Lawmakers Back Breaks for Insurance Group

June 17, 2010

Investigative Reports

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The NerveThe General Assembly overrode a gubernatorial veto and passed a bipartisan bill into law Wednesday that grants state sales tax exemptions to a property insurance industry group.

The bill, S. 717, benefits the Institute for Business & Home Safety. Based in Tampa, Fla., the institute is building a $40 million facility in Chester County in the Upstate region of South Carolina.

The purpose of the facility is to test the effects of hurricane-strength winds and other naturally occurring destructive forces on homes and other structures. Researchers plan to apply the results of the tests toward efforts to improve the design of buildings and construction materials, according to the Institute for Business & Home Safety.

On its face, the legislation represents yet another giveaway on behalf of state taxpayers. To critics of so-called incentives – better known as corporate welfare – it’s one more example of the government picking winners and losers in the marketplace.

However, the nature of the Institute for Business & Home Safety (IBHS) and its work challenges some conventions of that perspective.

For one thing, the institute is nonprofit. It is registered as a 501(c)3, says Julie Rochman, president and chief executive officer of the organization.

That status prohibits the institute from engaging in lobbying and other political activity.

For another thing, working closely with the S.C. Department of Insurance as well as public colleges and universities near its facility, such as Clemson and York Tech, the institute plans to publish its research results, Rochman says.

In that way, she describes the IBHS as a public science agency.

Karlisa Parker, economic development director for Chester County, says the institute is dedicated to building safety rather than commercial, for-profit purposes. “Sometimes I think people lose sight of what the goal was here,” Parker says.

Perhaps, but there are definitive public costs to the bill because of the sales tax exemptions.

They apply to “machinery and equipment, building and other raw materials and electricity used in the operation of a facility” owned by a tax-exempt organization when the site is “principally used for researching and testing the impact of such natural hazards as wind, fire, water, earthquake and hail on building materials used in residential, commercial and agricultural buildings,” according to the law.

To qualify for the tax breaks, the Institute for Business & Home Safety must invest at least $20 million in its project over three years.

The estimated costs of the sales tax exemptions are $480,000 in the current fiscal year and $240,000 for each of the next two budget years, according to an April 28 revenue impact statement.

That’s a projected total of $960,000.

The S.C. Board of Economic Advisors, a division of the state Budget and Control Board, prepared the statement. It is required under S.C. law because the legislation affects the state’s general fund, which pays for fundamentals such as education and law enforcement.

The April 28 analysis is the most recent one available, according to Mike Sponhour, spokesman for the Budget and Control Board.

The Legislature overrode the governor’s veto of the bill even as a special panel, the Tax Realignment Commission, or TRAC, is busily reviewing almost all of the state tax code with a mission to recommend reforms to lawmakers.

The purview of the Tax Realignment Commission includes myriad sales tax exemptions.

That fact was not lost on some members of the General Assembly, including Senate Majority Leader Harvey Peeler, R-Cherokee, who questioned the wisdom of the bill as it was winding through the legislative process.

At the local level, meanwhile, Chester County is giving the institute a 10-year break on its property taxes. The reduction is 98 percent for the first two years and 85 percent for the other eight, institute and county officials say.

Sen. Creighton Colemen, D-Fairfield, is chief sponsor of the bill. Four other senators co-sponsored it: Democrats John Land of Clarendon and Nikki Setzler of Lexington, and Republicans Paul Campbell of Berkeley and Wes Hayes of York.

The bill cleared the General Assembly in early June, but Gov. Mark Sanford vetoed it on June 11.

Then on Wednesday, while working to tie up loose ends from the regular legislative session that ended June 3, the House and Senate overrode the veto by wide margins – 103-1 and 33-10, respectively.

In a veto message to the Senate, Sanford characterized the bill as a classic case of a special-interest tax break.

“We’ve expressed our concerns in past years that our tax code has far too many incentives carved out for only one area of the state or for one business,” the governor wrote. “This bill gives a sales tax exemption to one company – a company already set to open later this year in Chester County.”

Sanford went on to lament that the state has “already pledged considerable financial incentives to attract the company here in the first place.”

Therefore, he said, the sales tax exemptions are “duplicative and excessive” and, “We’re concerned with the long-term implications in other economic development deals if we get into the practice of adding to the deal after an economic incentive deal has been signed.”

Rochman, besides taking issue with Sanford’s description of the institute as a company, disputes his assertions about additional state incentives. “The state has done nothing for us,” she says.

She also says the institute does not qualify for statutory employment or research tax credits. Those breaks are on the state’s books and any taxpayer can take advantage of them provided they meet certain requirements.

Kara Borie, spokeswoman for the S.C. Department of Commerce, confirmed that the institute is not receiving an additional state incentives deal. “There were no discretionary incentives,” Borie says.

The IBHS bought 90 acres in the 400-acre, county-owned Chester Research and Development Park on which to construct and run its research operation. The institute plans to employ 20 full-time workers at its facility and open it this fall.

“We plan to have the facility completed and ready for a ribbon-cutting ceremony in the first couple weeks of October,” says Joe King, a spokesman for the organization.

Parker lauds the IBHS for using local-area construction, landscaping and other companies. “They call me all the time,” she says of the institute inquiring about local firms.

Rochman says the institute conducted a nationwide site selection search for its facility. “We’re really excited to be there,” she says of Chester County.

Institute and county officials tout the facility as unique and say it’s getting worldwide attention.

“It was a very big deal,” Parker says of Chester landing the IBHS. “It has kind of put us on the map in certain circles.”

But is it worth nearly $1 million out of the state’s general fund?

At this point, it’s up to state taxpayers to answer that question. The governor and the vast majority of state legislators already have made themselves clear on it.

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