Officials Still Mum on Boeing Incentives after Two-Plus Years

April 24, 2012

Investigative Reports

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SC AerospaceNearly 2.5 years ago, the S.C. General Assembly – with no prior public discussion and in a rare, special session – unanimously approved the first chunk of the biggest corporate-welfare package offered to a single Palmetto State company in more than 20 years.

In exchange for receiving state bonds, state sales and corporate income tax breaks, and a variety of other taxpayer-financed gifts, aerospace giant Boeing agreed to create at least 3,800 jobs and invest a minimum $750 million within seven years at a massive new North Charleston plant.

A 2010 review by The Nerve  projected the total incentives package offered to the Chicago-based company for its 787 Dreamliner assembly plant to be at least $500 million.

But although the plant, located near Charleston International Airport, has been operating since last June, S.C. taxpayers still don’t know exactly what their investment is – short- or long-term – or what specifically they have received, or will receive, for their tax dollars.

Essentially, a veil of secrecy shrouds the 11-football-field-size assembly plant, as top state officials have maintained an almost complete vow of silence on the true costs of the project. On Friday, Gov. Nikki Haley is scheduled to be among a select group invited to watch the rollout of the first 787 Dreamliner assembled in the Palmetto State.

Starting today and running through Thursday, The Nerve will re-examine the Boeing deal and issues related to transparency of public incentives offered to companies locating or expanding in South Carolina.

Following The Nerve’s coverage revealing a general lack of transparency in economic incentives deals statewide, state Sen. Tom Davis, R-Beaufort, and several other lawmakers last year filed bills that would put more sunlight on the process.

None of the proposals, however, has gone anywhere.

And the culture of secrecy that surrounds incentives deals continues to this day.

The Nerve last week sent written questions to Haley, S.C. Commerce Secretary Bobby Hitt and state Department of Revenue Director James Etter asking them for an update on the Boeing project, including:

  • The total number of permanent full-time, permanent part-time and temporary or contract jobs created to date;
  • How many of the permanent full-time jobs have been filled by South Carolina residents;
  • The average and median, or midway-point, salaries of permanent full-time workers; and
  • The dollar value of every type of incentive received so far by Boeing, including state bonds and grants, sales tax exemptions, job tax credits and publicly financed job training.

Haley and Hitt or their spokespersons did not respond to The Nerve’s inquiries. Etter also didn’t respond; his spokeswoman, Samantha Cheek, said in an initial email to The Nerve that DOR “does not retain this information.”

“We suggest contacting Boeing directly,” she said.

The Nerve sent the same written questions last week to Candy Eslinger, Boeing’s South Carolina spokeswoman, but did not receive a response.

The Nerve also sent questions to the state Department of Employment and Workforce about the current number and types of jobs at the North Charleston plant. Department spokeswoman Adrienne Fairwell in a written response said although The Nerve specified that the questions were not a formal request under the S.C. Freedom of Information Act, “it will be treated as such.”

No additional response was received by publication of this story.

The Nerve last week also asked representatives of the state worker-training program, known as readySC, which is run by the S.C. Technical College System, for information on the public training costs to date for workers at the Boeing assembly plant.

In a written response, Kelly Steinhilper, spokeswoman for the Technical College System, said the readySC program has trained about 2,200 Boeing workers so far.

As for other questions, such as the total training costs, Steinhilper directed The Nerve to contact Eslinger.

That was the same response a Nerve reporter received last week from Marco Cavazzoni, Boeing’s South Carolina vice president and general manager for final assembly and delivery, and chairman of the S.C. Research Authority, a state-controlled technology and real estate company, before a Research Authority board meeting in Columbia.

