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Why the Michelin Man is Smiling in S.C.

When Gov. Nikki Haley in April announced that Michelin North America would invest $750 million and create 500 new jobs in expanding production of its super-huge Earthmover tires, she described the company as “one of our finest corporate citizens.”

“It really is a great day in South Carolina when our largest manufacturer reaffirms its commitment to the state,” Haley said.

S.C. Commerce Secretary Bobby Hitt at the time noted that it was a “tribute to Michelin and its 8,000 employees in the state that the company has decided to grow their presence here.”

But what Haley, Hitt and other state and local officials didn’t publicly detail was the amount of taxpayer-backed incentives that Michelin, which has its U.S. headquarters in Greenville, will receive in expanding its existing plant in Lexington County and constructing a new one in Anderson County.

For example, under a fee-in-lieu-of-taxes (FILOT) agreement with Lexington County, Michelin would pay a total of about $28.8 million in fees over a 31-year period – a reduction of nearly $73 million, or about 72 percent, of what the company would owe in property taxes under the standard property assessment rate for manufacturers, according to a cost-benefit analysis prepared for the county.

In today’s dollars, Michelin's projected savings over the three decades would total nearly $45 million, though the percentage drop compared to what the company would owe without the FILOT agreement would remain about the same, the analysis shows. Nearly $7 million of the projected savings would be in the form of "special source revenue credits," typically refunds of a portion of the FILOT payments or discounts off the amounts owed.

The cost-benefit analysis, which was marked “confidential,” was included with a county incentives agreement obtained by The Nerve under the S.C. Freedom of Information Act. The confidential label reflects the general secrecy by governmental agencies in incentives deals.

The $200 million proposed expansion at the Lexington County plant, dubbed “Project Maple,” includes $35 million for the building and land, and $165 million for machinery and equipment, according to the analysis. The estimated annual wage for the projected 90 county resident workers is $35,000.

Specifics on a company's investment and average salary nearly always are blacked out in state incentives agreements provided to The Nerve by the S.C. Department of Commerce. 

The Nerve has not been provided a copy of the state incentives agreement for a $200 million expansion project at Michelin’s Lexington County plant that was announced in May 2011, despite several written requests since then to Commerce under the Freedom of Information Act.

In Commerce’s latest written response this month to The Nerve, agency spokeswoman Amy Love said Lexington County was approved for a $1.5 million state set-aside grant to “offset costs associated with site preparation” for the additional $200 million expansion project announced in April. Anderson County was approved for a $7.6 million set-side grant for Michelin’s proposed $500 million new plant, she said.

Love said she could not provide the state incentives agreement for either project because it had not been finalized. Under the state’s open-records law, there is no deadline to produce requested documents.

Typically, besides receiving large state grants, companies that expand or build new plants in South Carolina are eligible for millions in various tax breaks and taxpayer-funded job training for their workers.

In a written response late Friday afternoon to questions from The Nerve, Tony Fouladpour, Michelin North America's director of corporate public relations, said the state incentives "were of course welcomed and very important," adding, "They are very much in line with what other major manufacturers in the state have received."

"The incentives help us be competitive in our industry even within the Michelin group itself," Fouladpour continued. "Michelin is a global company and we have the choice to build these tires at many viable sites around the world. We make decisions about where to build tires based on a number of factors, but the cost to build and to operate a plant is a significant part of the decision."

'Project Cougar'

A cost-benefit analysis provided by Anderson County officials under the Freedom of Information Act projects the total public costs of the proposed $500 million new plant, dubbed “Project Cougar,” at $78.6 million in present-day dollars over a 20-year period.

Of that amount, about $52 million is listed as special source revenue credits. The Anderson County FILOT agreement calls for the new Michelin plant to be assessed at an owner-occupied home rate of 4 percent for 40 years - a significant savings given that under state law, industrial property is assessed at 10.5 percent for property tax purposes. The Lexington County FILOT agreement also sets a 4 percent assessment rate for the expansion project in that county.

Besides the $7.6 million set-aside grant, the bulk of nearly $25 million in projected state costs over the 20-year period for the Anderson County plant include, according to the analysis:

  • $6.47 million in job-tax credits, which reduce a company’s income taxes based on the number of jobs created and the location of the company;
  • $4.86 million in “economic-impact zone” equipment credits;
  • $4.77 million in job-development credits, which are refunds of employee state withholding taxes based on the workers’ hourly wages and location of the company; and
  • $1.12 million in job-training costs through the S.C. Technical College System’s “readySC” program.

The cost-benefit analysis estimates the cost of constructing the new plant at $200 million, with equipment costs projected at $300 million. The average annual salary of the plant’s projected 400 workers would be $29,200 – $5,800 a year less than the average salary for workers in the Lexington County expansion project.

As a comparison, the per-capita income in South Carolina in 2010 was $33,163, according to the U.S. Bureau of Economic Analysis.

Besides listing 400 workers at the Anderson County plant, the cost-benefit analysis also projects another 439 new “indirect” jobs and 20-year "net benefits" of about $573 million to the local economy, though it does not provide specifics on how those figures were calculated.

Mum's the Word

The Nerve last week sent written questions to Burriss Nelson, Anderson County’s economic development director, seeking breakdowns on the county incentives, as well as specifics about the number of projected line workers and management staff at the new plant, average annual salaries of those workers, and how many of those workers would be county residents.

In a written reply Friday, Nelson, who noted he prepared the cost-benefit analysis, declined to answer the questions, saying, “With all due respect to you, all of the questions that I am able to answer are covered in the CBA (cost-benefit analysis); any additional information would need to be supplied by Michelin.”

Michelin spokesman Fouladpour said the company received a total of $9.1 million in state incentives for the Anderson and Lexington County projects, though he added, "We do not discuss the division of that incentive."

Fouladpour  also said while Michelin "did receive money from both Anderson and Lexington counties, it is difficult to pinpoint exact numbers." He declined to discuss specifics about wages and breakdowns of permanent full-time positions with the projects.

The Nerve last week presented a written list of questions to Lexington County officials about the incentives, staffing and salaries with the expansion project in that county but received no response before publication of this story.

The cost-benefit analysis for the Lexington County project was prepared by Central SC, a not-for-profit organization that describes itself on its website as a “public-private partnership which engages in the recruitment of capital investment in the Central South Carolina region.”

The counties of Lexington, Richland, Calhoun, Clarendon, Fairfield, Kershaw, McCormick, Newberry and Orangeburg; the city of Columbia; and the University of South Carolina are listed as members of Central SC.

The Nerve last week asked Azad Khan, Central SC’s director of research, for clarification on parts of the cost-benefit analysis prepared by his organization. He asked for a list of written questions but did not respond to them before publication of this story.

Michelin North America is a “$7.25 billion a year company,” with 18 plants in 16 locations and 22,270 workers, according to the company's website. Michelin, which is headquartered internationally in France, has South Carolina plants in Greenville, Spartanburg, Lexington, Sandy Springs, Starr and Duncan, employing 7,711 workers.

In addition to the heavy-construction Earthmover tires –  which can be as tall as 14 feet and weigh up to 5 tons – the company also manufactures tires for passenger vehicles, light and heavy-duty trucks, recreational and agricultural vehicles, aircraft, and bicycles, according to its website.

Besides Michelin, two other major tire manufacturers – Continental and Bridgestone – also announced plans within the past year for major expansion or new construction projects in the Palmetto State.

The Nerve earlier reported on state and local incentives for the Bridgestone project in Aiken County, though Commerce has not yet provided the state incentives agreement for the Continental project in Sumter County.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

 

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