SC Commerce still hiding the Juuls

March 4, 2020

Investigative Reports

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By RICK BRUNDRETT

The S.C. Department of Commerce won’t reveal the average wage of workers at the new Juul electronic-cigarette assembly facility in Lexington County, though a $500,000 state grant was approved last year for the project.

But Lexington County provided the average annual wage of the promised 520 jobs – $43,407, increasing to a projected $47,225 by the fifth year – when The Nerve requested it this week.

Besides wage information, Commerce also blacked out – over The Nerve’s objections – the following information in a May 2019 cost-benefit analysis of state and local incentives that could be provided to Flextronics America, a contractor for Juul:

  • A breakdown of the total projected value of building improvements, machinery and equipment making up the required minimum $22 million investment for the $500,000 grant;
  • Total projected payroll, both direct and indirect;
  • Estimated property taxes generated with the project.

In a separate “performance agreement” for the grant, Commerce even redacted the name and title of the Flextronics executive who signed the contract.

In contrast, Lexington County provided unredacted county incentives agreements with Flextronics and Juul without requiring The Nerve to submit a formal open-records request. The documents identified company executives who signed those agreements and other former top South Carolina officials involved in the negotiations, including:

  • Former S.C. Gov. Jim Hodges, an attorney who represented Juul Labs as the president/CEO of the McGuireWoods Consulting firm in Columbia. The firm also provided three state lobbyists for Juul last year, State Ethics Commission records show.
  • Burnie Maybank, who represented Flextronics America as an attorney with the Columbia-based Nexsen Pruet law firm. Maybank is a former two-time director of the S.C. Department of Revenue.

The county agreements, along with property tax projections from the Central SC Alliance, a Columbia-based regional economic development organization that annually has received funding from Commerce, also show that:

  • Juul and Flextronics would save millions in property taxes under separate, 30-year, fee-in-lieu-of-taxes (FILOT) agreements covering the project site on Metropolitan Drive near Columbia Metropolitan Airport. For example, the total 30-year savings if Juul invests a minimum $102 million in machinery and equipment is projected at $12.7 million – a 40.5% cut from an estimated $31.3 million in standard property taxes that would have been applied over the period.
  • Besides fixed property tax and lower property assessment rates over the 30-year period, both companies would be eligible for further taxpayer-backed savings, known as “special source revenue credits.” Juul, for example, would receive an estimated total of nearly $1.3 million in those credits in the first five years of its FILOT agreement.
  • In addition to hitting the minimum investment targets, Flextronics and Juul have to create at least 510 and 10 jobs, respectively, over a five-year period to receive their tax breaks.

The Nerve over the years has repeatedly pointed out Commerce’s lack of transparency related to state incentives agreements, typically approved by the S.C. Coordinating Council for Economic Development (CCED), an 11-member panel made up of the heads or board chairpersons of state agencies involved with economic development, and chaired under state law by Commerce secretary Bobby Hitt.

The CCED last June approved the $500,000 “set-aside” grant to Lexington County to assist Flextronics with building improvements for the Juul project, records show.

The S.C. Freedom of Information Act (FOIA) allows, though it doesn’t require, public agencies to redact certain information from public records, including “confidential proprietary information provided to a public body for economic development.” What is considered “proprietary” isn’t defined.

Asked if Commerce relies solely on a company’s interpretation of that law in making redactions, agency spokeswoman Alex Clark in a written response last week said the department “routinely enters into nondisclosure agreements”; and that certain incentives agreements “also may contain provisions informing the companies that Commerce and the Council (CCED) are subject to FOIA, and instructing companies to identify information the company may deem to be proprietary.”

But she added, “Notwithstanding these agreements, the ultimate decision of whether certain information may be withheld as exempt under FOIA is Commerce’s.”

In a Jan. 28 letter to The Nerve, Clark said besides issuing the $500,000 grant, the CCED last May approved Flextronics for job development credits (JDCs), which are rebates of a portion of employee wage withholdings, though the company at the time hadn’t finalized an agreement for the credits. In her response last week, she said that agreement was still pending.

Flextronics, commonly referred to as “Flex” and based in San Jose, Calif., could receive up to $5.8 million in JDCs and another $3.1 million in corporate job tax credits over a 15-year period, according to the cost-benefit analysis provided by Commerce.

The analysis projected a total of $16 million in “public costs” over the period, though it also estimated that total “income benefits” would be 36 times greater – a typical conclusion when state incentives are doled out.

Smoky Future?

San Francisco-based Juul made national news in recent years over allegations that it marketed its e-cigarettes to minors; the Trump administration recently announced a ban on certain flavored e-cigarettes. Asked if those events would affect Juul’s Lexington County operation, Flextronics spokeswoman Kyra Whitten in a written response Tuesday said only that “we wouldn’t speculate on potential impacts of regulatory policy.”

Whitten noted the local facility has operated since 1998 and “serves multiple industries with a wide array of manufacturing and logistics services.”

Last week, S.C. Attorney General Alan Wilson announced that South Carolina had joined a multi-state investigation of Juul Labs’ marketing and sales practices. Asked about the potential impact of that development on state funding for local operations, Whitten replied, “We are unable to further comment at this time.”

Presented with the same question, Clark in an email Tuesday replied, “S.C. Commerce is not able to speculate on how, if at all, the South Carolina project may be impacted.”

Under the agreement for the $500,000 state grant, Flextronics must invest at least $22 million and create a minimum 510 full-time jobs by June 6, 2024. When the grant took effect last June 6, the company employed 230 workers at the project site, according to the agreement.

Clark said if Flextronics doesn’t hit those targets, it would have to repay a portion of the grant, based on a formula. But as The Nerve previously has revealed, the CCED has lowered initial job creation and investment requirements for companies receiving taxpayer-backed incentives.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-254-4411 or rick@thenerve.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

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