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Report: State Spends More Than $300 Million a Year on Corporate Welfare

Despite the state spending hundreds of millions on economic development, a new report suggests South Carolina taxpayers are not getting their money’s worth in state government’s efforts to create jobs.

Questionable practices, such as a lack of reporting on how the money is spent, also surround the state’s economic development outlays, according to the report.

The study, “Quantifying the Machine,” was released in June by The Nerve’s parent organization, the South Carolina Policy Council, a nonprofit think tank based in Columbia that advocates for limited government, free enterprise, and individual liberty and responsibility.

After more than $300 million in state spending on economic development in fiscal 2010 alone, South Carolina continues to rank “near the bottom of the nation in employment (6th worst), median income (8th worst), and poverty (9th worst),” the Policy Council said in a news release accompanying its report.

The $300 million-plus covers direct grants, workforce training, university hiring, marketing, and the funding of several economic development centers, according to the report.

But the figure hardly represents the state’s total economic development tab.

“This ($300 million) number does not include direct incentives, tax credits, bonds, or debt service, the total of which would amount to countless other millions of lost state revenue and additional spending per year,” the study says.

“Rather, this number is an approximation of the recurring appropriations that each agency is allocated simply to run South Carolina’s economic development machine.”

Case in point: the S.C. Department of Parks, Recreation and Tourism.

In 2009, the department received $15 million for tourism marketing, plus another $8 million in pass-through funding for local entities to promote the state as a tourism destination, for a combined $23 million.

From the report:

“Why hotels, restaurants, and other businesses that benefit from tourist traffic should get free, ample advertising courtesy of the taxpayer while others get nothing is rarely questioned.”

As a category, perhaps the biggest chunk of the state’s yearly economic development spending goes toward worker training: “Combined, training South Carolina workers accounts for almost half the total of economic development spending.”

The S.C. Department of Commerce sunk $107.6 million into “workforce investment” in fiscal 2010, according to the study.

Then there’s the S.C. Technical College System’s “readySC” training program.

In one readySC example, the Budget and Control Board in fiscal 2011 unanimously approved $3.1 million in additional funding for the program to train workers for one company – Boeing.

In addition to such costs, the Policy Council report says, “The steps toward becoming a corporate beneficiary of a taxpayer-provided worker training (program) are opaque, and typically involve an incentive deal.”

Incentive deals, which represent another vast segment of state spending on economic development, account for much of the fuzziness as to whether taxpayers are getting their money’s worth in the grand scheme of these things.

That’s because incentive deals are negotiated, executed and monitored in secret.

On the front end, much of the information pertaining to incentive agreements is shrouded under the guise of economic recruitment.

And on the back end, even basic cost-benefit details such as a company’s average wage are concealed under the rubric of proprietary business and confidential taxpayer information.

Two independent reports – one released by the Pew Center on the States in April; the other by Good Jobs First in 2010 – confirm that South Carolina performs poorly when it comes to monitoring and reporting on economic development incentives.

And this lack of accountability extends beyond state government.

The Policy Council study cites numerous nonprofit organizations that have received government grants but “are not required to report from which agency or body the grant was made.”

The report lists 14 nonprofits that have received public funding over the past five years totaling more than $35.5 million. “These organizations are not required to perform any specific functions, nor are they required to justify their program expenses and spending to taxpayers,” the study says.

Over the past decade, meanwhile, state spending on corporate and individual tax incentives for economic development has continuously increased, from $151.8 million in 2002 to more than $261 million in 2009, according to the Policy Council study.

Combining the latter with the annual $300 million-plus in recurring spending on economic development equals “nearly 3% of the state budget,” or some $572 million.

Beyond the big numbers, the consequences are very real for taxpayers.

“For reference, by eliminating these expenses and incentives, we could eliminate the entire corporate income tax, plus the bank tax, motor vehicle license tax, business license tax, insurance tax, and corporate license tax,” the report states.

In lieu of turning off the state’s economic development spigot, the study recommends that the state put in place several requirements to make the spending transparent and accountable, including:

  • Independent cost-benefit analyses of economic development policies;
  • A five-year expiration on targeted incentives and legislation; and
  • Annual statements by companies receiving subsidies to show whether they are meeting job creation and other goals.

Concludes the Policy Council report:

“If state politicians simply can’t live without the opportunity to claim that they’ve ‘created jobs’ with taxpayer money, they must be held accountable for the way in which they transfer that money to corporations.”

Nerve intern Blake Welch contributed to this report.

Reach Ward at (803) 254-4411 or eric@thenerve.org.

Legislation Incentives General Assembly Economic Development Budget and Control Board Budget Corporate Welfare Accountability Transparency

S.C. Technical College System South Carolina Policy Council readySC S.C. Department of Parks Recreation and Tourism