The unseen cost of buying jobs

September 22, 2017

Inside Insight

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This is economic development at its finest.

By BRYCE FIEDLER

Since it secured the Volvo manufacturing plant back in July of 2015, the state has been celebrating its achievement with promises of stellar economic growth and thousands of jobs for the Berkeley County area.

A spokesman for Berkeley County was asked if taxpayers would be feeling any effects from Berkeley’s multimillion investment. He responded, “I think the effect they’re going to feel is a lot of jobs coming to Berkeley County.”

However, there’s an often overlooked problem when states go full throttle towards economic development: Once they set their sights on a huge industry investor, there is apparently little they won’t do, or pay, to strike a deal.

Case in point: Hundreds of millions of tax dollars were used to incentivize Volvo to select South Carolina over its competitors.

Just exactly how much has the state budgeted for the project? The number continues to grow, but according to Berkeley County’s most recent financial report, it’s at least $200 million. And that figure doesn’t include the numerous other incentives that have emerged in the two years since the original deal was signed. The majority of those funds will come from state grants allocated through the economic development wing of the Department of Commerce.

Then, there’s Berkeley County. Berkeley has at minimum agreed to fund $18 million for the project. For perspective, Berkeley’s FY16-17 total General Fund only amounted to $69 million. It purchased the land to be used for the plant for $5 million, drawing those funds from the Water and Sewer Fund. This should signal an immediate red flag. Exactly what about “water and sewer” is related to purchasing of land to be used for an automobile plant?

Important infrastructure unrelated to the plant has also been sidelined. For instance, earlier this week the Berkeley County council “abandoned a discussion that would add a rural emergency service building”. Those funds will instead be used for projects related to the Volvo plant.

Even Santee Cooper is in the mix. When Berkeley agreed to spend up to $4 million towards the construction of Volvo’s manufacture center, it planned to borrow the money from state-owned utility Santee Cooper. That’s correct: Aside from providing power across the state, Santee Cooper is statutorily directed to promote economic development.

Santee Cooper also has the authority to loan money to other government bodies for the purposes of economic development. That money could be reinvested into the utility to keep rates as low as possible, but of course, for the state, economic development seems to always take priority.

So what did all of these entities expect in return for their enormous collective investment? The answer is 2,000 jobs.

That number is projected to grow since Volvo pledged to double its investment to $1 billion. Let’s hope it does, because after dividing the state’s $200 million investment for the initial deal, taxpayers were paying $100,000 per job. That’s over two years of a person’s annual median income in South Carolina.

This is what happens when government becomes starry-eyed with economic development. States and cities around the country engage in an all-out bidding war, each trying to outdo the other by offering the most lucrative tax incentives possible – all on the taxpayer dime. Budget meetings are held behind closed doors and an extra million or two is added for supplementary infrastructure. Eventually you’re moving dollars from one fund to another and using state utilities to loan counties money just to meet investment promises.

Corporations understand this. In fact, they expect it. And once Volvo realized they were in the driver’s seat, setting the terms of the deal, the state was just along for the ride.

  • Philip Branton

    Hmm……
    “… Corporations understand this. In fact, they expect it. And once Volvo realized they were in the driver’s seat, setting the terms of the deal, the state was just along for the ride…. ”

    Well, someone at Volvo and the “Exchange Club” need to review the history of “Fat Leonard”….

    “…” Fat Leonard” (Corporations) understand this. In fact, “Fat Leonard” expect it. And once “Fat Leonard” (Volvo) realized they were in the driver’s seat, setting the terms of the deal, the Navy Counterintelligence (state) was just along for the ride….! ”

    Solicitor David Pascoe understands” Fat Leonard ” and Jim Merrill and Boeing incentives to finance Iranian jet sales very well…… https://uploads.disquscdn.com/images/82a9eb151638a242a72521e41a55b5814394db4c9300e2208a01d43c174788f4.jpg