Who Broke a Promise on the Amazon Deal?

May 3, 2011

Investigative Reports

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The NerveSouth Carolinians, especially in the Midlands, have heard a lot about Amazon.com closing the window on a distribution center project in Cayce last week because the state supposedly failed to deliver on a promised sales tax collection exemption.

But, did the state actually “promise” to grant the online retail giant an exemption from collecting sales tax from South Carolina customers, as has been widely asserted?

Not so much – at least, not according to the state’s written incentives agreement with Amazon for the company pledging to build the facility here.

Indeed, the plain language of the agreement serves as a reminder that there’s a difference between promising to try to do something – in this case, nothing less than passing a law – and promising to actually get it done.

But, supposing some state official or officials made such a pledge – you know, a “we’ll git ‘er done” over a pricey steak dinner on an economic development wooing mission – who was it?

And who would be, shall we say, so confident as to make such a guarantee?

And would Amazon, a multinational company and the largest e-commerce broker in the United States, really be so, um, optimistic as to consider it a done deal?

These questions help bring clarity to a controversial economic development project, brokered under former Gov. Mark Sanford and then-Commerce Secretary Joe Taylor, as well as larger issues surrounding it.

For his part, Sanford was tight lipped about the alleged promise to Amazon when The Nerve asked him about the matter in a phone interview last week.

Regardless, the clarity the Amazon questions provide relates more to what is unknown than what is known.

That’s because, from cradle to grave, such economic development deals at both the state and local levels are negotiated, executed and enforced largely in secret. That secrecy prevents taxpayers, on whose behalf the deals are made, and anyone else from vetting the agreements and holding the parties that make them accountable.

“Compared to other ways government interacts with the private sector, such as public procurement, states have traditionally been more resistant to the disclosure of data on economic development subsidy recipients,” says a December 2010 report by Good Jobs First, a nonprofit, nonpartisan research group based in Washington, D.C.

The report graded the states on how well they disclose economic development subsidies online. South Carolina’s grade: F.

Twelve other states also received Fs.

On the front end, talks among government officials and company representatives take place behind closed doors under the guise of economic development recruitment.

Then, after a deal gets inked, weighing its potential costs and benefits is difficult because of several factors. Perhaps the biggest reason is so-called “proprietary” company information.

For example, in releasing copies of incentives agreements, the S.C. Department of Commerce often blacks out even such basics as a firm’s capital investment in a project. The Nerve has reported extensively on this practice by the agency, including here.

“Business groups have often claimed, with no empirical basis, that such transparency would result in the release of proprietary corporate information,” says the Good Jobs First report. “Some public officials have worried, again without an empirical basis, that disclosure would cause their state or locality to be branded as unfriendly to business, causing a loss of deals.”

On the back end, lastly, assessing whether taxpayers get their money’s worth also is next to impossible.

That’s because, in a cloak of confidential taxpayer information, state law shrouds details like how much money a company receives in job tax credits and how many positions it reports having created in order to receive those subsides.

Some state lawmakers are concerned about the secrecy of economic development deals. Two bills sponsored by Republican Sen. Tom Davis of Beaufort, S. 832 and S. 206, would go a long way toward ending it.

As far as the Amazon project is concerned, meanwhile, at this point it appears to be down but it is not necessarily out.

Last week, the S.C. House voted overwhelmingly, 71-47, against giving the company a five-year sales tax collection exemption for a ginormous distribution center Amazon had been building in Cayce. The exemption would apply to purchases by South Carolinians only.

The company subsequently said it was pulling the plug on the project, which supposedly would have created 1,249 full-time jobs along with hundreds of other seasonal jobs.

The state’s incentives agreement for the facility would cost taxpayers an estimated nearly $40 million over 10 years, plus an unknown amount of lost property tax collections via a local fee-in-lieu-of-taxes arrangement, The Nerve reported earlier.

Those millions apparently are not enough for Amazon to seal the deal. The company wants the exemption, too.

The General Assembly still could approve it before the scheduled end of this year’s legislative session in June. Bills to that effect are pending in both the House and Senate: H. 4091 by Rep. Kenny Bingham, R-Lexington; and, respectively, S. 808 by Sen. Nikki Setzler, D-Lexington.

But because of a May 1 “crossover” deadline related to moving legislation, the exemption faces a much more difficult road to passage this year. In addition, the House’s lopsided vote made a strong impression on lawmakers.

“I do,” Sen. Larry Martin, R-Pickens and a senior member of the Senate, said when asked whether he thinks the exemption is dead.

In any event, much warning and hand wringing about the state breaking a “promise” preceded and followed the House’s action.

Said Lewis Gossett, president and CEO of the South Carolina Manufacturers Alliance, in a guest column in this week’s Columbia Free Times headlined “South Carolina Must Keep Its Promise”:

“Make no mistake – the outgoing administration promised Amazon reinstatement of a just-expired law that did not require online retailers to collect sales taxes from South Carolina customers. Secretary of Commerce Robert M. Hitt has said so.”

In another example, Lexington Mayor Randy Halfacre, who also is president and CEO of the Greater Lexington Chamber and Visitors Center, penned an opinion piece published April 18 in The Statenewspaper. Its headline: “Why we should keep our promise to Amazon.”

If a sales tax collection exemption was in fact promised to the company, though, it evidently was done so verbally, not in writing.

The state’s incentives agreement with Amazon says the Department of Commerce “agrees to use its good faith, best efforts to obtain legislation to renew and extend” the exemption.

That’s it. Nothing more.

“I’ve actually seen a copy of it,” Martin says. “It wasn’t a promise [to obtain the exemption].”

Then perhaps Sanford, Taylor or someone else from the previous administration made such a pledge?

Sanford would not answer that question when The Nerve posed it to him last week. “I think the appropriate first step is to call Joe Taylor, since he was the point person on all economic development incentive deals,” the former governor said.

Pressed on the matter, Sanford said he did not want to undercut Taylor and would respond accordingly regarding any member of his team. He added that he would “be glad to answer any questions about it” after Taylor has an opportunity to do so. “But you’ve got to talk to him first.”

Two phone messages for Taylor and an email to him last week were unreturned.

Commerce spokeswoman Kara Borie also did not answer a phone message and an email.

Responding to another question, Sanford said no one else has tried to contact him about the Amazon issue.

But even if someone did pledge to the company that the Legislature would pass the exemption, who could be counted on to deliver on such a commitment? And would Amazon, lawyered and lobbied up and adept at negotiating state tax deals, really hang its hat on that?

Martin says he had breakfast with some House members the morning before the chamber shot down the exemption.

In talking with some of the representatives who later voted against it, the senator says they told him that they did not understand how Amazon could expect an outgoing governor and commerce secretary to obligate the Legislature to something with which it had nothing to do.

Martin also said that Amazon did not get to be the size company it is “by misunderstanding the nature of those types of agreements.”

So, who really broke its promise in this deal?

Investigative reporter Rick Brundrett contributed to this report.

Reach Ward at (803) 254-4411 or eric@thenerve.org