The Palmetto Insider

As we predicted last year, the unemployment tax credit has been revived this year, as legislators look for ways to bolster their claims that they are doing something to address South Carolina’s among-the-worst-in-the-nation unemployment rate.

The credit has been added as an amendment to H 4478 – an omnibus economic development bill that is the brainchild of House Speaker Bobby Harrell and the following team of high-powered consultants: 

• April Allen – O’Neal Inc.
• Lewis Gossett – South Carolina Manufacturers Alliance
• Nick Kremydas – South Carolina Association of REALTORS
• Burnie Maybank – Nexsen Pruet, LLC; Former Director of the Department of Revenue
• Otis Rawl – South Carolina Chamber of Commerce
• George Wolfe – Nelson Mullins – Chairman, Economic Development Practice Group

H 4478 passed the Senate today on third reading. It seems likely the House will concur with the Senate version – which rejected the House’s proposal to eliminate the corporate income tax. So instead of broad-based tax reform, we are again left with targeted tax cuts and special interest subsidies.

So far, more than $1.5 billion in state-driven economic development policies have done nothing to bring prosperity to South Carolina. According to the latest numbers, South Carolina’s unemployment rate is 11.6 percent – 6^th highest in the nation.

Granted, there was a large decrease (0.6 percent) in the unemployment rate for April. But it’s not clear whether this is because of new job creation or because of discouraged workers dropping off of the rolls. South Carolina is tied with Michigan as being the worst state in which to find a job – with the average job search taking 19.4 weeks in 2009.

Last year, the credit appeared as standalone legislation: S 690. As we noted in our Best/Worst 2009:

This bill is a bad idea for two reasons: First, the bill arbitrarily provides an estimated $300 million tax cut to certain businesses (firms ready to hire for one reason or another) and workers over others. Second, the credit won’t work. It is too narrow (only applies to those actually collecting unemployment and excludes many small businesses) and too temporary (24 months).

But let’s get to the heart of the issue. If lawmakers really believe a targeted, temporary tax credit is going to create jobs, then wouldn’t a permanent, across-the-board tax cut do even more to stimulate the economy? Likewise, wouldn’t cutting South Carolina’s highest-in-the-nation manufacturing property tax be a better policy than the smattering of targeted tax credits laid out in H 4478?

The difference here is not one of philosophy. Everyone agrees tax cuts create jobs and grow the economy. But cutting taxes for everyone would give lawmakers less control over the political game of picking winners and losers. In the end, this is about power.

The power of the legislative leadership to raise money from lobbyists versus the power of the people and the free market. Power vs. Freedom. That’s what’s at stake here.

The State newspaper has a story in today’s edition about a groundbreaking ceremony for the South Carolina Research Authority-USC Innovation Center.

The Columbia innovation center is one of three such sites SCRA is building.

In the article’s last line, SCRA Chief Executive Bill Mahoney is quoted as saying: “No taxpayer money will be used to build the state incubators.”

Beyond the fact that in the 1980s the General Assembly gave SCRA $500K and approximately 1,400 acres of undeveloped state land – property the entity has sold off for many, many millions of dollars over the years - a simple glance at the artwork accompanying The State’s story indicates that at least some tax dollars are almost certainly going toward the SCRA-USC Innovation Center.

The rendering shows that underneath the SCRA moniker is the logo for the University of South Carolina. And, according to the FY 2009-10 budget, USC was allocated more than $900 million in total funding, including more than $140 million from the state’s General Fund.

So unless USC is allowing its name and logo to be used free of charge by SCRA (which seems implausible given the manner in which the school jealously guards its brand), one can reasonably assume that, contrary to Mr. Mahoney’s assertion, there are indeed tax dollars being used at the Columbia innovation center.

Given the fuzzy conclusions evident in the Centers of Economic Excellence (CoEE) program’s 2008-09 annual report, one might deduce that CoEE’s review board might want to consider pushing for an endowed chair in the area of philosophy.

Ponder the opening paragraph in program Chair Paula Harper Bethea’s message to the General Assembly and the Budget and Control Board:

At a time when much of the country is staring down the barrel of economic uncertainty, and the last thing anyone wants is “financial” in his or her job title, the Centers of Economic Excellence Program is celebrating unparalleled success. To date, more than $232 million in non-state funds have been invested into our state economy and nearly 3,200 jobs have been created through 45 public-private partnership research centers known as Centers of Economic Excellence, or CoEEs.

 Unparalleled success? One of the original concepts behind the endowed chairs program was that money from the lottery would be matched by in large part by private investment to secure positions for top professors in areas that have the potential for raising the university’s stature or bringing economic returns.

