Bill Would Put More Teeth, Transparency in Incentives Deals

December 29, 2011

Investigative Reports

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The NerveIf you ask S.C. Rep. Thad Viers, he’ll tell you that it was mainly for philosophical reasons that he voted earlier this year against offering a controversial state sales-tax collection exemption to Internet retail giant Amazon.com.

“My philosophy is that I don’t think government should pick winners or losers in the marketplace,” the Horry County Republican told The Nerve in a recent interview.

But Viers, an attorney, also acknowledges that the state likely won’t get out of the corporate-welfare game anytime soon. That’s why he said he pre-filed a bill for the upcoming legislative session, which starts Jan. 10, that he says would bring more accountability and transparency to the process.

His bill (H. 4432), titled the “South Carolina Economic Incentive Transparency Act of 2012,” would classify all state incentives totaling more than $100,000 that are offered over a five-year period to a company locating or expanding in South Carolina as forgivable loans only if job-creation targets are met.

Covered incentives would include “any tax credit, subsidy, tax exemption, loan, workforce training, or other service, grant, or property, as well as anything else that has a fair market value to a single recipient.”

Those incentives couldn’t be awarded if the taxpayer cost of each job exceeded the state’s average per-capita income.

Viers’ bill would require that any awarded incentives be paid back as loans with interest should a company fail to meet less than 90 percent of wage and job-creation targets. If the firm came between 90 and 100 percent of the targets, repayment would be on a pro-rated basis, if approved by the state Department of Commerce, though a 10 percent penalty would be assessed.

As it stands now, only a few types of incentives offered by the state, such as set-aside grants, typically come with  penalties, or “clawbacks,” should a company fail to make job-creation or investment targets. And taxpayers have no way of verifying if any clawbacks were enforced.

Among other things, Viers’ bill also would require that:

  • Any legislation offering incentives be introduced as a separate bill “apart from any other matter”;
  • Any enacted incentives automatically expire after five years;
  • The state Board of Economic Advisors conduct an economic analysis of proposed incentives and post it on the board’s website;
  • The S.C. Department of Commerce conduct its own analysis of proposed incentives using an “independent economist not employed by any state agency”;
  • A public hearing be held before an incentives agreement is approved;  and
  • Companies receiving incentives submit an annual report to the S.C Department of Revenue that includes a “summary of jobs required, created, and lost, categorized by full-time, part-time, temporary positions and hourly wage.”

The Nerve previously has documented the lack of transparency in incentives agreements administered by Commerce on behalf of the state Coordinating Council for Economic Development, an 11-member panel chaired by the Commerce secretary and made up of the heads of various other state agencies involved in economic development.

The Nerve in May, for example, reported that a soon-to-be-released national study of state “sunshine” laws found South Carolina’s to be among the most restrictive in the country in terms of incentives deals.

Even South Carolina officials can’t always get clear answers on incentives agreements.

The Nerve reported in October, for example, that it took a month for Commerce to respond to a request from S.C. Treasurer Curtis Loftis to certify that $270 million in taxpayer-backed bonds sold through Loftis’ office to the Boeing Co. for its North Charleston assembly plant was properly spent by the aerospace giant.

Viers said unlike the Amazon incentives legislation, which exempted the Internet retailer from collecting state sales tax from S.C. residents for five years, he supported the Boeing incentives bill approved unanimously by lawmakers in a rare, special legislative session in 2009 because Boeing is “not directly competing” with other companies in the state.

“Amazon directly competes with South Carolina businesses and retailers,” Viers said. “They can undercut almost anyone in the state.”

Viers said he believes state lawmakers as a group need to rethink incentives, noting, “We need to bring jobs, but is it actually costing us more than what we’re getting back?”

“A lot of these (incentives) packages that we put together,” he continued, “if they (the companies receiving the incentives) fail, who gets stuck with the tab? The taxpayers.”

Viers said he believes that cutting individual income taxes and business license fees across the board is a better way to “spur economic development.”

Viers’ bill isn’t the only proposal by state lawmakers aimed at bringing more accountability to and transparency in incentives deals. Sen. Shane Martin, R-Spartanburg, for example, introduced a similar bill (S. 954) in June, immediately after the Legislature approved the Amazon deal.

In April, Sen. Tom Davis, R-Beaufort, introduced an incentives-transparency bill (S. 832) after announcing it at a State House press conference organized by the South Carolina Policy Council, the parent organization of The Nerve, and taxpayer advocates and grassroots leaders. Davis pre-filed a similar bill (S. 206) in December 2010 and introduced it in January.

Both of Davis’ proposals and Martin’s bill were assigned to the Senate Finance Committee, chaired by Sen. Hugh Leatherman, R-Florence and one of the key players in the Boeing incentives deal. No action was taken by the committee on any of the bills, though they can be considered when lawmakers convene next month.

Viers acknowledged it will be a tough fight to convince his colleagues in the General Assembly to pass his bill next year.

“They get caught up in their own echo chamber,” he said.

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