Commerce Ads: Big Bang for Agency’s Budget?

March 21, 2012

Investigative Reports

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Economic DevelopmentSouth Carolina’s state-driven economic development efforts have received glowing reviews lately from some national trade publications. But is there something more to the accolades than just positive recognition?

Mind you, this state economic development game is big money. And it looks to be even bigger money – way bigger – under a fiscal 2012-13 budget the House gave unanimous final approval to last week.

Indeed, a majority of House members are so confident in the state’s job-creation program that they directed state government’s entire share of a multibillion-dollar national mortgage fraud settlement into this game.

The state Attorney General’s Office says the state is set to receive $31 million under the agreement and the office plans to direct most of that into the state’s coffers, with about $7 million of it going to attorneys and community groups.

Another $16 million will be spread among individuals, according to the Attorney General’s Office.

That’s a total settlement share of $47 million for South Carolina, with more than half of it for the Department of Commerce to throw at companies rather than that money going to homeowners, or former homeowners, who were victimized in Wall Street’s well-documented schemes against them.

For her part, Gov. Nikki Haley also has proposed a seriously bigger cash flow for state economic development recruitment, though not from the mortgage settlement.

But about those accolades: There could in fact be more to them than selfless awards from ostensibly objective observers – tens of thousands of state tax dollars more.

The good PR for the state’s centrally driven economic development undertakings has come from several national magazines that cover economic development-related issues: Business Facilities, Area Development, Site Selection and Chief Executive.

In its January/February edition, for example, Business Facilities gave the Palmetto State a second-place “silver” award in the magazine’s “2011 Economic Development Deal of the Year” competition. The laurel was for a $500 million Continental Tire plant project under way in Sumter County.

The S.C. Department of Commerce, the chief player in state economic development, entered the project in the contest and was the actual recipient of the award.

Haley, whose picture is featured in that Business Facilities edition, was so proud she took to her seemingly favorite media outlet – Facebook – to announce the news.

Members of Haley’s communications staff tweeted about it, too – repeatedly.

Paying for Plaudits?

More significantly, in her executive budget for the 2012-13 fiscal year, which starts July 1, Haley cited a slew of top 10 South Carolina rankings in 2011 by Business Facilities and Site Selection. Second in “automotive manufacturing strength” and third in “economic growth potential” are among the grades she notes.

The kicker in all of these plaudits: The Department of Commerce has paid a pretty penny to advertise in these magazines over the past several years.

The agency’s payments to the four publications combined totaled more than $144,000 between fiscal 2007-08 and so far this fiscal year, according to records from the state Comptroller General’s Office.

That’s a minimum total. It could be higher if variations exist in billing codes or names for the magazines in the state’s records.

Nonetheless, Area Development had the biggest haul ($71,833), followed by Business Facilities($53,650), Site Selection ($17,787) and Chief Executive ($856).

The Department of Commerce touts the state’s economic development kudos from all four of the journals on a “national recognitions” page on the agency’s website.

Haley’s spokesman, Rob Godfrey, did not respond to written questions as to whether she knows that the agency, which is part of her Cabinet, pays the publications for promotional services; and, regardless, how she feels about that.

One could infer that she’s quite all right with it. After all, in her 2012-13 executive budget Haley proposed doubling the size of a Department of Commerce fund for closing economic development deals.

That fund was appropriated $5 million in the current budget year. For next fiscal year, Haley wants to bolster it 100 percent to $10 million, with all of the increase coming from the state’s capital reserve account.

The House in its version of a 2012-13 spending plan went along with the hike, albeit from different sources – plus a whole heck of a lot more.

The chamber budgeted $8 million in general fund state dollars plus $2 million from extra tax collections the state is netting above what it had projected, matching Haley’s $10 million for the Department of Commerce’s deal-closing fund.

Fraud-Closure Redirect

In addition, the House included a proviso in its budget instructing S.C. Attorney General Alan Wilson to transfer the state’s entire share of a national mortgage fraud settlement to that fund.

The agreement – among the federal government, 49 states including South Carolina and five of the nation’s largest banks – was announced in February.

Through the settlement, the banks – Wells Fargo, Citigroup, Ally Financial, JPMorgan Chase and Bank of America – collectively will pay $25 billion to compensate borrowers who suffered from abusive practices by the lenders. Those schemes largely fueled a collapse of the housing market that crashed the nation’s economy at the end of 2007.

South Carolina is on tap to receive $31 million from the settlement, according to Mark Plowden, communications director for the state Attorney General’s Office.

The office will retain 10 percent of that amount for attorney fees, Plowden said in an email. That equals $3.1 million for lawyer costs.

The Attorney General’s Office will steer another roughly $4 million of the state’s settlement share “to organizations supporting displaced veterans, domestic violence victims, and animals,” Plowden wrote.

Together, that’s about $7.1 million subtracted from the $31 million, leaving $23.9 million.

“The remainder of the original $31 million will go to the state’s general fund to be appropriated by the General Assembly,” Plowden said. “The final settlement has NOT been signed by a judge. We have no indication whatsoever as to when that might happen.”

Victims of the fraud-closure schemes are not being totally left out in the cold. “A claims process conducted by a third party administrator will distribute another (estimated) $16 million (in $1,500 to $2,000 increments) to harmed borrowers,” Plowden said.

Still, the Department of Commerce deal-closing fund would receive more than half of the state’s $47 million total from the settlement based on the House budget and the Attorney General’s Office.

Call it corporate welfare, crony capitalism or venture socialism, it looks like Commerce paying $144,000 to the four economic development magazines for advertising might have been a great investment – for the agency’s coffers.

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