But according to the most recent report, South Carolina has invested $183.6 million in lottery funds in the endowed chairs program since its inception in 2003 while receiving $145 million in “non-state” matching pledges. Of that $145 million, about $39 million has come from corporations and another $26 million from individuals.

The remainder was from foundations and non-profits (a little more than $49 million), federal funding (nearly $22 million) and health care providers (nearly $9 million).

That means the business community is chipping in one dollar for every $4.69 the state puts toward the program. Even if you combine the corporate and individual pledges, state funding is outpacing private contributions by nearly 3-to-1.

As to the statement that “more than $232 million in non-state funds have been invested into our state economy,” this figure is difficult to substantiate based on the annual report because there’s no breakdown of sourcing. Still, it’s apparent that a good bit of the money is coming from taxpayer pockets.

For example, in October, the University of South Carolina’s Center for Healthcare Quality received a $4.8 million federal grant from the National Institutes of Health.

According to Bethea, $113 million of the $232 million is comprised of “dollar-for-dollar partnership matches which each CoEE must raise in order to access state award funds.” The other $119 million is “composed of research grants awarded from corporations and federal agencies over and above program matching requirements.”

Without a breakdown, it’s impossible to tell how much support the program is getting from the private sector and how much is government-directed economic development.

Finally, there is Bethea’s assertion that nearly 3,200 jobs have been created by the Centers of Economic Excellence.

Actually, just seven pages after Bethea’s claim the job-creation numbers are modified: “To date, the CoEE program has resulted in 1,224 high-paying, knowledge-based economy jobs,” the report states. It adds that, according to the Darla Moore School of Business, another 2,000 new jobs are likely to have resulted from the impact of $120 million in extramural research funding brought into the South Carolina economy by CoEE chairs and their research teams.

So, nearly two-thirds of the jobs touted as being created by the Centers of Economic Excellence are nothing more than a guesstimate, an approximation made by an arm of one of the universities that benefits from the program.

The Centers of Economic Excellence has been unable to produce a detailed listing of jobs created through the Endowed Chairs program when requested by the Policy Council.

The uncritical assessment given by Bethea, who is vice chair of USC’s Research Foundation, is particularly embarrassing given that the University of South Carolina, for one, prides itself on being a research university.

Were a USC science student to turn in a report completed with the same methodology – poor research, lack of sourcing and dubious conclusions – they’d likely earn a failing grade.

The good folks of Florence County appear poised to get a second opportunity to give their hard-earned tax dollars to one of the world’s largest financial services companies.

Florence County Council is scheduled to hold a public hearing tonight regarding fee-in-lieu-of-tax agreements with JP Morgan Chase, a $2 trillion operation which received a $25 billion taxpayer bailout from the federal government last year.

JP Morgan is planning an undisclosed project that would be located in a multi-county park jointly operated by Florence and Williamsburg counties, according to Florence County documents, the Lake City News & Post reported.

The project would be a taxable investment of at least $2.5 million and create at least 250 new full-time jobs within five years, the documents state.

The fees would be determined by applying a 6-percent assessment ratio to the economic development property’s fair market value and using a fixed millage rate for 20 years.

Fee-in-lieu agreements allow companies to freeze their millage rates. With fee-in-lieu, applicable Florence County property tax assessment ratios can be negotiated down from 10.5 percent to 6 percent.

Of course, as the Policy Council has pointed out before, if South Carolina and its counties lowered taxes, incentives would not be needed. Real economic growth would take place naturally as companies gravitated toward low-tax areas.

And there is something particularly disturbing in the idea that some South Carolinians could, for the second time in a little more than year, see their tax dollars go to benefit a company with $2 trillion in assets and operations in 60 countries.

The U.S. Treasury Department transferred $25 billion to JP Morgan in October 2008 via the Troubled Asset Relief Program (TARP). In June 2009, JP Morgan repaid $10 billion of TARP money it had received.

JP Morgan came under fire this year for paying out large bonuses despite having to take bailout funds just a few months earlier.

In July, New York Attorney General Andrew Cuomo told the Wall Street Journal that, after having received its TARP bailout in late 2008, JP Morgan paid hundreds of millions of dollars in bonuses to more than 1,800 employees.

This included $1 million bonuses to each of more than 1,000 employees, and $3 million bonuses to each of more than 200 employees.

Tonight’s meeting will take place at the community building in Lynches River County Park, between Coward and Effingham.

Donuts, bottled water and laundry are just a few of the items U.S. House members from South Carolina spent taxpayer dollars on last quarter.

