Blind Trust: House Panel Gives Commerce $37 Million for Secret Deals

March 3, 2014

Investigative Reports

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Covering FaceS.C. Commerce Secretary Bobby Hitt had his hand out at a recent House Ways and Means subcommittee meeting, recalled Rep. Gary Simrill, the subcommittee chairman.

“He asked me, ‘I need as much as you can spare,’” said Simrill, R-York, when contacted Saturday by The Nerve.

In the end, the budget-writing Ways and Means Committee last month decided to “spare” $37.3 million in taxpayer money for Commerce’s “deal closing” fund, though, according to Simrill, Hitt didn’t ask for that amount during the subcommittee meeting.

The proposed $37.3 million is more than twice the amount that Gov. Nikki Haley proposed for the fund for next fiscal year, which starts July 1; $12.3 million more than what Hitt initially proposed last fall; and more than five times higher than what lawmakers appropriated for the fund when it was created in 2006, a review by The Nerve found.

The “deal closing fund,” or “governor’s closing fund” or “closing fund” for short, is used by Commerce to get companies to locate or expand in South Carolina. The fund is authorized through obscure state budget provisos that lawmakers have to renew annually.

“My goal was to put as much into the closing fund as we could,” Simrill told The Nerve.

Hitt provided no specifics on how the $37.3 million would be used, Simrill said, noting, “So much of that stuff is behind the scenes because they don’t want to give the enemy – other states – ammunition.”

Still, despite the lack of details, Simrill defended the appropriation, contending it’s needed to allow South Carolina to compete with other states in attracting quality companies to the Palmetto State.

“It’s the ability to have your sidearm loaded rather having the bullet in your pocket,” he said. “If you hear Gov. Haley talk and Secretary Hitt talk, with them it’s having more tools in the economic tool belt.”

“We have an opportunity in a person named Bobby Hitt – his ability with Commerce,” Simrill added. “We’ve been having a great blessing by having him. You make hay when the sun is shining.”

But a local economic development official contacted by The Nerve expressed concerns about the growth of the closing fund, Commerce’s push to grant incentives to specific companies, and the agency’s creation of various in-house programs without having a comprehensive economic development plan for the state.

“There is an economic development industry here in South Carolina,” said the official, who asked not to be identified.

The official said he believes that the tens of millions in the closing fund could be better spent on improving infrastructure – such as water and sewer systems – in local municipalities to attract a variety of companies.

Commerce’s total proposed budget for fiscal 2014-15 in the Ways and Means budget version is $135.4 million – $29.3 million, or nearly 28 percent, higher than this fiscal year’s ratified budget of $106.1 million, Office of State Budget records show. The proposed hike is among the largest percentage increases for state agencies in the Ways and Means budget version, The Nerve’s review found.

The full 124-member House is expected to begin debating the fiscal 2015 state budget next week. House members are scheduled to receive printed copies of the state spending plan this week.

Commerce Goody Bag

Besides hiking the closing fund by more than $21 million over this fiscal year’s appropriation, the Ways and Means fiscal 2015 budget version also provides millions to Commerce for programs that were not specified in either Hitt’s initial spending plan or Haley’s executive budget proposal, including:

  • $6 million for the “Locate SC Site Inventory”;
  • $4 million for “research initiatives”; and
  • $2.5 million for Commerce’s recently created “Office of Innovation.”

The Ways and Means budget version also provides at least $4.85 million in taxpayer funds to various regional economic development organizations. The Nerve previously has reported about legislative ties to those organizations, including, for example, Senate Finance Committee Chairman Hugh Leatherman’s position on the executive committee of the North Eastern Strategic Alliance, which covers a nine-county area in the state’s northeast corner.

In addition, the House budget-writing committee gave $400,000 to a Columbia-based organization known as the South Carolina Council on Competitiveness, or “New Carolina,” which bills itself on its website as a nonprofit “working to increase South Carolina’s economic competitiveness through a cluster development strategy.” Lawmakers appropriated $650,000 in taxpayer funds to the organization for this fiscal year.

The Nerve last week sent written questions to Commerce seeking explanations on how the agency arrived at specific line-item amounts in the Ways and Means budget version. In a written response, Commerce spokeswoman Allison Skipper provided general descriptions of the projects, though she didn’t answer questions about proposed line-item amounts.

The proposed $6 million for the “Locate SC Site Inventory,” for example, would “allow the state to be proactive in preparing sites into suitable inventory,” Skipper said. The $4 million “research initiatives” line item would be used for “initiatives” of the state Centers for Excellence, described by Skipper as a “collaboration among the universities and business community to address needs of industry.”

For next fiscal year, Haley proposed $16 million for the closing fund – the same amount that the General Assembly appropriated for this fiscal year. A year earlier, lawmakers earmarked $25 million for the fund, including $10 million from a national mortgage settlement – a move that was criticized by housing advocates.

In his initial proposed budget for next fiscal year, which was submitted to the Office of State Budget last fall, Hitt asked for $25 million for the closing fund – $17 million in non-recurring money and $8 million in recurring revenue. The Ways and Means version adopted last month would increase that amount by more than $12.3 million, which if approved, would be $21.3 million more than the current fiscal year appropriation.

When the closing fund was created in 2006, lawmakers appropriated $7 million to it.

Simrill told The Nerve on Saturday that under the Ways and Means budget version for fiscal 2015, increased funding for Commerce would be covered primarily with non-recurring, surplus money.

But House documents reviewed by The Nerve show that of the proposed $37.3 million for the closing fund, $24.9 million, or nearly 67 percent, would come from a recurring state “rainy-day” fund that lawmakers have raided in recent years, known as the Capital Reserve Fund.

Lack of Transparency

The closing fund is doled out by the 11-member Coordinating Council for Economic Development, made up the directors or board chairpersons of state agencies involved with economic development, and by law chair by Hitt. The council, which is administered at Commerce’s headquarters located in a high-rise office building across from the State House, often meets in secret to decide what companies will receive taxpayer-backed incentives, as The Nerve has previously reported.

The council’s recent annual reports that were submitted to Commerce identify grant amounts, grant identification numbers, the basic type of work covered by the grants, and the counties in which grants were awarded, but not the recipient companies, The Nerve’s latest review found.

Simrill said Saturday he would support more transparency in reporting of incentives grants, noting, “Once you close a deal, I have no problem with that.”

The Nerve last week asked Commerce for a list identifying every company that has received a closing fund grant over the past three years but did not receive a response by publication of this story.

In its most recently available annual report, submitted to Commerce last March 15, Alan Young, the council’s executive director, said closing fund grants are “more flexible and can be used to meet a wider variety of economic development project needs” compared to another major incentives fund known as the “set-aside” fund, which has specified uses under state law and is generally limited to $10,000 per new job created.

Lawmakers in recent years added a state budget proviso that allows the Coordinating Council to transfer money from other funds “at its disposal,” including the set-aside fund, to the closing fund. The Nerve in 2012 reported, for example, that the council transferred $29 million from the set-aside fund to the closing fund for a $35 million grant for the Continental tire plant in Sumter County.

As of Friday, the closing fund had a cash balance of $26.3 million, while three separate set-aside funds, labeled the “Strategic Highway Program Fund” for accounting purposes, had a collective cash balance of more than $54 million, according to the S.C. Comptroller General’s Office.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.