Legislators Push For Retail Incentives

March 2, 2010

Investigative Reports

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The NerveSouth Carolina legislators appear determined to dole out retail tax incentives to private out-of-state companies.

This week, lawmakers may take up a pair of bills that would give out potentially more than $100 million in retail incentives.

It’s expected that debate will begin this week in the House this week on H 4200, believed to be geared toward luring Bass Pro Shops into building in the South Carolina Upstate.

A second bill, S 1054, seeking incentives for a $400 million Lowcountry mall being built by Florida-based Sembler Co., was put on the fast track by the Senate last week and will come up for debate quickly, as well.

Incentives for Sembler, which has been involved in hundreds of projects throughout the Southeast over the past four decades, would total between $40 million and $130 million, according to estimates. Missouri-based Bass Pro Shops would reap a smaller incentives package, but it too is a multimillion-dollar operation.

That’s hard for some to stomach, given South Carolina’s fiscal shape. The state’s general fund budget has been slashed by nearly $439 million since July 1 and even with those cuts lawmakers are facing a projected $563 million deficit for the next fiscal year.

“I didn’t get a tax breaks or any incentives when I started, so I don’t understand why the state’s looking to give away our money to somebody who’s probably going to end up taking business away from me,” said Rhett Brown, owner of Brown’s Bait and Tackle in Duncan.

Bass Pro Shops has more than 50 locations in North America, but just one in the Palmetto State, in Myrtle Beach. Brown’s, by comparison, has just a single location and the only two employees are Brown and his wife.

“I don’t think they should give Bass Pro Shops anything more than they’ve given anyone else,” said Brown, whose been in business for 14 years.

 

Defining extraordinary

Bill H 4200 would revise the definition of an “extraordinary retail establishment,” essentially for receiving retail incentives, making it easier for a site to be qualified as an extraordinary retail establishment. It would also increase the infrastructure-improvement cost requirements necessary to qualify for incentives.

Gov. Mark Sanford, who has vetoed similar legislation in the past, said he’s opposed to H 4200 because retail captures existing purchasing power in a region or community and retail development is going to occur without incentives.

“Retail incentives could indeed set a bad precedent, wherein other retailers ask for the same type incentives,” Sanford spokesman Ben Fox said. “Overall, and as we’ve said in the past in situations involving Cabela’s and others, a level playing field is important, as is looking out for the taxpayer in a broader sense.”

Sanford also has issues with the bill that would dole out incentives to Sembler, Fox said.

“We’ll wait for the final bill before making a decision, but the governor has made his position clear that he has some grave concerns about this bill and thinks that it’s not a wise course of action,” he said.

S 1054 would enable Sembler to seek incentives to build a proposed $400 million mall in the Lowcountry, with estimates of the total amount of subsidies varying from $40 million to $130 million.

Okatie Crossings would be located off Interstate 95 at U.S. 278 and S.C. 170, near the towns of Hardeeville and Bluffton. Most of the mall would sit in Jasper County; part of it would be in Beaufort County.

Concerns include Okatie Crossings competing directly with a nearby Tanger outlet mall. Recently, Chief Economist William Gillespie of the S.C. Board of Economic Advisors said the new mall is unlikely to increase overall sales, but instead would probably shift retail patterns in the area.

Also, incentive packages for retailers have been shown to be particularly ineffective. Such incentive packages rarely account for the effect that a new retailer will have on existing retail firms. To create net new economic growth, Okatie Crossings will have to boost retail sales (and jobs) over and above what already exists.

To the extent that Sembler’s development displaces shopping at existing stores, there would be no net change in total sales or jobs in the region. The potential of increased sales arising from customers traveling more than 50 miles to shop at the proposed facility would also add little to total sales or jobs in the state if these travelers are South Carolinians.

The bottom line: In order to have an incremental impact on tourism-related sales, Okatie Crossings would have to draw tourists from out of state who have come specifically to the Sembler-built shops.

 

‘Out of the Blue’

While the key recipient of S 1054’s largesse is recognized as Sembler, publicly identifying H 4200’s beneficiary has been more difficult.

State Rep. Bill Wylie, R-Greer, who is a main sponsor of H 4200 with fellow Upstate Republicans Harry Cato and Dan Cooper, claims that the bill was something they thought up out of the blue and deny it’s for a particular project, according to Journal Watchdog, a government watchdog Web site.

“I just felt it was a good idea,” he told the online publication.

However, this isn’t the first time the General Assembly has tried to lure a big box sporting goods retailer.

In 2007, a bill was introduced to attract “extraordinary retail establishment,” eventually identified as Bass Pro Shops, to the Greer area.

And the previous year, the General Assembly passed an ensemble of incentives tailor-made for sporting goods retailer Cabela’s to build in North Charleston, pledging the site would be a huge draw for tourists. That effort marked the first time the state had extended tax incentives that it typically reserves for manufacturing to “extraordinary retail establishments.”

Gov. Mark Sanford twice vetoed the special legislation, partly because many smaller competitors would get nothing. Twice his veto was overridden by the legislature.

However, neither Cabela’s nor Bass Pro Shops has taken advantage of existing retail incentives as yet. There is conjecture in some circles that the companies are simply waiting for the state to sweeten the pot, as H 4200 does.

Legislation passed last year allowed sales tax rebates and tax credits on jobs created for an extraordinary retail establishment that invested at least $25 million in its site, attracted at least 2 million visitors a year and remitted at least $2 million in sales taxes every 12 months.

H 4200 does raise the required capital investment of an establishment to $50 million from $25 million, but makes it easier for the entity to be designated as an extraordinary retail establishment.

Previously, to be approved as such, an entity had to get conditional approval from a county or municipality, then from the state Department of Parks, Recreation and Tourism. Under H 4200, if PRT fails to grant conditional certification within 60 days of receipt of the conditional certification from the county or municipality, certification is automatically approved.

Nebraska-based Cabela’s, a public company, has posted large profits in recent years, thanks in part to government grants. In 2009, its net income was nearly $50 million and it earned more than $76 million in 2008.

Not all big box sporting good retailers have come to the state with their hand out.

Sportsman’s Warehouse opened its first Palmetto State store in Columbia in 2006 with no incentives.

Another competitor, Gander Mountain, has been vehement in its opposition to incentives.

“Governments should use their resources to build better roads and build schools and hire more police and solve those problems,” company spokesman David Ewald told the Decatur (Ala.) Daily in 2008. “Let the private sector duke it out in the market place …”

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