House Majority Whip James Clyburn expended more than $400 on laundry services and another $250 at a Virginia donut shop between the beginning of July and the end of September.

Also during the three-month period, Rep. Bob Inglis rang up $635 on bottled water and Rep. Joe Wilson paid out more than $14,000 for technology-related services.

These expenditures – culled from thousands of line items released by the Chief Administrative Officer of the House – represent a small portion of the $300 million spent last quarter by House offices.

But while most congressional office spending goes to salaries and routine office expenses, some items offer a window into the priorities of each congressional office, according to a report by Politico.com.

The line-by-line expenditures used to come only in bound green books, but at the request of House Speaker Nancy Pelosi the reports were also put online this quarter for the first time. Nearly 3,400 digitized pages were released last week.

Politico.com reported that lawmakers appear to have great flexibility on what qualifies as an office expense. Money is spent on everything from security services for district offices to thousands in mileage reimbursements for individuals’ cars, with taxpayers even footing the bill for leasing cars for some members, the publication reported.

Highlights from the S.C. congressional delegation:

• James Clyburn (D-Columbia), the House majority whip, spent a total of $18,004.95 on food and beverages during the quarter. By comparison, House minority whip Eric Cantor of Virginia spent nearly $23,000 on food and beverages during the same period. Clyburn listed expenses of $400,818.49 as majority whip and another $323,726.37 as a South Carolina representative.
• Bob Inglis (R-Greenville) listed $24,342.94 under travel, compared to $13,689.70 for Wilson, $11,065.81 for Rep. Henry Brown and $10,024.66 for Rep. John Spratt. Inglis’ total expenses for the quarter were $382,073.34.
• John Spratt (D-York) had the highest personnel costs of the six S.C. representatives at $265,657.42. Clyburn was next at $252,766.61 while Rep. Gresham Barrett spent the least on personnel during the three months at $188,036.93. In all, Spratt listed $321,777.72 in total expenses during the quarter.
• Joe Wilson (R-Lexington) listed $7,400 on web hosting and development. By comparison, Inglis spent $11,248 in that area; Barrett, $2,550; and Clyburn, $1,750. Brown and Spratt, meanwhile, reported having spent no money on web hosting and development. Wilson’s total expenditures for the period between July 1 and Sept. 30 were $306,093.24.
• Henry Brown (R-Hanahan) listed $14,400 in publications and reference material costs while Barrett’s outlay for the same was $282.73 and Inglis’ $49.95. Brown’s total expenses were $273,771.79.
• Gresham Barrett (R-Westminster) proved the most frugal of the S.C. delegation, ringing up $246,352.42 in total expenses during the three-month period. Included was $20,242.79 in travel costs during the quarter and nearly $1,600 in lodging costs.

In all, the six U.S. House members from South Carolina listed more than $2.3 million in expenses during the three-month period.

Distressed by data that appears exaggerated and unreliable, South Carolina Comptroller General Richard Eckstrom is urging substantive reforms in how stimulus-related job totals are calculated.

Eckstrom, South Carolina’s stimulus oversight coordinator, said he doesn’t have confidence in reports that more than 8,000 jobs have been created or saved in the Palmetto State through the 2009 American Reinvestment and Recovery Act.

In an editorial in The State newspaper, he called for several reforms:

• Counting new jobs created, rather than the nebulous “jobs saved or created,” since estimating “jobs saved” requires additional guesswork;
• Counting “jobs created” using actual hours worked, which could be verified using auditable payroll records, rather than using complicated estimation formulas provided by Washington; and
• Counting separately jobs that are known to be temporary, part-time jobs. “Of jobs the White House reported for South Carolina, more than 2,600 were in part-time, summer youth programs that ended with summer,” Eckstrom pointed out. “To count those jobs as if they were full-time, well-paying jobs distorts the numbers.”

The process being used to count jobs is flawed, according to Eckstrom.

“For one thing, rather than simply count the number of jobs created, the White House has coined the phrase ‘jobs saved or created,’ which has resulted in an inflated job count,” he said. “Recipients of stimulus funds have had to guess how many jobs have been saved, since no one knows for sure whether or how many jobs they might have shed had the stimulus not passed. Upon examination, many of those guesses have been grossly exaggerated.

“There also have been media reports from across the country of stimulus funds being used to give employees raises and those raises being counted as ‘jobs saved,’” Eckstrom added.

Earlier this fall, it was reported that 2,470 federal contracts and grants with a total value of $3.82 billion have been approved for government agencies and private companies across the state. However, much of that money has not been spent, or even received.

