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Incentives Secrecy Gaining More Attention

An effort to give South Carolina taxpayers a better sense of whether they get their money’s worth in economic development incentives could be generating more discussion, if not greater support.

At least four bills aimed at lifting a veil of secrecy around incentives were introduced in the recently ended legislative session, in this order: S. 206, S. 832, S. 954 and H. 4432.

That might be the most legislative proposals on the subject in one session ever.

Perhaps just as significant as the increasing number of bills, the issue of incentives transparency has started to show up more often in the public discourse of South Carolina, in news reports and blogs posts and other venues.

“Business friendly doesn’t have to be taxpayer unfriendly” proclaimed the headline of a May 8 Charleston Post and Courier editorial about incentives.

“Those incentives are paid for by taxpayers who deserve an honest and thorough accounting to determine if they are cost effective,” the editorial says. “More follow-up is needed from state officials who are engaged in the business of luring industry to South Carolina.”

The move to bring more sunlight to incentives stems from the fact that economic development deals are negotiated, executed and monitored largely in secret.

Much of the relevant information, such as what companies are being offered and how much they end up getting in tax breaks, is kept confidential under state law.

The justification for the opacity: proprietary trade secrets and confidential taxpayer information.

Here’s an example:

Adrienne Fairwell, former public information director for the S.C. Department of Revenue, told The Nerve in an email that the agency “is required to audit certain companies for job development credits every three years.”

But the department “cannot disclose which companies,” Fairwell said.

The Post and Courier piece cited another key source of energy in the incentives transparency effort – a Pew Center on the States study released in April. The study, “Evidence Counts,” ranked South Carolina among the worst states in monitoring and reporting on tax breaks for economic development.

“Tax incentives are policy choices with significant implications, especially at a time when most states are trying to rebuild their budgets and many have not regained the private-sector jobs lost during the Great Recession,” the Pew Center said in unveiling the study.

“If states do not base decisions on evidence, they could have less money to spend on other critical services.”

Sen. Tom Davis, R-Beaufort and sponsor of two of the bills (S. 206 and S. 832), passed out copies of the study and talked about it on the Senate floor on April 12.

But for Davis, more publicly disclosed cost-benefit information about incentives ought to be a given. Indeed, he opposes such subsidies outright.

“If taxpayers saw how this incentive game is played they’d be outraged,” Davis said in an email. “Little to no due diligence is done by lawmakers on the front end before giving the special deal and there is virtually no accountability on the back end to make sure the private company getting the favor keeps its promises.”

Continuing, Davis wrote, “All the politicians want is the ability to brag about being pro-business and ‘creating jobs.’ Actual results are of little concern.”

Neither of the Davis bills, nor the other two, made it very far this session.

But one of them – S. 954 by Sen. Shane Martin, R-Spartanburg – received a hearing and was approved by a panel of the Senate Finance Committee, albeit in the final days of the session. (Read more about that in this Nerve story.)

Still, that was unusual for the Finance Committee, whose chairman, Republican Sen. Hugh Leatherman of Florence County, regularly espouses tax breaks for businesses as virtuous seeds of job creation.

In one example, Leatherman repeatedly has cited his role in negotiating an incentives package, conservatively valued by The Nerve at $500 million, to bring Boeing to South Carolina in late 2009. (This YouTube video provides an example of Leatherman doing so.)

Well before the Pew Center study, meanwhile, another nonprofit, nonpartisan public policy group – Washington, D.C.-based Good Jobs First – published a report grading states in how well they disclose their economic development subsidies online.

South Carolina’s grade: F.

“We limit the failing grade of F to those states with no disclosure at all,” says the report, “Show Us the Subsidies.”

The Nerve’s parent organization, the South Carolina Policy Council, also has fought against incentives; and, in lieu of getting rid of them, at least opening up the books on economic development tax breaks.

Doing so “can be easily accomplished” through a few basic steps, the Policy Council wrote in a June report on the cost of state economic development efforts. (It’s way more than $300 million per year, according to the study.)

The Policy Council’s incentives transparency recommendations include:

  • Requiring recorded votes on economic development plans;
  • Mandating that incentive bills pass or fail on their own merits in separate legislation;
  • Requiring independent cost-benefit vetting of economic development policies;
  • Requiring companies to publish annual statements showing whether they are meeting job creation and other goals; and
  • Production of an annual report explaining how much has been spent on economic development in the state.

Demonstrating how the push for more incentives transparency is generating debate, Brad Warthen, former editorial page editor of The State newspaper, did a post about the Policy Council study on his blog, bradwarthen.com.

In the post, Warthen disagreed with the idea that government should not be involved in the private sector.

But, in commenting on his post, Warthen also argued that incentives “should be subjected to scrutiny, to make sure each deal you do is either worthwhile in and of itself, or a contributing part of a coherent and effective larger strategy.”

Because of current law, however, any cost-benefit scrutiny of incentives is left up to government officials to do – away from public view.

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

Legislation Incentives General Assembly Economic Development Budget Corporate Welfare Accountability Transparency

Sen. Shane Martin S.C. Department of Revenue Sen. Tom Davis Pew Center on the States Sen. Hugh Leatherman South Carolina Policy Council Brad Warthen Good Jobs First