How Opposition Fought Subsidies for Sembler

March 23, 2010

Investigative Reports

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The NerveWithering opposition that began with one state senator and grew into a broad coalition apparently has dealt a death blow to tens of millions of dollars in proposed state subsidies for a retail mall.

In the General Assembly, where the wheels have come off the would-be tax breaks, it is not the sort of thing that happens every day.

Indeed, the opposite is usually true when it comes to lawmakers dishing out corporate welfare in the form of economic development incentives.

Case in point: In a special legislative session in October, the not always honorables speedily approved an unprecedented incentives package for the Boeing Co. with virtually no debate and nary a dissenting vote – a practically unheard of outcome.

Conservative estimates tally the amount of the package at a hefty $500 million – free money for Boeing that more or less equals a projected gap in the 2011-12 state budget that legislators must close.

Easy breezy on behalf of South Carolina taxpayers, thank you.

Not this time, however.

No, the opposition appears to have killed a bill that would grant tax breaks to the Florida-based Sembler Co. to build a ginormous, swank shopping mall in the Lowcountry.

The legislation would provide the subsidies to Sembler via refunds of nearly half the sales tax revenue generated at the mall over several years.

The incentives, sponsored by Sen. Clementa Pinckney, D-Jasper, are designed to defray the company’s construction costs for the shopping center, called Okatie Crossings.

Pinckney’s bill had momentum, clearing a Senate Finance subcommittee and the full committee several weeks ago.

That was then.

This is now: After vigorously arguing against the proposal last week on the Senate floor, Sen. Tom Davis, a Beaufort Republican in whose district part of the mall would sit, summed up the status of the bill thusly: “I mean that was just dead.”

It is true even though Sembler followed the proverbial playbook to the letter in an effort to wrangle the tax breaks out of the Legislature. It’s the inside game under the copper dome at the State House: Hire the right lobbyists and consultants and – voila! – away the money flows.

This is how the opposition managed to go against that legislative grain and stop the Sembler measure in its previously fast tracks.

Beginning of the End

The story begins last year when Sen. Greg Ryberg, R-Aiken, mounted a successful one-man campaign to block the handouts to the company.

Neither Ryberg nor any of the other opponents have suggested that Pinckney is anything but earnestly fighting for his constituents, who suffer from high rates of poverty and unemployment.

Rather, the opposition contends that the proposed incentives would be a bad investment of taxpayer dollars because retail development captures existing purchasing power, instead of boosting economic activity.

William Gillespie, the state’s chief economist, made precisely that assessment of the proposed Sembler incentives.

“Because the facility adds to an already well established retail sector, it is difficult to expect that the facility will create new sales, but rather will shift sales from existing retailers and not add to sales that would otherwise occur in the absence of the (subsidies) provision,” Gillespie wrote in forecasting the impact of the tax breaks on state revenue.

He projected that the general fund, which pays for core government functions, would lose $22.5 million over five years if the bill passes.

Other estimates have ranged as high as nearly $175 million (Pinckney) and about $131 million (Ryberg).

Still, Pinckney argues that Okatie Crossings would be a huge net gain, resulting in a combined $450 million impact on the state and local economies.

Last year the freebies for Sembler made it as far as a House-Senate conference committee that was laboring to broker a compromise between the two chambers on a dubious piece of legislation, characterized as such per its nickname: “big-ass tax” bill.

The BAT bill, as lawmakers openly refer to it, remained bottlenecked in the conference committee as this legislative session got under way Jan. 12.

So, Pinckney introduced a separate bill two days later to try to get the Sembler incentives through the Legislature.

That’s when Ryberg began steadily gaining allies in what developed into a coalition of the unwilling to support the giveaways:

  • Davis took up rear guard behind Ryberg and the Beaufort County Council officially denounced the incentives.
  • The Nerve’s parent organization, the South Carolina Policy Council, released a study by College of Charleston economist Peter Calcagno. The study asserts that the subsidies would amount to nothing more than a different dog with the same fleas as far as retail incentives go. The Policy Council is a nonprofit, nonpartisan free-market think tank in Columbia.
  • Gov. Mark Sanford all but said he would veto the Sembler bill.

A little later, the opposition took on a green hue when the Coastal Conservation League, one of the state’s most respected environmental groups, said Okatie Crossings would visit irrevocable harm upon a delicate estuarial watershed in that area.The killer: Some 200 acres of impervious surface, also known as blacktop, which collects antifreeze and all manner of other pollutants and washes them into waterways in storm runoff.

The site of the planned mall is off of Interstate 95 near the towns of Hardeeville and Bluffton.

Two more nonprofits, the South Carolina Association of Taxpayers and the South Carolina Club for Growth, joined the chorus against the subsidies.

Tipping Point

The tipping point came when Davis took to the Senate floor to make his case against the tax breaks. It happened Wednesday, and he did not mince words.

“What we have here is the beginning of a ponzi scheme,” Davis said. He was detailing how spending by local governments and tenants of the mall could count toward a $200 million capital investment threshold Sembler would have to meet to begin cashing in on the proposed sales tax rebates.

As Davis was talking the pushback against the incentives grew stronger: Wielding significant influence among legislators, the nonprofit South Carolina Business and Industry Political Education Committee sent word to senators that it had rated the bill “business negative.”

The Senate then adjourned debate on the measure until the next day.

The following morning, back and forth about the bill among senators was limited to indirect references that veered into the realm of bizarre ad hominem.

That occurred when Sens. Robert Ford, D-Charleston and by all indications a staunch supporter of the bill, and Lee Bright, R-Spartanburg, got into a somewhat testy exchange about abortion, complete with allusions to social welfare policy and direct mentions of God and Satan.

Behind that political theater, meanwhile, something meaningful was happening that day.

Sensing that the votes necessary to pass the bill had been lost, Senate Minority Leader John Land, D-Clarendon, floated an idea to Ryberg and Davis: Would they support legislation to let Hardeeville or Jasper County impose a 1 or 2-cent sales tax “just in that shopping center” to pay for public infrastructure to support the mall, if either the city or the county held a referendum on the matter and it was approved.

“They said they would like to look at that,” Land says.

Davis and Ryberg say they don’t think the suggestion would make for good public policy, but they would not object to it because it would be a local decision.

They told The Nerve that an amendment to Pinckney’s bill was being drafted to allow for a local tax and referendum. The amendment could be introduced as soon as today, according to the two lawmakers.

“I’m just thankful that Sen. Davis and I were able to stand up for the taxpayers and be their lobbyists,” Ryberg says.

So is the apparent defeat of state subsidies for the Sembler Co. a harbinger of things to come? A sign that a heretofore fledgling reform movement in state government is gaining strength?

Or is it a one-off?

The tick tock of the clock will tell.

Reach Ward at (803) 779-5022, ext. 117, or eric@scpolicycouncil.com.