Even with the stimulus package, employment has suffered in South Carolina. According to data from the S.C. Employment Security Commission, South Carolina has fewer individuals working today than it did when the stimulus was passed early this year.

In February 2009, there were 2.19 million South Carolinians employed; as of October, the most recent data available, that figure was 2.17 million.

Last month, there was a national uproar regarding the apparent funneling of stimulus dollars to non-existent congressional districts – news the Policy Council broke in South Carolina. Days later the U.S. government revised its data but the new information raised still more questions.

For example, in the category of Jobs Created/Saved by ZIP code, Recovery.gov lists 5,186.7 jobs having been created or saved in the 29201 ZIP code (Columbia). This is correlated with $399,700,409 in stimulus funding.

By comparison, in the 29211 ZIP code (also Columbia), $640,467,845 is listed under stimulus funding, but zero jobs have been created or saved in that area, according to Recovery.gov.

“Regardless of one’s opinion on the stimulus, we should all be able to agree that Americans deserve an honest assessment of the stimulus’ impact,” Eckstrom wrote. “Besides, we won’t be the ones repaying this debt – that will fall to our children and grandchildren. … More than anything, we owe it to those future generations to measure, as accurately as possible, the effectiveness of this stimulus spending for which they’ll be paying for decades.”

In a move that should have surprised no one, University of South Carolina President Harris Pastides said Monday that when the economy improves he will ask the General Assembly for more money for the university.

Pastides, in a talk to the Columbia Rotary Club, said South Carolina now ranks last, with Arizona, in state taxpayer support of higher education, according to The State newspaper, adding that only 15 percent of USC’s funding now comes from state money.

“That’s no way to run a railroad,” he told the group.

No, it certainly isn’t any way to run a railroad – at least a profitable private one – as few railroads get 15 percent of their operating capital from state coffers. And willy-nilly expansion, operating with little to no accountability and pumping money into the rail equivalent of Innovista are also no way to run a railroad.

In fact, were Pastides the chief executive of a railroad and operated it as he does the University of South Carolina, he’d likely be run out of town on a rail by the company’s board of directors.

Pastides said legislatures in states that have successful universities, vibrant economies and educated populaces usually contribute far more money to their institutions of higher education than South Carolina.

But the fact is, if USC is in such difficult straits perhaps it should consider what other organizations do in difficult times, namely pull in their horns and concentrate on core areas, rather than expanding like kudzu on crack. Marshalling resources would enable USC to focus on its strengths, rather than spreading itself too thin.

Clemson University’s tuition has nearly quadrupled over the past decade but the institution is committing millions of dollars in school resources to build a wind turbine testing center.

The Energy Department announced earlier this week it would give Clemson $45 million in stimulus money. State and private sources provided $53 million in matching funds, for a total of $98 million, according to the Associated Press, which did not provide a breakdown of the funding.

Clemson offered a mix of facilities, labor, land and cash to satisfy a federal requirement that grant recipients share 35 percent of the project’s total cost, according to Nick Rigas, director of the Restoration Institute’s renewable energy program.

The wind turbine testing center will be constructed at the university’s Restoration Institute in North Charleston.

Officials estimated that the facility will initially employ at least 100 people, but some say the overall job benefit could be exponentially greater.

The Energy Department has estimated that the wind industry in South Carolina could eventually provide anywhere from 10,000 to 20,000 jobs.

However, it should be noted that that figure is pure conjecture at this point. It’s based on a Department of Energy plan in which 20 percent of U.S. power would be produced by wind by the year 2030.

The 10,000-20,000 jobs figure for South Carolina is an extrapolation from the Energy Department’s plan that includes several major assumptions, including: 

• That 80 percent of turbine blades will be produced in the US by 2030, compared to 50 percent when the study was done in 2004;
• That half of all wind towers will be manufactured in the US by 2030, compared to 26 percent five years ago; and
• That 42 percent of turbines are made in the US by 2030, compared to 30 percent in 2004.

The Restoration Institute conducts research in six areas: advanced materials, processes and systems, community revitalization, historic preservation and materials conservation, renewable energy, resilient infrastructure and restoration ecology.

Its best-known project is the conservation of the Confederate submarine H.L. Hunley.

In 2007, the State Budget and Control Board approved the issuance of $10.3 million in bonds for the institute, despite criticism that the move amounted to “mission creep,” the expansion of the university beyond its main campus.

A year earlier, North Charleston gave Clemson 82 acres of property at the old Charleston Navy Base, land appraised at $15 million.

While the school has continued expanding in willy-nilly fashion, tuition has jumped from just over $3,000 in 1999 to more than $11,000 this year, according to the S.C. Commission on Higher Education.

