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$35 Million ‘Rabbit’ Pulled Out of Hat for Continental

When state economic development officials in October agreed to offer a $31 million grant to bring a new Continental tire plant to the Palmetto State, a little-understood S.C. Department of Commerce fund that would be tapped for the grant was more than $17 million short.

But by the end of March – three days after Gov. Nikki Haley and others broke ground at the Sumter County site for the plant – the “governor’s closing fund,” or “closing fund” for short, had nearly $49 million  – a $35 million, or 255 percent, hike from October, records show.

As it turned out, state officials in March had increased the size of the grant to $35 million, according to a state incentives agreement provided last week to The Nerve under the S.C. Freedom of Information Act.

The award was easily the single-largest grant from the closing fund in at least four years, The Nerve found in a review of annual Commerce accountability reports.

And it wasn’t the first favor done at taxpayers’ expense for Continental Tire the Americas, which has its U.S. headquarters in Lancaster County.

The Nerve reported earlier  that state lawmakers on June 7 – the last day of this year's regular legislative session – crafted and rammed through a bill that gives a huge tax break to Continental and the state’s two other big tire makers – Bridgestone and Michelin. Haley signed the bill into law last week.

The projected state and local costs of the Continental incentives deal total at least $237 million over 10 years, The Nerve's latest review found.

So how did state officials in relatively short order pull out $35 million from the closing fund for Continental, especially given that the General Assembly had appropriated a total of only $5 million in new money for the  fund at the start of this fiscal year?

Actually, it was pretty simple. They just transferred the money from another large, yet little-known Commerce-administered account.

The S.C. Coordinating Council for Economic Development, an 11-member panel made up of the heads of state agencies involved in economic development, including Commerce, has that authority under an obscure state budget proviso.

At a special Oct. 6 meeting called by Commerce Secretary Bobby Hitt, who chairs the panel, the council approved transferring $29 million from Commerce’s “set-aside fund” to the closing fund, according to minutes of the meeting.

The minutes say only that a “confidential application” was approved; an application for the $31 million grant for the Continental project, which was included with the state incentives agreement, indicated the award was approved on Oct. 6.

On Dec. 11, $31.8 million was transferred from Commerce’s “Strategic Highway Program Fund” to the closing fund, according to Jim Holly, chief of staff for S.C. Comptroller General Richard Eckstrom. On March 12, another transfer of $4.5 million was made, he said.

“I understand the Strategic Highway Fund and the Set-Aside Fund are different names for the same fund,” Holly said in a written response Monday to The Nerve.

Under state law, the set-aside fund receives $20 million annually from license taxes on electric power sold in the state by private utilities.

State budget proviso 40.3, which has been renewed annually in recent years, gives the Coordinating Council the authority to transfer money from accounts under its control to the closing fund to “provide maximum flexibility to encourage the creation of new jobs and capital investment.”

Big Piggy Banks for Incentives

What Commerce doesn’t publicize in its press releases or annual reports is that the agency typically has tens of millions of dollars at its disposal to dole out, through the Coordinating Council, to companies seeking to locate or expand in South Carolina. By law, the council must meet at least quarterly.

Office of State Budget records reviewed by The Nerve show that the amount of “other” funds carried over by Commerce into the next fiscal year has grown from $115 million in fiscal 2010 to more than $130 million this fiscal year.

The Strategic Highway Program Fund had $66 million at the start of this fiscal year on July 1; by the end of October when the state incentives agreement for Continental was approved, the fund had grown to $73.2 million, Holly said. The fund’s current balance is $44 million, he said.

As of last week, the closing-fund balance was $43.7 million, Holly said. Under the latest House version of the fiscal 2013 budget, the fund would grow by another $43.2 million; the Senate version gives an additional $20 million to the fund.

A conference committee made up of the three members from each chamber of the General Assembly struggled last week and again on Monday to reach agreement on a final state budget for next fiscal year, which starts Sunday.

The Nerve last week and on Monday sent written questions about the closing fund and the Continental incentives deal to Hitt; Karen Manning, Commerce’s chief lawyer; and agency spokeswoman Amy Love.

None of them responded by publication of this story.

