MY LAST NERVE: Is South Carolina’s Business Environment Ranked High – or Low?

October 7, 2016

Inside Insight

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By PHILLIP CEASE

shovels

Ultimately, biz mag rankings are about political culture

If you only listen to the State House politicians, Department of Commerce officials, and Chamber of Commerce heads – or any public official speaking at a groundbreaking ceremony – you would think South Carolina is the best place to do business in the country. They frequently tout economic development magazines that place South Carolina high – very high – on business rankings. These rankings routinely suggest that South Carolina is among the best places in the country to do business.

You might wonder how it is that the state ranks among the worst in the nation in every other relevant category – educational performance, regulation, per capita income, etc. – but somehow always comes out near the top in economic development magazines. It is, indeed, a mystery.

Take the most recent ranking of “top states for doing business” from Area Development magazine. South Carolina has an impressive overall ranking: second, right after Georgia. We must be a state where the market is free and (forgive the tired metaphor) the playing field is level.

But take a look at the methodology behind the Area Development rankings. The magazine surveyed “site consultants” and asked them to give the top states in their opinion for 10 categories that impact where companies locate. Categories include “overall cost of doing business,” “business incentive program,” “access to capital and project funding,” and “corporate tax environment.” Notice that the latter three of these categories relate directly, or seem to relate directly, to government aid: “business incentive programs” have to do with targeted tax breaks to specific companies; “access to capital and project funding” will often involve government loans or grants; and “corporate tax environment” (note the vague word “environment”) seems to refer at least in part, or perhaps primarily, to the ease with which companies can get corporate tax breaks.

It wouldn’t be too much of an exaggeration to sum up the Area Development ranking in this way: A lot of consultants think it’s relatively easy for corporate lobbyists to secure taxpayer-financed goodies in South Carolina.

That’s a relevant thing for an economic development magazine to point out. Nothing wrong with pointing it out. Readers should understand, however, that that’s what the ranking means. The no. 2 spot is about South Carolina’s political culture, not about its tax code or regulatory environment.

But just as the Area Development ranking came out, so did some bad news. And the bad news wasn’t issued by an economic development magazine that surveys consultants on their impressions. The bad news came, rather, from the Tax Foundation’s 2017 State Business Tax Climate Index.

In the nonpartisan Tax Foundation’s ranking, sadly, we didn’t even crack the top 25. South Carolina ranked number 37 in the nation for business tax climate – behind North Carolina (no. 11), Georgia (no. 36), Tennessee (no. 13) and Florida (no. 4).

So why the discrepancy?

The Tax Foundation looked at, among other things, the more straightforward matters of corporate tax rates, individual income tax rates, and sales tax rates. It didn’t survey consultants or ask for vague impressions about tax “environments.” The Tax Foundation study examined quantifiable data. And in South Carolina, the data doesn’t look so great.

One more point about the high rankings South Carolina often gets from economic development mags.

States pay for advertising. Economic development magazines like Area Development, Business Facilities, and Chief Executive are happy to accept that advertising money. And indeed these magazines have financial relationships with state departments of commerce, including South Carolina’s. (See Eric Ward’s terrific piece from 2011.) According to a quick search of the Comptroller Generals transparency website, Area Development was paid $3,000 for advertising in 2013.

That doesn’t mean the magazine bumped up South Carolina’s ranking in response to an ad buy. Even so, it doesn’t lend credibility to the magazines’ rankings.

So when you hear those public officials with their golden shovels touting the latest magazine ranking, just remember what they’re really saying. Ours is a great state for lobbyists.

Phillip Cease is director of research at the South Carolina Policy Council