Incentives Transparency Bill Looks Promising Next Session

September 29, 2011

Investigative Reports

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The NerveIt’s been eight years since a state law was passed requiring the S.C. Department of Commerce to publicly disclose incentives offered to companies to invest capital and create jobs in the state.

But that law contains loopholes big enough to fly a 787 Dreamliner through.

Now, after three consecutive legislative sessions in which high-profile incentives provoked controversy, more sunlight could be coming to state subsidies in the next session of the General Assembly.

With wide, bipartisan support, Republican Sen. Shane Martin of Spartanburg County is sponsoring a bill that would tell South Carolina taxpayers a lot more about the costs and benefits of specially crafted incentives.

The bill, S. 954, would require the Department of Commerce to provide an economic analysis report on “any proposed state targeted tax incentive or subsidy” exceeding $100,000 over five years, whether by itself or when combined with other proposed or existing incentives.

The report would have to include the number of full-time, part-time and temporary jobs expected to be created for existing South Carolina residents; the ratio of public spending to each job created; the “estimated impact on existing South Carolina businesses, including, but not limited to, competitors in the same industry”; and other key details.

Martin introduced his bill on June 2, right after the last of the three contentious incentives deals.

In that one, the Legislature gave online retailing behemoth Amazon.com a five-year exemption from collecting state sales tax from the company’s South Carolina customers. Amazon then resumed building a large distribution center in Lexington County that is expected to begin operating in the near future.

Martin floated his bill too late in this year’s legislative session for it to pass.

In addition, it was assigned to the Finance Committee, which is chaired by one of the biggest champions of incentives in the Legislature – Republican Sen. Hugh Leatherman of Florence County.

However, Martin says Leatherman and the chairman of a Finance Committee panel that has first jurisdiction over the bill, Democratic Sen. Nikki Setzler of Lexington County, promised him a hearing on his bill.

“I was promised on the floor of the Senate that I would get a subcommittee hearing on my bill as soon as we come back” in January, Martin says.

A healthy mix of 21 Republican and Democratic senators – nearly half of the 46-member chamber – are co-sponsoring Martin’s bill. Given that fact, he says he thinks it stands a pretty good chance of getting through the Senate.

A key co-sponsor, Democratic Sen. John Land of Clarendon County, agrees.

“I really do, and I think it’s something that we need to do,” says Land, leader of the minority Democratic Caucus in the Senate. “I wonder why the Department of Commerce doesn’t do it anyway.”

That’s a really good question. But the department isn’t offering much in the way of an answer.

In a curious, unusual move, though, the agency disclosed at least some of the incentives being given to Bridgestone Americas for a $1.2 billion project announced last week. Commerce describes it as the largest single capital investment in the state’s history.

Bridgestone officials said the company plans to build a huge plant to manufacture off-road radial tires in Aiken County. Bridgestone said it also will expand a tire-making facility the company operates at the location.

The project will create 850 jobs, split between full-time and contractor positions, according to a Sept. 21 Department of Commerce news release.

The agency “provided $15.5 million in grants to the company for infrastructure and site preparation, including about $6 million that was provided to improve public roads adjacent to the facility,” the release says.

The state Coordinating Council for Economic Development also approved job development credits for the project. The credits will refund a certain amount of employee state income tax withholdings to Bridgestone.

Typically, the Department of Commerce guards such information about incentives like, well, state secrets. Usually it is obtainable only through the S.C. Freedom of Information Act.

And even then, the agency often heavily redacts incentives agreements using loopholes in a 2003 law.

The statute, which former Gov. Mark Sanford signed during his first term, went a long way toward prying open long-locked doors at Commerce concealing its incentives offerings.

The law, for example, made the agency begin disclosing the projected fiscal impact of incentives that affect state tax collections.

Nonetheless, the agency continues to shroud much incentives information under provisions of the law exempting “trade secrets” from disclosure, along with documents related to efforts by a public entity “to attract business or industry to invest within South Carolina.”

Attempts on Wednesday to reach Bob Faith, who was state commerce secretary when the law was passed, were unsuccessful. Faith is now CEO of Greystar, a Charleston-based real estate development firm he founded.

Commerce spokeswoman Amy Love and the department’s chief legal counsel, Karen Manning, did not respond to written questions from The Nerve submitted Tuesday afternoon.

Among other things, the questions asked whether the Bridgestone project marks the first time the agency has disclosed incentives offered for a project upon it being announced, and what was behind the department’s decision to do so this time.

Martin and Land say the process needs to open up, especially for legislatively crafted incentives.

Martin says it’s essential to know what’s at stake when he’s voting to put tax dollars on the line.

“What this does is it’s going to allow us to separate the reality from the rhetoric and let us know exactly what we’re voting on,” Martin said in the Senate chamber when he introduced his bill.

Land says he was uncomfortable voting on an incentives package for the Boeing Co. because he didn’t know enough about it. That deal, for Boeing’s 787 Dreamliner assembly plant in North Charleston, came up during a rare fall session of the Legislature in 2009.

“I don’t have the slightest idea, and didn’t have the slightest idea when I voted for that, what it was going to cost the state of South Carolina per job,” Land says.

The size of the Boeing package, estimated at anywhere from $500 million to $900 million, provoked controversy and drew public attention to incentives.

A third dispute over subsidies occurred during the 2010 legislative session. It involved sales tax rebates proposed for an upscale shopping mall the Florida-based Sembler Co. said it wanted to build in the Lowcountry.

Sembler nixed the project after the sales-tax givebacks were defeated.

Sen. Tom Davis, a Beaufort County Republican who opposed the Sembler subsidies, also is sponsoring legislation to bring more transparency to incentives. He prefiled S. 206 in December and it was introduced in January. Davis then put in a revised version of that bill, S. 832, in April.

Like Martin’s bill, both Davis proposals went to the Senate Finance Committee chaired by Leatherman. No action was taken on either one after that.

Looking ahead, will the promise made to Martin – that his bill will receive a hearing – be kept when the 2012 legislative session begins?

We’ll see.

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