Ironically, on the same day in 2006 that Clemson approved fee increases that ended up costing some students up to $400 or more annually, it accepted the Hunley laboratory, setting the stage for the school to begin its North Charleston satellite campus.

Given the myriad benefits of capitalism – modern medicine, the automobile and personal computers to name just three – one wonders why representatives of big business continually downplay its significance.

This is particularly evident when one watches Corporate America swoon over the “green movement.”

Around the world, major corporations, particularly those in so-called dirty industries such as oil exploration and power production, are practically falling all over one another in an effort to tout their environmentally friendly activities.

Unfortunately, though, instead of being honest and admitting that profit played a role in their decision – whether through improving their bottom line or their public perception – they choose to cloak themselves in the amorphous aura of social consciousness.

Take Santee Cooper, the state-owned utility that is offering a program that allows customers to pay a small surcharge to boost renewable energy production.

According to the utility’s Web site, Santee Cooper offers “green power” to residential customers in 100 kilowatt-hour blocks, with each block costing customers an extra $3 a month.

“We do it because it’s the right thing for the environment,” Santee Cooper spokeswoman Laura Varn told The State newspaper. “The more we can use our natural resources the better for the state and the environment.”

Of course, this is the same company that spent $242 million in recent years on a proposed coal-fired plant in the Pee Dee before pulling the plug on the project in August.

One could argue that if Santee Cooper really wanted to do “the right thing for the environment” it would shut down all its coal-fired plants and rely exclusively on renewable energy. That’s not economically feasible, of course, but neither is the premise that any corporation’s actions are motivated solely by the idea that “it’s the right thing for the environment.”

If Santee Cooper is interested in benefitting Mother Nature perhaps it could offer its green power to customers at no extra cost. That’s not as fiscally impractical as shuttering coal plants, but the company has obviously decided that the surcharge is needed to remain financially healthy.

What the utility either can’t or won’t admit is that there’s nothing wrong with this strategy.

Making money by honest means isn’t a crime. Turning a profit is the reason companies such as Santee Cooper are able to employ many hundreds in high-paying jobs and provide power directly and indirectly to millions of South Carolinians. It’s also why the utility can offer renewable energy through green power programs.

Capitalism enables people to lead healthier, longer lives. It provides for increased family stability, safer neighborhoods and a better-educated populace, as the Policy Council pointed out in its recently released book Unleashing Capitalism.

The reality is bankrupt companies not only can’t offer lucrative jobs or needed services, they also can’t put forward innovative programs and technologies.

It’s just too bad so many businesses can’t own up to the fact that making money is good for all of society.

Just days after a national uproar regarding the apparent funneling of stimulus dollars to non-existent congressional districts – news the Policy Council broke in South Carolina – the U.S. government has revised its data related to Recovery Act spending.

However, the new information raises still more questions.

For example, in the category of Jobs Created/Saved by ZIP code, Recovery.gov lists 5,186.7 jobs having been created or saved in the 29201 ZIP code (Columbia). This is correlated with $399,700,409 in stimulus funding.

By comparison, in the 29211 ZIP code (also Columbia), $640,467,845 is listed under stimulus funding, but zero jobs have been created or saved in that area, according to Recovery.gov.

In fact, more than 90 South Carolina ZIP codes that have stimulus money associated with them but have no jobs created or saved listed, according to the government’s Web site.

Dozens more have had fewer than 10 jobs created or saved. Among those: ZIP code 29801 (Aiken) where $191,270,648 is listed but just three jobs have been created or saved.

It’s unclear whether the government is just counting money already handed out or is also adding in money scheduled to be handed out. It’s also unclear if the job numbers being touted are for jobs already created or saved, or projected to be created or saved, said R.J. Shealy, spokesman for the South Carolina Comptroller General’s Office, which is tracking the stimulus dollars flowing through state agencies.

“The only thing that’s clear is that you can’t have faith in these job numbers,” he said.

Earlier this week, the Policy Council reported that the government claimed to have allocated $40.75 million in stimulus money and created or saved 52.4 jobs in South Carolina’s 7^th, 12^th, 16^th, 32^nd, 43^rd and 45^th districts, along with District 00. The problem is none of those districts exist.

Nationwide, the Franklin Center reported that $6.4 billion had been spent in 440 phantom districts.

That was followed by a series of reports nationwide on the flawed information relating to the $787 billion economic stimulus package.

Thursday, a congressional committee tried to determine whether the flawed data was the result of a propaganda effort meant to show that the Obama administration’s economic policies are working, or were they simply clerical errors?