Research Authority Named Ninth-Fastest Growing “Company” in S.C.

December 13, 2011

Investigative Reports

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The NerveThe S.C. Research Authority, a tax-free state agency that represents itself as a private business, is No. 9 on this year’s state Chamber of Commerce list of the 25 fastest-growing companies in South Carolina.

The chamber published the list in the latest edition of its South Carolina Business magazine.

The Research Authority, by turn, highlighted its ninth-place recognition in a Nov. 28 news release. The press announcement said SCRA had another top haul in revenues for fiscal 2011, which ended June 30.

“Record revenues totaled more than $195 million, up 13 percent from FY10 (fiscal year 2010),” the release says.

From $75 million in 2005 to the $195 million total last year, the Research Authority’s annual revenues have grown $120 million, or 62.5 percent, in that time period, according to the release and other SCRA documents.

Says Julia Martin, chief financial officer of the Research Authority, in a short YouTube video the SCRA links to on its website, “We have become a very strong research-based business.”

A “business?” Really?

If so, it’s a state-created and state-controlled business.

Indeed, the S.C. Research Authority was chartered through legislative fiat in 1983. And that enabling legislation says the SCRA is meant to serve a “public purpose,” defining the entity as “a corporation owned completely by the people of the state.”

That public purpose is to work with the state’s research universities to grow a high-tech economy in South Carolina, according to the 1983 statute.

In recent years, the term high-tech economy has been replaced in popular usage with “knowledge economy,” or “knowledge-based economy,” among many state and local economic development officials on the public payroll, either directly as government workers or indirectly as employees of nonprofit organizations such as EngenuitySC.

Listen out for this new “knowledge economy” term and you’re certain to hear it in these circles, especially in reference to the Research Authority.

The same goes for politicians of this persuasion.

“Since its inception in 1983, SCRA has grown our Knowledge Economy and helped to create and sustain thousands of high wage jobs in South Carolina,” S.C. House Speaker Bobby Harrell, R-Charleston, says in the Research Authority statement.

An amorphous entity, the SCRA essentially is a middle man. It works to commercialize developments and discoveries in science and technology. But for the most part, the Research Authority doesn’t do the work itself.

Rather, the SCRA runs around chasing contracts for such activities, mostly from the Department of Defense and other federal agencies, and then shaves a management fee off the top of the contracts it wins.

That’s primarily how the Research Authority takes in its revenues.

The SCRA also plies in real estate management and development, a function that began when the state gave the Research Authority 1,400 undeveloped acres upon its creation. The SCRA also received $500,000 in start-up capital at that time.

Those are the kinds of facts the Research Authority usually leaves out of things like its Nov. 28 news release.

The SCRA does like to note that it “neither receives nor requires annual tax appropriations from the state,” as the release says.

But the Research Authority is not so quick to talk about some advantages it enjoys over its private-sector competitors as a state entity. While these benefits began nearly three decades ago with the start-up capital and land grant, they continue today in more than one way.

One of the SCRA’s biggest legs up on the competition is its tax-free status. Under the Research Authority’s enabling legislation, the entity does not pay income, sales or property taxes.

<em><a href=”../2011/11/10/trac-recommends-nixing-scra%E2%80%99s-sales-tax-exemption/”>The Nerve reported in November</a></em> that the S.C. Taxation Realignment Commission, a panel the General Assembly created to recommend state tax reforms, recognized the SCRA’s sales-tax exemption as “out of balance” and recommended that it be eliminated.

In addition, the Research Authority receives $6 million per year in tax-deductible contributions to an affiliate the SCRA controls called SC Launch. Donations to SC Launch qualify for a 100 percent credit against state taxes.

So the end result of that is, the $6 million per year given to SC Launch gets credited toward the contributors’ taxes instead of going into the state’s general fund to pay for basic government functions like law enforcement.

The Research Authority takes that $6 million per year and parcels out a portion of it to start-up companies, groups that promote the knowledge economy and other parties.

So, in essence, SC Launch is a state-funded venture capital and marketing fund.

The SCRA board, meanwhile, features some of the biggest names in the state’s political, economic and academic ruling class: Commerce Secretary Bobby Hitt, University of South Carolina President Harris Pastides and Commission on Higher Education Chairman Ken Wingate, to name a few examples.

Harrell’s spokesman, Greg Foster, did not respond to email and phone messages on Monday seeking comment on the Research Authority being named the ninth-fastest growing company in South Carolina vis-a-vis the SCRA’s  advantages as a state entity.

There’s no doubt the Research Authority brings those advantages to bear against its private sector rivals, either.

Consider this statement from SCRA CEO Bill Mahoney, while answering questions in May from some House Ways and Means Committee members who were perplexed as to what exactly the Research Authority is and what it does:

“Well, we compete against companies like IBM, SAIC, MITRE Corp., the Battelle Institute and others,” Mahoney said.

The difference is, IBM and the like pay taxes.

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