Truths about secret incentives deals revealed – 10 years later

June 24, 2020

Investigative Reports

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By RICK BRUNDRETT

All we wanted was the truth.

Over the past several decades, South Carolina legislators and governors, as well as local governments, collectively have given away billions in incentives to countless corporations. Cash, land, tax breaks and free job training have been thrown at companies in exchange for the promise of jobs.

Taxpayers in South Carolina have more than upheld their end of the deal. The General Assembly has borrowed much of the money to help select companies, forcing taxpayers to pay back hundreds of millions of dollars over many years.

But did the politicians who made these deals possible keep their promises of more jobs and investments – in essence, greater prosperity?

That’s the basic question The Nerve has been asking since 2010.

The Nerve repeatedly has asked state and local officials for details on largely secret deals giving taxpayer-back incentives to companies locating or expanding in South Carolina. We wanted to know the actual number of jobs created and how many South Carolinians were hired, what each company’s investment really looked like, and the true costs to taxpayers.

The S.C. Department of Commerce – the agency primarily responsible for crafting the incentives deals – wouldn’t simply give us the answers. In fact, the agency wouldn’t release any incentives agreement without a formal Freedom of Information Act request. In some cases, it took over a year to get documents.

And when Commerce finally released the records, much of it was blacked out – even basic things such as the average pay for new workers and the names of company officials who signed the deals.

We also asked the departments of Commerce and Revenue over the years how they verified new jobs and investments that companies promised to receive incentives. We were told the companies provided the required paperwork and were being closely monitored by the state agencies.

But a new report by the S.C. Legislative Audit Council (LAC), which is the General Assembly’s investigative arm, shows that Commerce and Revenue officials hadn’t always given us – and more importantly, the public – straight answers.

Among other things, the 93-page report shows that Commerce routinely hasn’t collected adequate new-jobs records from companies receiving a major tax break, while the Department of Revenue (DOR) hasn’t done many required follow-up audits.

Simply put, those agencies have failed to properly track the actual number of created new jobs.

Ultimately, the 170-member Legislature is accountable for the massive corporate-welfare packages liberally handed out over the years – and the secrecy surrounding those deals.

Lawmakers have created or expanded corporate tax breaks and taxpayer-funded IOUs. They have approved spending millions more annually to directly benefit typically large national or international companies. And they have ensured that key details of major deals would be kept secret.

Take Boeing, for example.

The Nerve launched publication in January 2010 with a week-long investigative series on the incentives deal allowing the aerospace giant to build an aircraft assembly plant in North Charleston. At the time, politicians publicly touted it as the single-largest, job-creation and investment project in state history.

Lawmakers rammed through a massive incentives package for Boeing in a special session in October 2009 without allowing any advance public input on the deal that ultimately will cost taxpayers hundreds of millions of dollars. Top-ranking or key legislators in the negotiations declined our requests then for related records, citing a special provision in the state open-records law exempting lawmakers’ “working papers.”

After the South Carolina Policy Council – the parent organization of The Nerve – criticized the incentives and how the Legislature passed them, longtime Senate Finance Committee chairman Hugh Leatherman and then-Senate president pro tempore Glenn McConnell pushed backed in a five-page letter distributed to news outlets statewide.

The letter, among other things, claimed lawmakers were provided a cost-benefit analysis of the incentives deal before voting on it, though The Nerve randomly contacted 10 legislators from both parties who said they didn’t receive the analysis.

More than two years later, The Nerve asked then-Gov. Nikki Haley – who joined Boeing’s board of directors last year and resigned in March – and Commerce secretary Bobby Hitt, who was appointed by Haley in 2011, for updated jobs numbers with the project.

Haley’s and Hitt’s offices didn’t respond. A DOR spokeswoman said then in a written response that the agency “does not retain this information.”

“We suggest contacting Boeing directly,” she added.

The agency, however, is responsible for verifying new jobs that companies seeking major tax credits claim they created.

Blacked out numbers

Besides Boeing, the state has doled out generous incentives packages to other big companies, including, for example, car makers BMW and Volvo; tire manufacturers Bridgestone, Continental, Giti and Michelin; internet retail giant Amazon; and more recently, the NFL’s Charlotte Panthers and electronic-cigarette maker Juul.

Commerce routinely blacked out certain information in the agreements that The Nerve sought, such as the estimated value of land, new buildings, machinery and equipment at the plant site. The agency also usually refused to reveal average pay or wage levels for the promised new jobs.

Commerce’s standard excuse for the redactions was that those records were considered “confidential proprietary information” under the state’s open-records law. In the agreements we received, the companies typically were allowed to determine what information would be kept secret.

