The Giveaway Game


South Carolina is the fiercest aggressor in the interstate jobs war, offering unprecedented subsidies to lure giant corporations. But in its zeal to attract business, the state has jeopardized its fiscal health. Critics have long warned that South Carolina's reckless incentives program would someday require a bitter reckoning.

That day has arrived.

In the most recent war between the states, South Carolina claims to be winning. In this economic civil war, victory presumably goes to the state that gives away the most tax dollars to lure big business to the state.

It is impossible to measure the toll this war has taken on our state, because all the costs aren't disclosed. Critics of this new interstate rivalry argue that winning this war means losing the battle for good jobs and accountable economic development.

"Industries are extremely sensitive to competitors learning the exact nature of the project," said Wayne Sterling, Chief of Staff of the Department of Commerce. "Due to this confidentiality requirement, the state cannot publicize specific costs or other details, except what is released by the company."

Commerce doesn't tally the impact incentives take on local and state budgets. "We are the salesmen and cheerleaders to recruit business," said Helen Munnerlyn, spokesperson for the Department of Commerce. "The Department of Revenue is responsible for accounting."

There are over 50 different categories of tax breaks used by the business cheerleaders at Commerce. The breaks range from credit for child-care programs and hiring welfare recipients to expanding airport facilities. The Department of Revenue keeps track of payments after a deal is negotiated by Commerce. The property, infrastructure and local tax deals Commerce negotiations are not recorded or tracked by any state agency state.

"Counties don't keep a list of revenues lost to incentives," said Robert Croom, general counsel for the S.C. Association of Counties . "With some counties being well off and others hurting, the baby often gets thrown out with the bath water, [when it comes to a lack of standards for incentives]."

The state Association of School Boards recently complained that business tax incentives are defunding education. Local school boards are not required to be consulted when counties cut deals for business to pay a reduced "fees in lieu of taxes." Some of these tax breaks can last 40 years.

"When newly arriving corporations get breaks, the tax burden shifts, and that means higher taxes on workers and on existing businesses, especially small businesses."

Greg LeRoy,
Good Jobs First

"Money not collected is the same as writing a check," said Greg LeRoy of the Washington-based project Good Jobs First.

"Somebody has to bear the cost of growth resulting from new businesses," he said. "When newly arriving corporations get breaks, the tax burden shifts, and that means higher taxes on workers and on existing businesses, especially small businesses."

LeRoy's group has researched corporate incentives nationwide and provides information to citizens' groups and politicians concerned about accountability in economic development. (Visit .)

A recent study by Clemson University's Strom Thurmond Institute warned that South Carolina's corporate incentive program was a "net loss," but nothing has been done to rein in the state's corporate welfare programs.

A number of House members are looking at ways to introduce greater accountability into the state's incentive programs.

Rep. Tim Wilkes (D-Fairfield) is an accountant who is working with the Small Business Association to develop legislation that would open Commerce's books, recoup bad investments and share tax breaks with small businesses.

"The playing field between small and big businesses needs to be leveled," Wilkes said. "Small businesses provide 75 percent of the jobs and the majority of tax revenue. They deserve the type of support we are giving to the large corporations.

"Unlike these corporations, small business profits stay in South Carolina," Wilkes said. "Small businesses are not well-enough organized and don't have the money to exercise the necessary clout to get to the table. I know how hard it is for small businesses to borrow money, especially minority businesses."

Munnerlyn agrees that Commerce doesn't "do all sectors of the economy; we focus on manufacturing, research and development, distribution and high tech. We don't do retail or services." The most recent report from the state Employment Security Commission announced that manufacturing was the only sector to have lost jobs -- 4,100 in 1999 -- and makes up only 20 percent of jobs.

"South Carolina's sizzling economy testifies to the state's exceptional business advantages," boasts the Commerce web site, "including: pro-business climate, highly cost-competitive environment in terms of labor, land and facility operation and highly responsive government and regulatory environment."

What Commerce means is that low wages and low union membership are major inducements to lure businesses. According to the most recent federal calculation on income, the "sizzling economy" hasn't done much to help the average wage earner in South Carolina. Census bureau statistics indicate that the average wage for those earning less than $50,000 a year has not gone up in the past decade.

"I remember in my 9th grade civics class learning that we were a nation of shopkeepers," Wilkes said. "It saddens me that we are now a nation controlled by big corporations."

Rep. Tim Wilkes

Currently, incentive deals negotiated by Commerce require that wages meet the county per capita average income for 1997. Since the per capita income in half the counties in the state is below the federal and state poverty level, this means a corporation could qualify for tax incentives by offering a minimum wage.

The state "Job Tax Credit" law has lower wage requirements as the number of employees goes up. A company with 75 jobs has to pay twice the average wage in the county. A company that creates more than 250 jobs has no minimum wage requirements.

While many states have clear laws regulating breaks corporations receive, in South Carolina, "each (deal) is negotiated separately," according to Sterling.

No South Carolina law requires a company to repay incentives if it doesn't deliver on its promises. Sixteen states have "claw-back" provisions that require a company to meet promises within a certain period or pay back with interest any incentives it received.

Wilkes offers a cautionary tale about a business that located "with great fanfare" in Fairfield County. "The company promised 120 new jobs if the county would provide sewer, water and roads to the rural area where they planned to locate," Wilkes said.

"Ten years after providing these services, there is no factory and never were any jobs created," he said. "The company is now trying to sell the land -- whose value was increased 300 percent by the addition of county services. There is no law on the books that would allow the county to recover its investment."

Another questionable practice in South Carolina's incentives war is the use of consultants who deal with Commerce on a contingency fee. South Carolina ethics laws prohibit contingency fees, percentage fees or bonuses from being paid to anyone attempting to influence legislation or regulations. If you are a lobbyist, for example, the company you represent cannot pay you a bonus if a bill they want passes the legislature.

"Our laws are limited in what we consider lobbying," said Herb Hayden, director of the state Ethics Commission. "[Incentives consultants] don't have to register as lobbyists if they aren't dealing with the promulgation of regulations or statutes. We have looked at legislation that would include activities like [incentives lobbying], but the Commission has never been able to agree on language."

Since incentives consultants are not registered lobbyists, there is no way of accounting for their fees and no law to prevent them from getting a percentage of whatever tax breaks they deliver for their clients. Contingency fees have been criticized as unethical kickbacks that raise taxpayer costs, cut benefits for employers and could induce a consultant to steer a client to an unsuitable location just to obtain a bigger paycheck.

Fantus Consulting, a facility and location consulting firm, negotiated a $150 million tax break for BMW to locate in Greenville. This deal has been cited by the Baltimore Sun as the most extreme example of lucrative contingency fees. While 30 percent has been speculated, neither BMW nor Commerce would comment on the amount Fantus made for brokering the deal.

Under state law, taxpayers are prevented from knowing what share of their subsidies to BMW went to Fantus. In fact, most of the corporate welfare packages worked out by Commerce, as well as the total amount of tax revenue that the department has doled out to corporations, is kept secret from the taxpayers who foot the bill.

"I remember in my 9th grade civics class learning that we were a nation of shopkeepers," Wilkes said. "It saddens me that we are now a nation controlled by big corporations."

Home, Please

© Copyright by POINT, 2000