reference to the immediate availability of the coins and pins, “Well, I mean clearly, yeah, that was curious.” One would think it took more than an hour to create the mementos, Sheheen adds.

Actually, that was the case – with the coins anyway.

In an e-mail, Department of Commerce spokeswoman Kara Borie says the coins “are promotional items used at aerospace trade shows and meetings with aerospace prospects. They are not Boeing coins.”

Commerce bought them in accordance with the state procurement code for about $4 each using marketing funds allocated to the agency for promotional purposes, she says. “The coins that were distributed to the General Assembly were left over from previous events.”

Analysis-Schmalysis

As the Senate was preparing to approve the Boeing bill, Sen. Rose says he viewed it by pulling it up on his computer. Some of his colleagues requested copies of the bill from him, and McConnell and Leatherman rebuffed him when he asked them about the legislation, Rose says.

The senator says he followed up on the void of information a few weeks later, inquiring with lead Finance Committee staffer Mike Shealy via e-mail as to whether an economic analysis of the incentives package had been conducted, and, if so, by whom, when and could he get a copy of it.

Said Shealy’s reply on Nov. 24, according to Rose: His request would be forwarded to Leatherman.

Rose had not heard anything more as of Dec. 7, so he checked with Shealy again. This time, Rose cited a Senate rule requiring a fiscal impact statement on bills before they go up for the second of three required votes to be approved. Rose elaborated that he did not recall seeing such a statement.

Shealy responded with a link to it and said the document accompanied the bill when the Finance Committee shipped the legislation to the full Senate.

But be that as it may, the statement in question hardly amounts to a cost-benefit analysis, and features little if any of what McConnell and Leatherman claim the BEA assessment did.

Stretching a mere two-and-a-half pages, it summarizes the bill and says it “is not expected to reduce state General Fund sales and use tax or state General Fund income tax revenue in FY2009-10.”

Beyond that penetratingly insightful conclusion? Zero, zip, nada. Except this phrase repeated in reference to each of the tax breaks: “Since we are not currently collecting any tax revenue from a manufacturer that meets these criteria, this section is not expected to reduce state General Fund revenue in FY2009-10.” And this pearl of wisdom regarding the bonds: “Since this section borrows funds, it is not expected to reduce” blah, blah, blah.

You get the picture.

For their part, lawmakers were not able to number crunch the bill extensively, according to Rep. Skelton and other members. “There was no time to do that kind of analysis,” Skelton says.

Nevertheless, a more thorough review of the deal apparently was conducted, by the state Budget and Control Board. But the board won’t give it up, at least not yet.

Responding to a Freedom of Information Act request from The Nerve, board spokesman Mike Sponhour says in a letter that “the board’s economic analysis unit conducted further research at the request of Sen. Leatherman,” who is a member of the board.

Sponhour then says the board will release that pro forma – not now but after the Department of Commerce “closes the state’s incentive agreement with Boeing.”

What’s up with the delay?

Sponhour cites a provision of the open-records law allowing for it.

What about Rose’s query to Leatherman?

“I don’t think Sen. Leatherman’s going to provide anything,” he says.

Why not?

“It’s just his personality, just his attitude,” Rose says. “I don’t think he feels like he has to answer to the other senators.”

Rose couches the Boeing bill as an abuse of the legislative process. “This is very analogous to the way things are done in Congress,” he says. “Nobody knew what they were voting on.”

Despite his criticisms, Rose takes some of the blame – for failing to practice due diligence. “I’m just saying we could have objected.”

Still, it’s poor legislative leadership, the senator says. “This is leadership that’s designed to promote their agenda.”

What on earth could that be?

Two words: political benefit.

Peter Calcagno, aCollegeofCharlestoneconomics professor who has researched economic development incentives, and other experts say that is the endgame for elected officials who dole them out.

The Boeing deal is no exception.

McConnell and Leatherman were all back slapping and self-congratulatory in prepping their Senate colleagues to give it their blessing. Rising proudly, Leatherman announced to the chamber, “Boeing has chosenNorth Charleston,South Carolina, as the site for its 787 Dreamliner assembly line.”

Isn’t It Ironic

In addition, the McConell-Leatherman missive paints a misleading picture of Finance Committee consideration of the economic development inducements.

“The elements of the incentive package were painstakingly presented to the members of the Finance Committee in an announced and public meeting,” the two leaders’ Oct. 30 release says. “It was public enough that Policy Council staffers were there video recording the event.”

That latter statement is true. The former one? Not so much.

The panel conferred on the first day of the special session. And, rather than “painstakingly presented,” the discussion of the details in the committee is more accurately described as cursory, flavored with some aw-shucks, wink-wink jocularity among the members, who include Thomas, in a meeting that lasted all of 16 minutes and eight seconds.

At one point Sen. John Land, D-Clarendon, asks Leatherman, head of the committee, “Mr. chairman, whose responsibility is it now to go out and find an industry that fits this bill?”

The panel breaks into laughter as Sen. Nikki Setzler, D-Lexington, chimes in quipping, “We will gladly take them inLexingtonCountythis afternoon, Mr. chairman.”

Sen. Harvey Peeler, R-Cherokee and majority leader of the Senate, takes the baton from there and makes an ironic point with it. Referring to the S.C. Tax Realignment Commission, which is scrutinizing sales tax exemptions and other aspects of the state code to recommend changes, Peeler inquires, “Mr. chairman, which one trumps – this or the TRAC Commission report?”

More laughter, no response from Leatherman, and then Peeler again: “I hope this does.”

It did. Now, Boeing is immeasurably increasing its economic impact inSouth Carolina. But that growth is not without a price. And the way the leadership of the state Senate channeled that cost through the General Assembly in the form of the incentives package was an abuse of the legislative process and a disservice toSouth Carolinataxpayers.

The manner in which McConnell and Leatherman publicly defended the deal, that was – at best – misleading and – at worst – well, that’s for you to decide.

Reach Ward at (803) 779-5022, ext. 117, or eric@scpolicycouncil.com.

Series Legislation Incentives General Assembly Economic Development Corporate Welfare Transparency