Corporate Welfare Fund Grows by 800 Percent under Haley

January 19, 2015

Investigative Reports

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Haley Corporate Welfare

Since Gov. Nikki Haley took office in 2011, state budget appropriations for a Department of Commerce fund used to lure corporations to locate or expand in South Carolina have grown collectively by more than 800 percent, a review by The Nerve found.

The Republican governor, who officially started her second four-year term last week, has shown a pattern of approving massive increases in the “deal closing fund” at the end of the state budget process, easily topping her initial recommendations in her annual executive budgets presented to the General Assembly, records show.

In fiscal year 2012, which started July 1, 2011, $5 million was budgeted for the fund, also known as the “closing fund” or “governor’s closing fund.” For this fiscal year, more than $45.3 million was appropriated for the fund – a hike of $40.3 million, or 807 percent.

The fund is authorized through obscure state budget provisos that lawmakers have to renew annually. Money from the fund is doled out by the 11-member Coordinating Council for Economic Development, made up of the directors or board chairpersons of state agencies involved with economic development, and by law chaired by Commerce Secretary Bobby Hitt, who was appointed by Haley and is part of her Cabinet.

The council, which meets in Commerce’s headquarters in a high-rise office building across from the State House, typically discusses secretly what taxpayer-backed incentives companies will receive, and often releases little, if any, specifics to the public, as The Nerve has repeatedly pointed out.

To put it in some perspective, the $45.3 million appropriated for the deal closing fund this fiscal year could have been used to hire 900 police officers or teachers statewide, based on compensation of $50,000 per officer or teacher.

The fund is bigger than the total ratified budgets this fiscal year of 57 state agencies and separately listed divisions, including, for example, the Department of Alcohol and Other Drug Abuse Services ($43.3 million), and the Department of Labor, Licensing and Regulation ($41.2 million), according to The Nerve’s review of state budget records.

The explosive growth of the fund has driven much of the increase in Commerce’s total budget since Haley took office. For this fiscal year, the agency’s total ratified budget is $135.2 million, an increase of $48.3 million, or 56 percent, over its fiscal 2012 total budget of about $86.9 million.

Spokespersons at the Governor’s Office and Commerce did not respond by publication of this story to written questions from The Nerve about the deal closing fund.

When she first took office in January 2011, Haley officially didn’t ask for $5 million for the deal closing fund in fiscal 2011-12; that  was done by her Republican predecessor, Mark Sanford. The $5 million came out of the capital reserve fund, one of the state’s two main “rainy day” funds that lawmakers have raided annually in recent years after replenishing it yearly, as The Nerve has reported.

In her first official executive budget for fiscal 2012-13, Haley initially asked for $10 million for the deal closing fund  – $5 million in new, recurring money from the state’s general fund and $5 million from the state capital reserve fund, which is classified as a non-recurring revenue source.

The ratified 2012-13 state budget, though, included a total of $25 million for the deal closing fund  – $8 million in recurring money from the general fund, $7 million in non-recurring, state surplus money – dubbed by Haley as the “money tree”  –  and $10 million funded from a national mortgage settlement. Haley vetoed the $10 million appropriation, though lawmakers overrode it.

For last fiscal year, Haley initially asked for $15 million for the deal closing fund – $8 million in recurring money from the general fund and $7 million from “various non-recurring sources.” In the final state budget, though, she approved a total of $24 million for the fund – $8 million from the general fund, about $12.7 million in state surplus money, and $3.3 million from the capital reserve fund, records show.

Haley initially requested $16 million in “non-recurring resources” for the deal closing fund this fiscal year to “match what was provided in FY 2013-14,” according to her executive budget, implying that she expected the total appropriation to include $8 million in recurring general funds. But as in previous years, what she initially requested for fiscal 2015 was far lower than what she finally approved by withholding her veto pen from the Legislature’s final appropriations.

Of the total $45.3 million approved by Haley for the deal closing fund for this fiscal year, which ends June 30:

  • $8 million is from the general fund;
  • $12.4 million is state surplus money; and
  • $24.9 million is from the capital reserve fund.

The Nerve in March last year reported that based on a request by Hitt, the House Ways and Means Committee, which annually passes the first legislative version of the state budget, approved $37.3 million in non-recurring money for the deal closing fund for this fiscal year, though Hitt provided no specifics then on how that amount would be used.

“He asked me, ‘I need as much as you can spare,’” Rep. Gary Simrill, R-York and chairman of a Ways and Means subcommittee that Hitt made his presentation to, told The Nerve then.

As it turned out, the Coordinating Council for Economic Development at its meeting last June 5 approved – without publicly giving specifics, according to CCED meeting minutes obtained last year by The Nerve under the S.C. Freedom of Information Act  – a nearly $36 million, deal closing grant for the Giti tire plant project in Chester County. Haley made no mention of the multimillion-dollar grant in announcing the project less than two weeks after the CCED meeting.

It was the single-largest deal closing grant since October 2011 when a $43.5 million grant was awarded to Sumter County for the Continental tire plant, according to a grant list provided by Commerce to The Nerve under the FOIA.

In her executive budget for next fiscal year, which she released last week, Haley requested $13 million from the general fund – up $5 million, or 62 percent, from this fiscal year – and $12 million from the capital reserve fund for the deal closing fund.

The requested collective $25 million is less than the total $43.5 million appropriated for this fiscal year. But if another Giti-like project is in the pipeline now, Hitt could ask lawmakers this legislative session to appropriate millions more for the deal closing fund, as he did last year with Haley’s approval.

Given Commerce’s past practices, though, specifics about any deal closing grant likely wouldn’t be revealed publicly until after Haley held a press conference to announce the taxpayer-funded project.

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