What Does Obama’s Budget Mean for South Carolina?
The president’s new federal budget is chalk full of wild assumptions and rhetoric.
Stating that the administration “steered the economy back from the brink of a depression,” the new budget will “change the way Washington does business.”
Well, much like when the stimulus numbers were fudged and found in phantom districts, this budget seems like more of the same from Washington.
In this fact sheet for South Carolina, the president’s budget claims to be a silver bullet for our troubles.
Apparently, 1.7 million families in South Carolina will receive a tax cut. A shocking number, considering that the latest census figures show only 1.7 million total households in South Carolina. Does that mean every single household gets a tax cut? A quite improbable and implausible scenario to imagine.
Just another example of made-up government figures meant to make their estimates sound better.
The fact sheet further claims that the budget will lead to “lower taxes, better teachers and classrooms, and important investments in our roads, highways, and airports.”
This is just more of the same from a president who has been all talk for his first year+ in office.
What can South Carolinian’s really expect from this budget? More federal spending, higher taxes, more debt for our children, and more local dependence on the federal government. As it stands, South Carolina’s $21 billion budget includes more than $7 billion in federal spending.
A Pig in a Hat is Still a Pig
A great way to dress up taxpayer-funded corporate giveaway is to wrap it in academic robes.
That’s what’s happening in the Upstate with the announcement that Clemson will give Golden, Colo.-based Proterra, Inc. $68 million to build an electric bus manufacturing plant in Greenville County.
How is this different from taxpayers giving millions to Boeing to build airplanes, or to Sembler to build a shopping mall, or to state and local government to give first $140 million, and as of last night another $150 million, to Innovista?
It’s not, but funneling a taxpayer giveaway through academia is shrewd politics. Wind turbines, hydrogen technology, a “research campus,” electric buses – if you can make it look like higher education, you can better camouflage such taxpayer-funded giveaways.
The $68 million electric bus announcement came yesterday at Clemson’s International Center for Automotive Research – the same night that the Columbia City Council voted to prop up Innovista with more than $150 million in taxpayer-funded corporate charity.
Innovista is another government boondoggle wrapped in the mantle of higher education. Innovista, the University of South Carolina’s 500-acre research campus, was supposed to attract private, high-tech corporations. After four years and $140 million in tax dollars, Innovista remains a virtual ghost town.
“Innovista has been a colossal failure and there’s really no way to sugar coat that,” Policy Council President Ashley Landess said last night in a WACH Fox television news report. “The whole point of this was to create jobs and attract lots of private capital investment; neither of those things have happened.”
Former Roche executive Don Herriott came on as director of Innovista Partnerships on Feb. 1. Part of his job, according to Innovista is “working with university, community and business leaders to advance the strategic plan for Innovista.” It would appear that the first order of business was to squeeze another $150 million out of taxpayers. Mission accomplished.
Politicians, Lobbyists and More Special Interest Deals
The Op-Ed below by Ashley Landess was published in the February 3 edition of The State. Yesterday the Senate Finance Committee approved legislation that would give real estate developer The Sembler Co. millions of dollars to build a retail mall in Jasper County.
Landess: Politically Driven Investments Hurt S.C. Economy
Suppose an investment broker pitched you a deal, but wouldn’t tell you what it was or how much it would cost you until after you committed. When you asked for an analysis of the project, the broker said it was too “secret” to reveal. And because he wasn’t sure what the total cost would be, he asked you for a blank check.
What if you had invested with this broker for 20 years, but instead of a payoff you had been given a long list of failed projects and excuses? Like the fancy “research park” he promised would attract big matching investments, but which failed to do so even after you’d invested $100 million. Or the newest “energy” industry plan, which he claims will be a big success someday, although it hasn’t produced any results yet.
Your broker’s latest great “deal” involves you giving up more than $100 million to finance a new mall. Sure, the economy is terrible and stores are going bust all over the country, but this broker says this one will be different.
Seriously: Would you still give this guy your money? Here’s the punch line: You already have. The broker is your state government.
For years, the politicians who run the government have invested in projects such as Innovista, the hydrogen fuel economy and most recently the Boeing deal. It may be tempting to rely on a few politicians to close the doors and negotiate deals that will make us all prosperous, but that simply doesn’t work. Instead, it distorts the free market and costs existing businesses and taxpayers their hard-earned capital.
