South Carolina Fails at Transparency in Incentives Deals, Report Says

April 2, 2013

Investigative Reports

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Secret ReportsWhen it comes to transparency of taxpayer-backed incentives for business projects, the Palmetto State received an “F” in a recently released study by a national nonprofit consumer group.

In the March 26 report by the Boston-based United States Public Interest Research Group (U.S. PIRG), Eric Ward, spokesman for the S.C. Comp­troller General’s Office, said state law “shields from disclosure certain information related to state economic development efforts,” in­cluding “dollar amounts of economic development tax credits.”

“Expendi­tures to companies – whether through contracts, economic development subsidies or other means – should be public information, and state leg­islators should strike down laws that prohibit this transparency,” states the report titled, “Following the Money 2013: How the 50 States Rate in Providing Online Access to Government Spending Data.”

Since its inception in January 2010, The Nerve has reported extensively about the secrecy surrounding state incentives deals. The South Carolina Policy Council, the parent organization of The Nerve, established a reform agenda last year that includes bringing transparency to the incentives process.

South Carolina improved its overall government-spending transparency score to a “C” in this year’s U.S. PIRG study, up from a “C-“  in 2012.

The organization wants taxpayers to have access to economic development data from an online state database that reveals both  “projected public benefits” and “actual public benefits” for each project that state officials negotiate with taxpayer dollars.

That information is not available in South Carolina, but could have been had the S.C. General Assembly passed S. 206.

The bill, sponsored by Sen. Tom Davis, R-Beaufort,  was introduced in the 2011 legislative session but never made it out of the Senate Finance Committee, chaired by Sen. Hugh Leatherman, R-Florence and a key player in the huge incentives deal to bring a Boeing assembly plant to North Charleston. The Nervehas estimated the taxpayer cost of the Boeing project to be at least a half-billion dollars.

Data compiled from the S.C. Department of Revenue and the Board of Economic Advisors reveals the affection state leaders have for economic development incentives.

“In 2010 (the latest year on which the state Department of Revenue provides data), South Carolina gave out $469.4 million in individual income tax credits, $67.8 million in job development or retraining credits, and $143 million in corporate income tax credits – not counting the $1.5 billion in corporate income tax credits that were carried over from previous years,” the South Carolina Policy Council recently reported. “And according to the latest data from the BEA, during the current fiscal year the state will hand out a massive $3 billion in sales tax exemptions.”

DOR spokeswoman Samantha Cheek did not respond to a written question from The Nerve about her agency’s data. The S.C Department of Commerce also didn’t respond to an email from The Nerve.

The U.S. PIRG has produced a government-spending transparency report each March in recent years, adding transparency of economic-development subsidies and grants as a category this year.

Some S.C. lawmakers see the need for more transparency in economic development programs.

The Senate has approved a Leatherman-sponsored bill (S. 262) that offers income tax credits to angel investors to aid “high-growth small businesses.”  The Senate amended the bill to require Commerce to produce a report for lawmakers that shows how angel investing produces more jobs in the state.

Sens. Davis and Shane Martin, R-Spartanburg and a co-sponsor of Davis’ failed transparency bill, pushed for the amendment. The bill awaits a hearing in the House Ways and Means Committee.

“Transparency is a good thing,” Martin said in an email response Monday to The Nerve. “I put my amendment on the angel-investors bill so we can have documentation on how it helps our state. Without this information, we don’t know if the tax credit is good or bad for the taxpayer.”

The U.S. PIRG may raise the transparency bar again in March 2014.

“Each year, we take a full scan of best practices around the country before updating the scoring criteria. We send the state officials an inventory of what we are looking at in early January, and give them the chance to respond, update, or correct our potential mistakes,” Phineas Baxandall, senior analyst for the U.S. PIRG, wrote in an email response Friday to The Nerve.

The organization awarded letter scores to states based on compliance with criteria on each state’s primary financial-transparency website. The group examined the site at the S.C. Comptroller General’s Office; the Palmetto State joined 21 other states in the “C” range, including Georgia and Tennessee.

Virginia earned a “B-“ and North Carolina, a “D,” the 80-page report shows.

Texas took the top score of the seven states in the “A” range, while nine states earned a score in the “B” range.

U.S. PIRG reported that several states report savings from their respective financial-transparency websites.

“The savings come from sources big and small – more efficient government administration, more competitive bidding for public projects and less staff time spent on information requests, to name just a few – and can add up to millions of dollars,” the report states. “Harder to measure is the potential abuse or waste that is avoided because govern­ment officials, contractors and subsidy recipients know that the public will be looking over their shoulders.”

Meanwhile, some states have gone beyond the U.S. PIRG criteria. For example, Illinois created a tool called “Open Book,” which allows citizens to explore potential “pay-to-play” practices by comparing government contracts with campaign contributions made by businesses that received the contracts.

Olson can be reached at (803) 254-4411 or curt@thenerve.org. Follow him on Twitter @thenerve_curt and @olson_curt. Follow The Nerve on Facebook and on Twitter @thenervesc.