Bill to Give SCRA More Control Remains Alive

September 9, 2011

Investigative Reports

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The NerveA bill designed to give the S.C. Research Authority more financial flexibility and empower its executive committee to marginalize the organization’s governor-appointed chairman continues to fly under the legislative radar.

But supporters of the bill are well aware of its status – alive and pending in the 2012 session of the General Assembly slated to begin in January.

And, if developments related to the bill this year are any indication, it will be a legislative priority for the S.C. Research Authority (SCRA) next year, too.

Chartered through legislation in 1983, the Research Authority is an unusual, if not unique, state-created and state-controlled technology and real estate development and management company.

The SCRA does not receive direct state appropriations. But upon its creation, “the General Assembly gave the SCRA approximately 1,400 acres of undeveloped land, estimated at that time to be worth $10.7 million, and $500,000,” says an August 2005 report by the Legislative Audit Council.

The Research Authority makes most of its money – an estimated $180 million in gross revenue last fiscal year, according to SCRA CEO Bill Mahoney – from contract management fees.

Its work centers on commercializing high-tech research, such as the development of new composite materials used in the construction of Navy submarine hulls.

Also, the SCRA created an affiliate it controls, SC Launch, that receives $6 million per year indirectly from the state in the form of contributions that are 100 percent deductible against state income taxes.

That $6 million per year flows through SC Launch and gets parceled out to start-up and relatively new companies – in essence, as venture capital, in the form of loans, grants or equity ownership interests.

For top SCRA managers and members of the SCRA’s governing executive committee, life is different now from the situation they faced in February when House Speaker Bobby Harrell, R-Charleston, introduced the bill.

Back then, entrepreneur and former Research Authority Chairman Bill Masters was making life uncomfortable for the SCRA’s powers that be by openly and aggressively challenging the way they were doing things.

“SCRA is shrouded in secrecy and always has been,” Masters told The Nerve in an interview for an earlier story.

But Masters, frustrated with what he described as obstructionism directed at him by SCRA’s power brokers, resigned in March.

Marco Cavazzoni, vice president and general manager of final assembly and delivery for Boeing of South Carolina, succeeds Masters as chairman.

The departure of Masters eliminated a problem for SCRA’s bosses.

However, as the governor appoints the chairman, the potential remains that someone else in that position could likewise upset the status quo at the Research Authority.

Against that possibility, it’s arguably hard not to read part of Harrell’s bill as an attempt to give the SCRA’s executive committee the option of neutralizing a chairman none to its liking – and the necessary tools to do so.

Similarly, and regardless of the relationship Cavazonni has with other board members and SCRA managers, the Research Authority maintained a keen interest in the bill as this year’s legislative calendar expired.

Mahoney, for example, advocated parts of the legislation in testifying to the House Ways and Means Committee about it in mid-May, when just a few weeks of regular legislative business remained in the year.

The Ways and Means Committee, chaired by Republican Rep. Brian White of Anderson, ended up adjourning debate on the bill, leaving a final judgment on it to be decided.

“That’s kind of where we left it,” Rep. Bill Herbkersman, R-Beaufort and a committee member, told The Nerve on Thursday.

So, because each legislative session runs for two years and 2012 will be the second half of the current session, the Ways and Means Committee can take the bill back up when lawmakers reconvene in January.

“I haven’t given it much thought,” Herbkersman says of the bill since the Legislature wrapped up its business for the year this summer. “But I’m sure I will, and I’m sure I’ll talk to Brian (White) about that.”

To what extent the SCRA might push the bill in 2012 is unclear. But the Research Authority certainly can call upon some high-powered help to try to get it passed.

Through May of this year, the SCRA had forked out some $40,000 in combined payments to four registered lobbyists, in addition to paying those same four a total of more than $34,000 in 2010, according to State Ethics Commission records.

The four lobbyists, from the large, politically connected Nelson Mullins law firm headquartered in Columbia, are: Dwight Drake, Edward Poliakoff, Jennifer Robinson and Kathy Shannon.

SCRA’s general counsel, George Wolfe, is a partner in the Nelson Mullins firm.

Contacted Thursday, Robinson referred questions to Poliakoff, who could not be reached for comment.

Poliakoff was at the May hearing when Ways and Means debated the bill.

The legislation, H. 3743, features three main provisions:

  • more leeway in how the SCRA can use its revenue;
  • a requirement that the Research Authority tell its business partners in writing that it is prohibited from pledging the credit and taxing power of the state; and
  • an expansion of the executive committee’s size and scope.

Currently, SCRA cannot use its revenue to support SC Launch efforts; nor can the Research Authority use SC Launch funding for SCRA operations.

The bill would remove those restrictions.

“We would like to have the freedom to use either source of revenue for our investments in economic development, and that was the purpose of the original request,” Mahoney told Ways and Means members.

A subcommittee previously had struck that provision. But the committee discussed reinserting it.

As for the credit and taxing power of the state, Mahoney said that part of the bill would help reassure SCRA’s private-sector business partners “that there is not a state bailout behind us, and that we need to share the risk and have the same terms that any commercial enterprise would have.”

In terms of the executive committee, which under the Research Authority’s legislative charter wields “all powers and authority of the board,” Harrell’s bill would expand it by two members and authorize the executive committee to elect a vice chairman.

The vice chairman would serve “at the pleasure of the executive committee” with “powers and duties as the executive committee may provide.”

The bill also would allow the executive committee to remove one of its members by a two-thirds vote.

Masters told The Nerve that he thinks the executive committee provisions are a clear attempt to give the executive committee the means to undercut the chairman, who serves on the executive committee by statute.

In 2009, Harrell made a much more direct attempt to keep the chairman in line, sponsoring a proviso to rescind the governor’s power to fill the position by appointment. The proviso passed but did not survive a veto by former Gov. Mark Sanford.

During the Ways and Means hearing, Herbkersman moved to have the language about electing a vice chairman stripped out, and the members unanimously agreed.

The other executive committee changes remained in the bill as the Ways and Means Committee postponed its debate on the legislation.

Although the bill is a Harrell proposal and it is being co-sponsored by Republican House Majority Leader Kenny Bingham of Lexington County, the Ways and Means meeting was hardly a ringing endorsement for the Research Authority.

Herbkersman criticized SC Launch as unresponsive. Rep. Jim Merrill, R-Berkeley, said legislative staff couldn’t get a straight answer from the SCRA about what the bill does.

And Rep. Jim Battle, D-Marion, referred to Masters having raised issues about the organization.

In an interview Thursday, Battle said, “I understand what the Research Authority is supposed to be doing, and the problem that I had with it was that it was so difficult to understand all the layers that were in there.”

In that sense, he’s hardly the only one.

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