We’ve learned a lot about South Carolina’s economic development strategy in the past several months. In Unleashing Capitalism, economists concluded that heavy-handed government planning has not created wealth and jobs in South Carolina. In 1994, the state invested around $32 million in incentives, but by 2007 that number jumped to $250 million. The result? In the 1980s, South Carolina’s economic growth was the 15th fastest in the nation. By the 2000s, it was the 12th slowest.
Despite billions in targeted incentives and government-driven economic development plans, South Carolina has the fourth-highest unemployment rate in the nation and the 46th lowest per capita income.
Politicians truly believe they can – and should – run the economy from Columbia. Worse is the secretive way in which they are deciding. Reporters for the S.C. Policy Council’s The Nerve found that the Boeing deal will cost far more than originally reported; bonds alone (with interest) will total around $400 million, and that doesn’t include all the tax breaks for the company. And taxpayers might not know all the details of the deal for another year.
To top it off, politicians approved a $100 million loan to Boeing out of our state’s “surplus” funds. We certainly weren’t told there were surplus funds when lawmakers were screaming about budget cuts last year, much less enough to front a loan to a multibillion-dollar company.
Amid questions about the true cost of the Boeing deal, the public might expect lawmakers to be more cautious about incentives. Instead, they want to give a wealthy developer who owns the Sembler Co. millions of dollars to build a retail mall in Jasper County. That doesn’t make sense when they’re also talking about raising taxes, forcing teachers to take unpaid furlough and exploring ways to make existing businesses pay for the Employment Security Commission debacle.
It’s tough to find a credible economist who argues that corporate giveaways lead to prosperity for the rest of us. In particular, there is a great deal of research showing the specific failure of retail tax incentives. College of Charleston economist Pete Calcagno concluded the Sembler deal would siphon jobs from existing companies and be unlikely to create any net economic gains for taxpayers. He asks a reasonable question: If Sembler is going to be such a success, why does it need our money to get started?
Unfortunately, there is a new business strategy in South Carolina: Hire lobbyists and consultants to get public money. We can’t blame the companies for practicing corporatism. But as investors, we should demand full public debate and thorough, independent economic analyses before another deal is passed. Furthermore, we are entitled to know if companies meet their promised obligations. Currently, there is little or no reporting by the state on how many jobs actually are created, or how all taxpayers fare as a result of these investments.
Deals made by a handful of politicians will never turn our state around. The only ones benefiting from their failed strategy are a few companies and the gaggle of lobbyists who are paid to influence them. Free-market capitalism is the only formula that has generated wealth in this country. If we want out of the economic mess our politicians got us into, then we need to get them out of the business of investing our money and insist on doing it ourselves.
Why Not Just Cut Taxes? – A Quick Take on H 4478
In a bill full of twists and turns, one of the more salient points to come out of H 4478 is the presumption that state-driven economic development is a fait accompli – and, under the current legislative leadership, that may very well be the case. Of particular note are amendments to: the tax code, in particular regarding job tax credits; as well as changes to the Enterprise Zone Act (EZA) of 1995 and the Economic Impact Zone Community Development Act of 1995.
Changes to the latter are particularly important in that they broaden applicable investment tax credits to include all qualifying manufacturing and productive equipment property – as opposed to just investments in communities affected by military base closures (§ 17-18).
In short, H 4478 would make the entire state an economic development zone.
The alternative, of course, is to make the entire state a free-market development zone, as detailed in Unleashing Capitalism. In other words, instead of continuing to pick winners and losers through tax credits and other such incentives, why not just lower taxes? In particular, the Legislature should cut the state’s highest-in-the-nation effective manufacturing property tax of 3.73 percent.
Members of the House Ways & Means committee will be discussing the bill tomorrow at 9 am.
South Carolina’s Failing Schools
From South Carolinians for Responsible Government:
“The annual list of South Carolina’s most persistently failing public schools has been released and is now online:
http://www.voiceforschoolchoice.com/2010/02/03/south-carolinas-worst-public-schools-2009-10-edition/
In late January, it was announced that hundreds of local public schools failed to meet minimal improvement goals set by state and federal officials, known as Adequate Yearly Progress (or “AYP”).