Big Goodie Bag

Under a 20-year state incentives agreement that The Nerve obtained in 2010 from the S.C. Department of Commerce under the state Freedom of Information Act, Boeing would receive:

  • $270 million in state bonds primarily for construction of the plant. Taxpayers are on the hook for repaying all of the bonds; with interest, the total cost of the bonds would be at least $360 million over 15 years, or nearly $95,000 for each of the promised minimum 3,800 jobs. This year’s debt payment is $19.4 million;
  • State corporate income tax credits of $2,500 for every new full-time employee for five years because the plant is located in a designated multi-county industrial park. Under the incentives agreement, Boeing has to employ at least 6,000 workers by Dec. 31, 2016, but that number includes 2,200 jobs at two other pre-existing Boeing plants at the North Charleston site. Assuming Boeing creates 6,000 jobs and maintains the positions for five years, the company could claim a total of $75 million in income tax credits, an earlier review by The Nerve found;
  • An unknown dollar amount in sales tax exemptions on the purchase of construction materials, computer equipment and fuel for test flights;
  • An estimated $34 million in worker training over 15 years through the readySC program; and
  • A $5 million state set-aside grant to Charleston County for site preparation.

In addition, the S.C. Budget and Control Board, made up of the governor, treasurer, comptroller general and the House Ways and Means and Senate Finance Committee chairmen, offered a $102.5 million “bridge” loan to Boeing pending the sale of the $270 million bond package.

A spokesman at the state Treasurer’s Office later said $4.75 million was actually loaned out, and that Boeing repaid the amount. Boeing, however, doesn’t have to repay any of the $270 million in state bonds it received in 2010 and 2011.

Besides state incentives, Boeing also has received or will receive a taxpayer-backed goodie bag of incentives from Charleston County, including, according to the county incentives agreement:

  • A 30-year, fee-in-lieu-of-taxes (FILOT) agreement that fixes the 787 Dreamliner plant’s assessment rate for real and personal property at the owner-occupied home rate of 4 percent instead of the standard 10.5 percent rate for industrial property; and fixes the millage rate for the payment period. Over the first seven years, Boeing could save as much as $71 million in property taxes, an earlier review by The Nerve found;
  • Special source revenue credits, which equal 50 percent of the FILOT payments over 15 years; and
  • $250,000 in separate grants for a traffic study around Charleston International Airport and public infrastructure costs.

In addition, in a separate agreement reached with the county, Boeing is exempted from paying personal property taxes for 10 years on two large cargo transport planes at the site.

Incentives Secrecy

Many of the true costs of the Boeing deal likely will never be known because of state privacy laws. The Department of Revenue, for example, has routinely cited privacy laws in denying The Nerve’s requests for information on the amount of corporate income tax credits and state sales tax exemptions received by Boeing.

“We cannot disclose industry specific information due to SC Code of Laws 12-54-240,” Cheek, the DOR spokeswoman, said in a follow-up email to The Nerve last week.

That law makes it unlawful for any DOR employee or agent to publicly “divulge or make known in any manner any particulars set forth or disclosed” in any income tax returns or sales tax reports.

As for what taxpayers will receive for their money, the state incentives agreement with Boeing allows plenty of wiggle room when it comes to defining jobs. For example, the job-target benchmarks include up to 600 “badge” workers employed at the site by other companies, such as cafeteria workers and security personnel; and counting two part-time Boeing workers as one.

No state agency so far has been willing to release any specifics on the number and types of jobs created, or the average salary of workers, at the North Charleston plant.

A fired Boeing engineer tried in a federal lawsuit last year to have Boeing classified as a public body under the state’s whistleblower law because the company received taxpayer-backed incentives. Such a classification could have forced the company to disclose at least some of the subsidies it has received.

But a federal judge in January dismissed the suit, ruling that while Boeing has received a “massive amount of public money,” it is not a “related organization” to the state.

Meanwhile, Boeing posted net income of nearly $1.4 billion in the fourth quarter of 2011, a 20 percent jump compared to the same period in 2010; and made more than $4 billion in net income overall last year, according to a company news release. Results for the first quarter of this year are due out Wednesday.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

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