Bill Would Reward Worst Credit Risks With Taxpayer-Backed Incentives

April 11, 2013

Investigative Reports

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dd5d2e4fdb05153cfd617a3c472f7561Without much deliberation or debate, a House Ways and Means subcommittee on Wednesday approved sending four wide-ranging bills spanning the spectrum of economic development, from million-dollar tax credits for the state’s largest manufacturers to $10,000 “microenterprise” loans.

The four bills that each received unanimous approval for favorable consideration from the House Ways and Means Economic Development, Capital Improvement and Other Taxes Subcommittee were H.3125 (The Microenterprise Development Act), H.3410 Regional Economic Development Centers Transfer), H.3557 (Port Cargo Volume Tax Credits) and H.3644 (Clean Energy Industry Advisory Council).

The legislation now goes to the full Ways and Means Committee.

Topping the list of potentially risky ideas is the “Microenterprise Development Act,” a taxpayer-backed initiative intended to provide loans to small businesses that can’t qualify for even the most generous of traditional bank loans.

Microenterprises are defined as businesses with fewer than five employees, including start-ups and self-employment.

As written, the bill, sponsored by Rep. Kenneth Hodges, D-Colleton, calls for the creation of a program called the “Microenterprise Partnership Program”  at the state Department of Commerce. The office would coordinate regional efforts and award grants to regional community organizations to make loans.

Those businesses need special designation and general-fund revenue to establish an office in Commerce because theyoften do not have access to commercial sources of credit because of a lack of business experience or training, collateral to secure business loans, or business records to demonstrate their loan repayment potential,” the bill states.

The loans, which come from external sources including the federal government and private commercial sources, would tally in the neighborhood of $10,000 on average, with a maximum of $25,000.

Proponents say the loans will help home-based businesses get the boost they need to get off the ground and grow. Opponents worry the non-traditional loans will subsidize bad business ideas, lead to default and debt for those who can least afford it, and are doomed to fail without more stringent requirements of both collateral and basic financial planning.

“I think (the bill is) a good start,” said Rep. Dwight Loftis, R-Greenville and the subcommittee chairman. “It’s a piece of the puzzle. But I think there needs to be a coordination of effort. You have a microenterprise system over here, this other little group doing economic development over there; and there ought to be – and there is not now, to my knowledge – a coordination of effort between them to bring about success.”

Speaking on behalf of microenterprises was longtime economic development professional Haidee Stith, formerly director of the South Carolina Women’s Business Center and executive director of the South Carolina Business Initiative, as well as deputy director for economic development for then-Gov. Carroll Campbell.

“Microenterprise programs provide both technical services and capital to under-served individuals; low-income, asset-poor people; and very, very small businesses,” Stith said. “This bill provides accountability and would allow organizations around the state to develop capacity. It also provides a mechanism for capital to be matched so existing organizations like the Charleston Development Corporation, the Appalachian Development Corporation, the Benedict and Allen Development corporations, could receive federal funds to loan to microenterprises.”

Under questioning from Loftis about the criteria that would need to be met for microenterprise loans,Stith said the criteria is no different from what a bank or the Small Business Development Center would ask for, such as a business plan, a budget, a marketing strategy and tax returns. She did say, however, that said such businesses often rely on non-traditional sources of collateral.

“The people that come for microloans may not have a bank or a checking account,” Stith said. “They may not own a house. They may not have ever borrowed money. So the idea is to help them establish credit, because when they build credit, they can begin to build wealth.”

For Loftis, a retired insurance executive who recently had to close his own small business, a deli in Greenville, because of the recession, determining what ideas are worthy of funding at the micro-level is more miss than hit, especially for people who might not have taken the time to think things through.

“I support the concept, but the thing with small businesses is it takes so much time hands-on,” Loftis said. “These people often don’t know where to go for help even if they need it. They don’t know if their product is viable or not, if there’s a market for it. They need to know there’s a market, that there’s a niche. And do they have the resources, the personal skin in the game, to make it happen?

“It’s a big game of dodge, there’s no question about that.”

Along with H.3125, the other bills share one common thread: expanded discretionary funds and roles for the Department of Commerce.

  • H.3410, sponsored by Rep. Mike Forrester, R-Spartanburg, transfers control of regional education centers from the state Department of Education to Commerce to acknowledge the business-oriented role they have developed over time relating specifically to workforce development.
  • H.3557 is an expansion of the language governing the state port tax credit to allow more types of businesses to qualify, and grant the state Coordinating Council for Economic Development (CCED) more discretion in its ability to award the credits of up to $1 million. The reason for the legislation, said subcommittee member and bill sponsor Rep. Gilda Cobb-Hunter, D-Orangeburg, was simple. “While there is no particular target (manufacturer), we (in Orangeburg) think this is an opportunity for us to maybe land a really big whale in our little industrial park,” she said. The Nerve last week reported that a CCED panel administered by Commerce unanimously approved port tax credits for a group of corporations after a short, secret meeting.
  • H.3644, sponsored by Loftis, is a companion piece of legislation to Senate bill S.525, both of which provide broad tax incentives to companies meeting the ‘clean-energy’ designation. It also establishes a Clean Energy Advisory Council within Commerce, decreases investment and job-creation thresholds for the tax credit incentives, and extends the credit to all liquid fuels derived from renewable sources. The Nerve first reported on the bill last month.

Besides Loftis and Cobb-Hunter, present at the subcommittee meeting were Reps. Roland Smith, R-Aiken, and Liston Barfield, R-Horry. Not present was Rep. Harry Ott, D-Calhoun.

Reach Aiken at (803) 200-8809 or ron@thenerve.org. Follow Ron on Twitter @RonAiken. Follow The Nerve on Facebook and Twitter @thenervesc.