This list of the most persistently failing schools details those schools which have consistently failed to meet their annual goals, some for up to six years in a row.”
A Perfect Storm
In the movie A Perfect Storm forces of nature converge to create a gargantuan, destructive North Atlantic hurricane. Here in South Carolina, the makings of a perfect storm are also brewing. This time it’s not a hurricane, but an economic storm fueled by policy failure upon policy failure.
Let’s start with the Unemployment Insurance Trust Fund, the most recent failure of government in the news. Mismanagement at the Employment Security Commission has put us, at last count, some $750 million in debt (and increasing by $2 million a day) to the U.S. Department of Labor. That’s going to cost South Carolina an estimated $1 billion – with another $1 billion needed to make the fund solvent. A rapid rise in state employment would help immensely. But the government’s solution to this management failure will likely be to increase payroll taxes on employers – and that will lead to an increase in unemployment. It’s basic economics.
And, how about the federal stimulus program? In 2011, a state government expanded by $700 million in federal stimulus money isn’t suddenly going shrink back to its previous size when that money goes away. And this bigger South Carolina government is going to go looking for that money.
Two programs, and we’re up to nearly $3 billion in budget holes and tax increases. That’s not counting the cost of tens of thousands of unemployed South Carolinians, nor the looming cost of multimillion dollar shortfalls in the state retirement fund.
Big businesses, politically connected businesses, in South Carolina are getting tax breaks and incentives while the real economic driver in our state—small, independent business—is paying the tab. To find out how to let the free market restore economic health to the Palmetto State, read Unleashing Capitalism: A Prescription for Prosperity in South Carolina.
Sharing the Blame for ESC’s Mismanagement
Tuesday’s release of the Legislative Audit Council report on mismanagement and negligence by the S.C. Employment Security Commission was big news in our state. The report lays blame squarely at the commission’s feet for taking the state’s once-healthy unemployment insurance fund to nearly $750 million in federal debt and climbing. (Keep your calculator handy, because the debt is increasing by about $2 million a day.)
Now, let’s be clear about this story. The report by the LAC is news, and The Nerve was first to release a comprehensive story on the findings. But the fact that the ESC has managed to take a once solvent unemployment fund and run it into the ground is not news—at least not new news.
In 2000, the fund had a balance of $800 million. On Jan. 15, 2010, the fund was in debt to the U.S. Department of Labor in the amount of $723.7 million; on Jan. 26, the last time the Labor Department updated its web site, South Carolina’s debt had risen to $747,889,544.00.
Ten years and a swing, from being in the black to drowning in red ink, of more than $1.5 billion.
Eleven days, and another $24 million in the hole.
Thank goodness our legislature was here to alert us to this gargantuan failure.
But the timing could have been better. Perhaps a Tuesday in 2001 when the fund had fallen below its required reserves? How about a Tuesday in 2004 when the unemployment fund had fallen to about half of its required reserves? Or perhaps a Tuesday in 2008, when the recession caused an already tanking trust fund to really go into free fall.
Again, just to be clear, the Legislative Audit Council is a government watchdog working for the General Assembly, and the S.C. Employment Security Commission operates under the direction of – not the executive branch – but the General Assembly. So it should come as no surprise that the second bullet in the LAC’s condemnation of the ESC gives the legislature political cover. Here’s what it says:
“ESC’s annual assessment reports to the General Assembly did not provide adequate information about the declining trust fund balance. Nor did ESC make recommendations to prevent the trust fund’s decline as required by … the S.C. Code of Laws.”
Our legislators are busy, what with all the hundreds of millions of dollars in taxpayer funded special interest giveaways they’re working on. So maybe it’s understandable that they didn’t see the problem in 2000. At that time the fund reserve was just a smidge under what’s required. Neither did the legislature act in 2003, when the fund reserves had fallen from more than $800 million to around $400 million, nor in 2008 when South Carolina first had to borrow from the Department of Labor.
This is precisely why the people who write the laws and control the purse strings aren’t supposed to be the same people who enforce the laws and write the checks. The General Assembly has taken upon itself the roles of both the legislative and executive branch, in this case and many others in South Carolina.
Yes, ESC deserves blame for mismanaging of the fund and, yes, the commission needs the top-to-bottom overhaul lawmakers say is going to happen. But the “top” of the ESC is the General Assembly, and it’s disingenuous for South Carolina lawmakers to pretend they don’t share responsibility or say they were given inadequate information.
