Commerce Pay Incentives Nab Big Part Share of BCB’s Attention

November 4, 2011

Investigative Reports

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The NerveAn inverse connection between issues and costs was evident during Thursday’s Budget and Control Board meeting.

While it took the five-member board just 30 seconds to approve $16 million in improvements and additions for the University of South Carolina, the Medical University of South Carolina and the S.C. Department of Corrections, the board spent nearly 20 minutes debating the merits of revising an incentive-pay system for the S.C. Department of Commerce that would apply to just nine individuals and cost, at most, a grand total of $70,000 annually.

In fact, the first three items on the board’s regular agenda – the infrastructure improvements, along with the acquisition of 250 acres by the S.C. Department of Parks, Recreation and Tourism in Greenville County for $250,000, and a complicated swap among state, federal and local entities involving property in several counties – took barely a minute to approve.

And while the board did spend more time discussing changes to the state retirement system and questioning Transportation Secretary Robert St. Onge about the agency’s cash-flow problems, an outsider might have wondered why Commerce’s proposed change in incentives warranted so much discussion.

Under the plan discussed, the existing program would be tweaked. In the past, incentives were based on three factors: number of jobs created, total dollars invested in South Carolina and number of projects closed. Under the new plan, which would go into effect next year, the criteria would be number of jobs created, total dollars invested in South Carolina and jobs created in rural counties, according to Commerce Secretary Bobby Hitt.

Only the nine Commerce employees who work to bring companies to South Carolina would be eligible for incentives under the new plan, Hitt said.

S.C. Treasurer Curtis Loftis said that while he was a fan of incentives, he had an issue with the triggering mechanism behind the incentives, which is a press release or public announcement by the company.

“If we’ve announced 15,000 in nine months (this year), we got a couple of months to go, so say we’re going to be at 18,000 or 20,000 jobs. When do those jobs have to show up, or is everybody paid now, whether they come or not?” Loftis asked, “Is there a clawback provision?”

Hitt said there was no clawback provision, meaning if the company ended up not coming to South Carolina, the Commerce employee still kept whatever incentive they might have received related to the project.

When Loftis questioned the wisdom of that plan, Hitt replied that performance agreements with companies can be five to seven years in length; and given the employee turnover in Commerce, the result could be individuals eventually receiving bonuses while employed elsewhere.

“What they’ve done is they have managed a project,” Hitt added. “They have managed a project to the point of a letter of intent, and that’s what their job is. Their job is not to supply the jobs, but to recruit the company, to aid them in making their decision and to make sure all the particulars are taken care of.”

Loftis said that in a vast majority of the working world, incentives are paid out when deals are completed, not when they’re simply contemplated.

“The average South Carolinian can’t get paid this way,” he said. “They just have to have something concrete.”

Hitt admitted that Loftis had a legitimate point but said he didn’t know of a solution, and then added that most projects that are announced eventually materialize.

Most, but not all.

For instance, in a Jan. 6, 2011, announcement posted on Commerce’s website, AQT Solar of Sunnyvale, Calif., said it planned to create 1,000 jobs at an existing 184,000-square-foot facility in Richland County over the next four years, with upfitting scheduled to begin in the first half of this year.

In its 2010 year-end report, Commerce ranked the proposed AQT Solar plant as the second-highest announced capital investment in the state last year, and the third-highest announced job-creation project.

But nearly a year later, a recent trip by The Nerve to the site shows that the building remains empty, and AQT’s expansion on hold at present.

Also, CT&T, a South Korean electric vehicle manufacturer, announced in July 2010 plans to build a $21 million assembly plant in Spartanburg County. Over a five-year period, 370 workers were to be hired at the proposed Duncan plant to annually assemble thousands of electric vehicles, state and company officials said at the time.

But 16 months after the announcement, not a single CT&T car has been produced in the Palmetto State, and it’s unlikely any ever will be. The company has since abandoned its plans for now for any U.S. operations.

Despite the inherent risks of tying monetary inducements to future economic-development deals, all five members of the Budget and Control Board approved the revised pay-incentive plan.

Reach Dietrich at (803) 779-5022 ext. 110, or kevin@thenerve.org.