The S.C. Freedom of Information Act doesn’t define “proprietary” – one of the law’s many weaknesses.

The latest Legislative Audit Council report recommends that Commerce and the state Coordinating Council for Economic Development (CCED), made up of the heads or board chairpersons of 11 state agencies that deal with economic development, require companies receiving state grants to report wage levels of the created jobs.

It also recommends that Commerce and the CCED, whose members include the directors of Commerce and Revenue, annually report actual new job and investment numbers, with comparisons to initial projected figures.

State officials have admitted to The Nerve they don’t keep actual jobs numbers.

In January 2012, for example, the Governor’s Office and Commerce told us they didn’t have any records to verify the approximately 20,000 new jobs that Haley claimed her administration had recruited in her first year as governor.

Incentives deals routinely are approved by the CCED, which by law is chaired by Commerce secretary Hitt, a former BMW spokesman.

As The Nerve has repeatedly pointed out, the CCED, which is administered by Commerce in the agency’s headquarters in a high-rise office building across the street from the State House, typically discusses incentives projects in secret.

The LAC report noted that Commerce staff members will provide incentives applications to only those companies “for which the (Commerce) Secretary will recommend approval.”

Confidential, incomplete records

Commerce officials have told The Nerve that companies receiving incentives must submit payroll and property tax records to verify new job and investment numbers. But when we asked in 2013 for quarterly job-creation reports for a large expansion project at BMW, the agency declined to provide the documents.

The reason?

Those records were considered “confidential taxpayer information,” a Commerce spokeswoman told us in a written response. When we asked how many total jobs the company planned to create with the project, she replied, “On all employment figures, I’ll defer to the company.”

Commerce and DOR officials over the years also have declined our written requests for the amounts of job development credits (JDCs), which are rebates of a portion of employee wage withholdings, claimed by specific companies under their respective incentives agreements.

It’s a major and popular tax break, with a total of more than $678 million in claimed credits statewide from fiscal 2011 through last fiscal year, DOR records show.

In refusing to release details about JDCs claimed by specific companies, officials routinely cite a state law banning the public release of taxpayer records, though that particular statute doesn’t list the section dealing with JDCs.

Under state law, the CCED must certify to the DOR that a company has met minimum job-creation and investment requirements to claim JDCs. The law requires those businesses to make their “payroll books and records available for inspection” by the CCED and DOR. Payroll books typically contain detailed information, such as the number of hours worked by each employee in a pay period.

But the LAC in its report said businesses have submitted “different, non-uniform forms” – sometimes just simple employee lists. It recommended that additional verification be done to confirm the number of new, full-time jobs.

The LAC also found that the DOR hasn’t done many audits of JDCs – just 15 to 29 audits annually over the past three years, compared to an average of 138 to 166 companies yearly claiming JDCs – as required by law at least once every three years for companies claiming more than $10,000 in credits annually.

DOR officials repeatedly over the years have declined to release any audits or related information to The Nerve.

Their reason?

“As you are aware, there are laws that exempt the (department) from disclosing our auditing practices/procedures,” a DOR spokeswoman said in a 2010 written response.

She couldn’t, however, cite any laws when asked to do so.

Lowered incentives requirements

Since its beginning, The Nerve has reported about failed companies receiving incentives. Commerce stresses that incentives agreements typically have “clawback” provisions, which require companies to repay all or part of state grants if they failed to meet job or investment requirements.

From calendar years 2009-18, the CCED awarded 625 state grants out of three state funds, or combinations of those funds, totaling $489.5 million, according to the LAC report.

The CCED, however, has been lax in enforcing “clawbacks” when companies don’t hit their required job or investment targets.

In 2018, The Nerve reported, based on Commerce records, that 14 companies collectively had repaid nearly $7 million in state grants since 2015, including four companies that closed plants in the counties receiving the funds.

But what Commerce officials couldn’t tell us then was exactly how many times the CCED in recent years had lowered job or investment targets so that repayment of the grants wouldn’t be necessary. We revealed in 2018 that Element TV in Fairfield County had to create far fewer jobs than originally promised under a $1.3 million state grant.

The LAC in its review found that the CCED could have issued a total of nearly $17 million in clawbacks from Jan. 1, 2009, through Sept. 30, 2019, though because of the council’s “ability to waive or reduce repayment amounts,” the overall repayment amount dropped to $9.2 million, of which $7.8 million had been repaid as of Feb. 21 of this year.

The LAC recommended that Commerce annually begin publicly reporting the amount of clawbacks issued and repayments by grant recipients.

South Carolina Policy Council analysts Hannah Hill, Bryce Fiedler and Kelly Brady contributed to this story. 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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