S.C. Officials to Offer Taxpayer-Funded ‘Bridge’ Loan to Cash-Rich Boeing

June 10, 2013

Investigative Reports

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BoeingPalmetto State officials just can’t seem to give away taxpayer money fast enough to one of the nation’s wealthiest corporations.

At its June 18 meeting, the five-member S.C. Budget and Control Board (BCB), headed by Gov. Nikki Haley, will be asked to approve “bridge financing” to aerospace giant Boeing Co., before the company will receive any proceeds from the sale of $120 million in taxpayer-funded state bonds, according to a June 3 letter from S.C. Department of Commerce Secretary Bobby Hitt to the BCB and state Joint Bond Review Committee (JBRC).

The Chicago-based firm, listed in this year’s Fortune 500 rankings as the nation’s 30th largest in total annual revenues ($81.7 billion in 2012), reported net income of $3.9 billion in 2012 and $1.1 billion in the first quarter of this year, according to company filings with the U.S. Securities and Exchange Commission.

To put Boeing’s wealth in some perspective, its 2012 total revenues were nearly 3.5 times more than the entire ratified state budget ($23.6 billion) for this fiscal year, which ends June 30.

No details on the amount, purpose or repayment terms of the “bridge” loan were revealed in Hitt’s letter, which was included in a packet of documents prepared for last week’s meeting of the JBRC. Hitt provided the JBRC and the BCB with an “Inter-Agency Agreement” between Commerce and the S.C. Treasurer’s Office to “provide bridge financing until such time as General Obligation State Economic Development Bonds are issued,” according to the letter, though the agreement has not been released publicly.

The JBRC – made of 10 lawmakers, eight of whom were present for Wednesday’s meeting – unanimously approved recommending to the BCB the issuance of the $120 million in bonds for Boeing. The bonds were authorized in a bill that was introduced in the General Assembly in April and signed into law by Haley just two weeks later.

Besides Haley, the BCB is made up of Comptroller General Richard Eckstrom and Treasurer Curtis Loftis, both of whom, like Haley, are Republicans; House Ways and Means Committee Chairman Brian White, R-Anderson; and Senate Finance Committee Chairman Hugh Leatherman, R-Florence and chairman of the JBRC.

The BCB in January 2010 approved a $102.5 million “bridge” loan to Boeing on top of a $270 million taxpayer-funded bond package for the company.

The state Treasurer’s Office later told The Nerve that the actual amount of that “bridge” loan was $4.75 million and was repaid by Boeing in April 2010 with proceeds from the $270 million bond sale. The loan was used, according to state officials, to cover the first three months of construction costs for Boeing’s main 787 Dreamliner assembly plant, which opened two years ago in North Charleston near Charleston International Airport.

History of Secrecy

In a rare, special session in October 2009, the General Assembly approved – without allowing prior public discussion – part of the initial incentives deal for Boeing. With interest, the $270 million bonds will cost S.C. taxpayers at least $360 million over 15 years.

The Nerve previously estimated the total state and local taxpayer cost of the initial incentives package to be at least $500 million.

The latest $120 million bond package for Boeing was introduced in a bill sponsored by Leatherman – a key player in the initial Boeing incentives deal – on April 9; approved by both chambers in uncharacteristic blazing speed; and signed into law by Haley just two weeks after it was introduced.

The Nerve reported last month that neither Haley nor Hitt or other Commerce officials had publicly released details on how the $120 million will be spent, though Sen. Paul Campbell, R-Berkeley and a JBRC member who said he was involved with some of the early negotiations on that bill, revealed that:

  • $12.5 million would be used to buy approximately 320 acres of Charleston International Airport property, located across from Boeing’s existing aircraft assembly plant, from the Charleston County Aviation Authority, which owns the airport property;
  • Most of the bond proceeds would be used for site infrastructure improvements to allow for the construction of at least one new building; and
  • The state or some state entity will own the land until the bonds are paid off.