To its credit, or perhaps because the General Assembly wants to distance itself from the whole mess, the LAC’s first recommendation is to make the ESC a cabinet agency. That’s a good first step, especially since the General Assembly hasn’t done its job in managing the commission. But the long-term solution is to allow free market reforms suggested in the Policy Council’s Fast Facts on ESC posted yesterday to reduce the staggering rate – and cost – of unemployment in South Carolina.
Boeing Earns $1.3 Billion
Boeing’s fourth quarter earnings came out yesterday and the company earned $1.3 billion.
Seems like South Carolina should be the one getting incentives from Boeing, not the other way around.
South Carolina Not the Only State With Major Unemployment Funding Problems
Yesterday, the Legislative Audit Council released a report slamming the ESC for mismanaging the state’s 
unemployment fund – resulting in a massive debt of $736 million.
Unfortunately, this trend is common among many states. Propublica.org released a report earlier this month which tracks the unemployment situation of each state. What did they find?
Already 25 states have run out of unemployment funding and have had to borrow from the federal government, raise taxes, or cut benefits. South Carolina is one of those states that squandered prior surpluses in recent years.
The Nerve was first on the hunt yesterday with an analysis of the LAC report:
Among the most shocking findings detailed in the report:
- “While agency management knew as early as 2001 that fund reserves were inadequate, management did not aggressively pursue changes to benefits, or the tax structure, in order to prevent the insolvency of the trust fund.”
- “ESC’s annual assessment reports to the General Assembly did not provide adequate information about the declining trust fund balance. Nor did ESC make recommendations to prevent the trust fund’s decline as required by … the S.C. Code of Laws.”
- “ESC did not follow (U.S.) Department of Labor (DOL) guidance regarding minimum reserves.” Had the ESC done so, the unemployment fund “would still have a significant surplus.”
- “Employees who were terminated for misconduct, illegal acts or other offenses have been paid more than $171 million in state unemployment benefits during the last three fiscal years.”
- “In 2008, ESC stopped referring claimants for criminal prosecution who had fraudulently obtained unemployment benefits. Claimants defrauded the agency out of $7.3 million” in FY08-2009.
Just because South Carolina is not alone in its mismanagement of funds does not excuse the waste of taxpayer dollars. As The Nerve pointed out last week, this ESC boondoggle has been years in the making. And the key difference here in South Carolina is that the General Assembly, which appoints the members of the ESC, is squarely to blame.
Audit Charges Mismanagement at Employment Security Commission
The Legislative Audit Council, which conducts performance-based reviews for the South Carolina General Assembly, this morning issued a scathing investigation detailing mismanagement by the Employment Security Commission.
The Nerve was the first news organization in the state to release a full report on the Legislative Audit Council’s report. For the complete story, visit The Nerve.
The council report charges the commission with a decade of mismanagement, including a failure to run the unemployment fund according to state and federal laws and regulations. While commissioners were squandering reserve funds, the state continued to pay unemployment benefits to ineligible beneficiaries, the report found. Consider the following examples:
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“An employee made unauthorized charges on his company’s credit card, which included motel rooms, hardware and Internet dating charges. He was terminated by the company, but ESC still allowed him to collect $3,586 in unemployment benefits.”
- “An employee was discharged for absenteeism due to his incarceration. The commission allowed him to collect $5,868 in unemployment benefits.”
- “An employee made a job-related threat and alluded to a weapon in his car. Police found a loaded firearm in the employee’s car. He was terminated for cause, but still collected $2,440 in unemployment benefits.”
Last Thursday, The Nerve reported that South Carolina’s unemployment insurance system has been heading for financial disaster for the past decade. According to the story, the ESC has taken the fund from a surplus of $782.2 million in 2000 to a staggering $723.7 million in debt to the federal government. The report estimates the state could incur costs higher than $2 billion to clean up the mess. If the state fails to reimburse the federal government for the debt, South Carolina businesses will see an automatic tax increase. As estimated by state Board of Economic Advisors chairman John Rainey the annual tax increase per worker could run anywhere from $249 to $567.
southcarolina1670
Geoff Pallay
Jameson Taylor
Jamie Cordova
SC Policy Council
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