Asked similar questions, Lindsey Kremlick, spokeswoman for the S.C. Budget and Control Board, which oversees the Office of State Budget, referred The Nerve to Commerce officials and the Comptroller General’s Office.

The closing fund was established in 2006 to “assist when additional funding is necessary to recruit or retain within the state high-impact economic development projects,” according to annual accountability reports by Commerce.

Like the state’s set-aside fund, money from the closing fund goes to the county in which an eligible company is located to reimburse the company for certain costs, including site preparation and road, water and sewer costs.

Generally, set-aside grants can’t exceed $10,000 per new job created, according to the Coordinating Council’s annual reports on the fund. That limitation apparently doesn’t apply, however, to closing-fund grants – at least it didn’t in Continental’s case.

The $35 million grant for the Sumter County plant works out to $21,875 for each of the projected 1,600 jobs to be created at the site over a 10-year period.

Other Taxpayer-Funded Goodies

The state incentives agreement for the project, dubbed “Project Soccer,” included an “early disbursement” of $4.5 million from the closing-fund grant to Sumter County for the purchase of land for the project site. A county agreement provided to The Nerve under the Freedom of Information Act said the county would purchase about 400 acres and deed it to the company for $10.

The state agreement allows the closing-fund grant to be increased to $35 million if a $4 million federal Community Development Block Grant “would cause a commercially unreasonable delay in the Project.”

Continental also would receive about $18.6 million in unspecified local government assistance, according to Sumter County’s application for the closing-fund grant.

In addition, under a fee-in-lieu-of-taxes (FILOT) agreement with the county, the Continental plant site would be taxed at 4 percent for 30 years instead of at the regular manufacturing property assessment rate of 10.5 percent. On top of that, the company would receive substantial “special-source revenue credits,” or rebates of its FILOT payments, over 10 years.

Continental’s total first-year property tax bill is estimated at $1.57 million, according to the closing-fund grant application. In comparison, if the property were assessed at the regular manufacturing rate and taxed at current millage rates, the company would owe more than $19.6 million in property taxes on the estimated $564.5 million project, The Nerve’s review found.

A cost-benefit analysis included with the state incentives agreement estimated the total public costs of the project, including the initially approved $31 million closing-fund grant, at nearly $114.8 million over 10 years.

The estimated taxpayer bill also includes more than $37 million in job-tax credits, which are tied to the number of jobs created and the location of the company; $32 million in job-development credits, which are refunds of a portion of a company’s state employee withholding taxes; and $5.1 million for “special schools” – likely the S.C. Technical College System’s “readySC” jobs-training program.

But the analysis doesn’t include a projected $118 million in corporate income tax credits that Continental will be eligible to take over 10 years, as cited by S.C. Sen. Phil Leventis, D-Sumter, during the June 7 Senate floor debate on the last-minute incentives bill for the state’s three tire makers. The credits are based on the dolllar amount and accounting classification of machinery and equipment purchased or leased by the companies.

The analysis also doesn't list a $5 million grant from the S.C. State Ports Authority to be used for “publicly owned infrastructure or other publicly owned improvements supporting the Project and the Port (of Charleston),” according a copy of the agreement provided to The Nerve under the Freedom of Information Act.

When those incentives are included, the total projected public cost of the Continental project jumps to at least $237 million over 10 years, or $148,125 for each of the 1,600 jobs that the company says it will create at the plant site over the period.

The company also plans to add 100 jobs at its company headquarters location in Lancaster County. The closing-fund agreement requires Continental to create a total of 1,700 jobs, though that number includes all “Continental Contract Employees in South Carolina,” other than those working at the company headquarters.

As has been Commerce’s general practice in releasing incentives agreements to The Nerve, specifics about Continental’s employee wages were blacked out in the state agreement, as well as details about the value of the land, building, machinery and equipment for the project.

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

 

Taxes Ports Other Funds Legislation Incentives General Assembly Economic Development Budget Corporate Welfare Transparency

S.C. Budget and Control Board closing fund Gov. Nikki Haley Michelin North America set-aside fund S.C. Commerce Secretary Bobby Hitt S.C. Comptroller General's Office S.C. Coordinating Council for Economic Development Bridgestone Americas Continental Tire North America