The Charleston County Aviation Authority owns the 240 acres where the existing Boeing assembly plant, which covers the equivalent of 11 football fields, is located, and leases it to S.C. Public Railways, a division of Commerce, which subleases it to Boeing, according to information provided earlier to The Nerve by the BCB. Commerce officials declined repeated requests by The Nerve last month for details of those lease agreements.

‘Non-Vertical Investment’

At last Wednesday’s meeting of the Joint Bond Review Committee, Hitt, a former spokesman for BMW, appeared to be purposely vague about how the $120 million will be spent, carefully choosing his words.

“Our investment will be used – hang on,” he said, pausing, “for non-vertical investment. … For our part, we would acquire necessary properties and put those properties in condition in order to suit the needs of Boeing through its next phase.”

“Mr. Secretary, you say ‘non-vertical,’” Leatherman responded. “I guess that means non-buildings?”

“Correct,” Hitt replied. “Preparation of the land, which can include more than just the acquisition; it also can include any remediations or other things that may be necessary.”

Citing state law requiring the Commerce secretary to “certify” that “all of the particulars are in place” with regard to a company’s planned job-creation and investment-level goals, Hitt said, “I’m here to declare to you that in both counts, the Boeing project, Phase II as has been referred to, meets all of that criteria.”

Hitt, however, provided no specifics, though he told the committee, “We have negotiated with the company the particulars and are ready to move forward with the transaction.”

The state law authorizing the sale of $120 million in bonds for Boeing requires the company to invest at least $1.1 billion and create 2,000 jobs.

In a summary sheet provided by Commerce for Wednesday’s meeting, the agency said the bond proceeds would be used by S.C. Public Railways to “acquire real property” and for “development and mitigation associated with the property,” though the location of the property and other details were not revealed.

According to summary sheet, Public Railways would lease the property for “nominal consideration for term(s) not to exceed 50 years,” and that Commerce “anticipates that the lease will include an option for Boeing to purchase the property.” Details of the proposed lease have not been released publicly.

Hitt in his June 3 letter said he would ask the JBRC to “(r)eview and recommend the acquisition of real property by Public Railways to support Boeing’s Phase II expansion.” At its Wednesday meeting, the committee didn’t identify the land deal by name, though after a short, secret meeting on an announced “contractual matter for the Department of Commerce,” Sen. Harvey Peeler, R-Cherokee and a committee member, made a successful motion that repeated some of the language in Hitt’s letter.

“I move that the Joint Bond Review Committee give favorable review and recommend that the Department of Commerce be authorized to undertake the proposed property acquisitions, subject to satisfactory due diligence,” Peeler said, reading from a prepared statement. “Information about the acquisition will be made public after final completion of the agreements and conclusion of the due diligence associated with the real property acquisitions.”

The summary sheet provided by Commerce also said the $120 million in bonds would be charged against the state’s 5 percent, general-obligation debt limit, though a breakdown of the estimated bond interest costs for the project – which likely will total in the millions – was not provided. The bonds would be split up to cover expenditures over three periods starting in July and ending in December 2014, according to another document.

None of the eight lawmakers present for Wednesday’s JBRC meeting – Sens. Leatherman; Peeler; Billy O’Dell, R-Abbeville; and Thomas Alexander, R-Oconee; and Reps. White; Gilda Cobb-Hunter, D-Orangeburg; Liston Barfield, R-Horry; and Kenny Bingham, R-Lexington – had any questions about the bonds before their unanimous vote recommending that the BCB issue the bonds.

Absent from the meeting were Campbell and Rep. Chip Limehouse, R-Charleston.

The Nerve on Friday sent a list of written questions to Hitt, Commerce spokeswoman Amy Love, Public Railways President and CEO Jeff McWhorter, and Boeing’s South Carolina spokeswoman Candy Eslinger requesting specifics on where the Boeing expansion project will be located, how the bonds will be used, terms of the proposed land lease, and if the state would face liability for any environmental damage on the affected property during the lease period.

Only McWhorter responded, though he referred all questions to Love.

Investigative Reporter Curt Olson contributed to this story. Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and on Twitter @thenervesc.