May 28, 2023

The Nerve

Where Government Gets Exposed

Inside the Boeing Deal

Boeing JetEditor’s Note: The Nerve this week is republishing some of its biggest scoops over its nearly three years of operation. Following is The Nerve’s first story, published on Jan. 11, 2010.

On a sunny December afternoon along Aviation Way at the Charleston International Airport, construction workers were speedily hauling away trees from a muddy football field-sized tract of land.

In less than two years, a massive steel building will rise at the site, housing what officials describe as one of the biggest economic prizes in the Palmetto State’s history – the Boeing Co.’s 787 Dreamliner assembly plant.

South Carolina lawmakers seemed euphoric when they unanimously passed legislation in a special session on Oct. 28 to clear the way for the Chicago-based company to land a final assembly plant in North Charleston, passing out special aerospace coins and lapel pins to commemorate the occasion.

Legislative leaders contend that the incentives, totaling $450 million by some unofficial accounts, will be more than covered by the payoff from the plant, which they tout as a $750 million investment that will create 3,800 jobs in a much-needed economic shot in the arm to the state’s foundering economy. At 12.3 percent, South Carolina’s unemployment rate is tied for third highest in the nation.

But there is another side of the story that lawmakers don’t want told. That’s what The Nerve will do in a nine-part series starting today.

After a two-month investigation, The Nerve found that:

  • The incentives deal for Boeing will cost South Carolina taxpayers at least tens of millions of dollars more than what state officials have said officially.
  • The state’s top two senators presented a largely inaccurate picture when they said publicly that lawmakers were provided a detailed economic analysis of the Boeing deal before their October vote.
  • Involvement in the deal by some of the state’s biggest players raises serious questions of conflict of interest.
  • There are no guarantees that South Carolina workers will make up most of Boeing’s initial work force, and no reliable data on spin-off job creation.
  • South Carolina has given away millions in taxpayer-funded incentives over the years to other companies that failed. The practice has become almost routine, but there is little, if any, follow-up to see if the incentives paid off.

Lawmakers and agency officials were secretive from the beginning about the taxpayer cost of the Boeing deal. Except for a Senate Finance Committee hearing the day before the Oct. 28 vote, no public hearings were held on the project.

Essentially, the Senate Finance Committee gutted an unrelated House bill that had stalled in the committee and inserted the Boeing incentives package in its place.

Under state law, details of any incentives agreements won’t be revealed until the deals are finalized, which, in the case of Boeing, likely won’t be until later this year. And even when that happens, taxpayers will be left in the dark about many of the incentives because state law considers those records private.

Besides the lack of transparency, the Boeing deal also raises larger questions about the role of government in economic development. From the State House to city and county councils across South Carolina, officials almost instinctively play favorites with companies by doling out incentives to some and not to others – giveaways that otherwise could ease the overall burden on taxpayers, experts say.

“This is where the redistribution part of this comes into play, right,” says Peter Calcagno, a College of Charleston economics professor who is critical of incentives.

The handouts come in the form of everything from job development credits to infrastructure grants to economic development bonds to sales, property and income tax breaks.

The practice of government entities dishing out the perks is so pervasive it has become routine.

In FY06-2007, spending on incentives in the state added up to a whopping $254.6 million, according toUnleashing Capitalism: A Prescription for Economic Prosperity in South Carolina. Calcagno edited and co-authored the book. The South Carolina Policy Council, a nonprofit free-market think tank in Columbia, published it in November.

From FY94-1995 to ‘06-‘07, incentives spending in South Carolina totaled a mind boggling more than $1.35 billion.

That’s close to how much the state general fund budget has been cut since FY08-2009 because of shortfalls in projected revenue.

Typically though, incentive deals are far less costly than the big fat package the General Assembly gave Boeing, but no less insidious.

Recent headlines in some South Carolina newspapers:

  • “Council may give ‘Project X’ break”
  • “State OKs incentives to lure tire importer”
  • “Oconee County OKs tax deal that could attract 150 jobs”
  • “Proposal: Trade tax break for jobs.”

The latter refers to would-be incentives for multimillion-dollar homes on Johns Island in the Charleston area.

In another particularly galling case, Florence County Council is on the verge of approving tax breaks for JPMorgan Chase for a $2.5 million project that purportedly would create at least 250 jobs.

Yes, that JPMorgan Chase – the same one that received a hefty $25 billion taxpayer bailout from the federal government.

For many companies, incentives are viewed almost as an entitlement that finds them playing states and localities off one another with bidding wars and sweepstakes in what is commonly described as a race to the bottom.

“It just becomes an issue of competing with each other,” Calcagno says. “But it becomes a zero-sum game.”

There’s a more effective way to foster economic development, he says. “I would argue you should make the overall state more attractive for firms to operate.”

Doing that, the professor says, centers on a few key ingredients such as a market-friendly business climate and low taxes.

John Crangle, director of the nonprofit good-government group Common Cause of South Carolina, finds fault with the cost of some incentive packages. Crangle cited a huge goodie bag Alabama forked out to buy a Mercedes plant in the early 1990s as an example. “Alabama basically gave away the farm to get it,” he says.

Now, years later, many observers in the Yellowhammer State question whether it was too much, Crangle says.

Tim Bartik is a senior economist at the nonprofit W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. “I do think states tend to overuse them,” Bartik says of incentives.

It’s not by accident, either. Indeed, there is a very good – and rather Machiavellian – explanation for the proliferation of incentives.

“There’s a lot of political benefit to be able to say, ‘I brought this firm here,’” Calcagno says.

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The Nerve