The Palmetto Insider

The State posted an interesting article today in which Boeing CEO Jim Albaugh acknowledged that the real reason Boeing chose to expand operations in South Carolina, instead of Washington state, had to do with the cost of its union commitments – in particular, “the cost of the strike at its Puget Sound operations in fall 2008.”

Continues the article: “Boeing didn’t pick South Carolina for expansion last year because of Washington’s tax rates or regulatory system. Nor was it a question of chasing low wages. ‘The overriding factor was not the business climate. And it was not the wages we are paying today. It was that we can’t afford to have a work stoppage every three years. And we can’t afford to continue the rate of escalation of wages.’”

In other words, Albaugh is admitting that the tax incentive package the company received from South Carolina is not what really convinced Boeing to expand in North Charleston. But this is what SCPC has been saying from the very beginning.

Thus we wrote in October 2009:

“What lawmakers in South Carolina have not told us is that Boeing was thinking of expanding its current operation in Charleston anyway. This past summer, Boeing purchased a 787 components plant that already employs 900 workers. The cost: $1 billion. Boeing also owns half of a neighboring plant that employs 1,600 workers. In addition, talks between Boeing and union representatives at its Everett plant in Washington state have stalled. A 52-day strike last summer cost the company billions, with analysts projecting the cost of the work stoppage at $100 million a day or $5.2 billion in deferred revenue. Meanwhile, employees in Charleston voted in early September of this year to disband their union.

“Thus when we describe this incentives package as a bailout what we really mean is not so much a financial one, as a bailout from Boeing’s union commitments in Washington state. Add to this that Boeing has long wanted to expand its operations on the east coast and it becomes clear the company was already very interested in building a second assembly line in South Carolina.”

Do the math. If strikes are costing Boeing $100 million a day, they are going to be looking to relocate to a non-union state. Add the fact that Boeing was already in Charleston and wanted to expand its east coast presence, and you see why Boeing came to South Carolina.

Note that Boeing admits that tax rates had little to do with its decision. But that also means the General Assembly’s multimillion dollar tax break for Boeing had little to do with the decision. To paraphrase Senators Glenn McConnell and Hugh Leatherman, the reason Boeing actually came to South Carolina can be quickly and decisively dismissed in a single elegant phrase – “right to work.”

This is to say, of course, that reforming general business conditions – especially as they relate to fundamental free market principles, such as the right to work – are far more important to growing South Carolina’s economy than are targeted tax breaks and backroom deals.

But, of course, that’s what we’ve also been saying from the very beginning as well.

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.

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.

The Policy Council’s new website The Nerve is already driving the debate in Columbia. In a story on Sunday, The Post & Courier examined the real cost of the Boeing incentives package and used portions of The Nerve’s own reporting from earlier in the week.

Also this weekend, the Sun News editorialized on openness and ethics in South Carolina’s state government and cited the Policy Council’s efforts on  these issues:

The S.C. Policy Council, a nonpartisan think tank that promotes open government and fiscal responsibility, asked a wide swath of state officials for any e-mails from their private accounts to registered lobbyists or the principles of employees that do business with the state. “They all closed ranks,” council president Ashley Landess said. “They basically coughed up nothing.”

SCPC in the News

SCPC Director of Research Jameson Taylor questions cities’ quest for government dollars

http://www.midlandsconnect.com/news/story.aspx?id=379272

Transparency

Post and Courier: Why did the Charleston County Council slip a vote on Boeing incentives onto its agenda at the last minute?

http://www.postandcourier.com/news/2009/nov/19/boeing-a-last-minute-council-topic/

Local Government

Town of Lexington plans to hire taxpayer-funded lobbyist

http://www.thestate.com/local/story/1034597.html

City of Columbia makes a multiyear, $1 million commitment to State Museum

http://www.thestate.com/local/story/1034589.html

Oconee County to spend up to $20,000 for a hotel feasibility study

http://www.independentmail.com/news/2009/nov/17/oconee-county-fund-hotel-feasibility-study/

Proving that state legislators aren’t the only politicians who ignore transparency when it suits their purposes, Charleston County Council approved a preliminary economic development incentives package for Boeing Tuesday night, but declined to reveal details.

“Without discussion and after an executive session, council quickly approved a motion related to Boeing incentives,” according to the Charleston Post and Courier. “It includes a fee in lieu of taxes for Boeing as well as a special-source revenue bond issue for infrastructure improvements, officials said. When asked the amount of the fee, officials would not comment.”

Given that the legislature late last month granted Boeing up to $450 million in incentives in a deal struck behind closed doors, perhaps it’s not surprising that Charleston County officials are employing a similar tactic.

While Boeing’s decision to build a 787 Dreamliner assembly plant in South Carolina is good news, it’s distressing that lawmakers have opted for secrecy over transparency.

Because there was no substantive economic analysis presented to lawmakers or the public beforehand, there’s no way to determine the short- or long-term cost to taxpayers, or impact on business or unemployment in the state.

Charleston County Councilman Elliott Summey told the Post and Courier that he could not discuss specifics but said that what the council approved was nothing out of the ordinary because it does the same sort of thing for other businesses.

Summey added that the deal was “not atypical in any way” and that Boeing was not getting anything extraordinary. “If I say too much, it becomes a problem,” he added.

Another councilman, Dickie Schweers, declined comment because of ongoing negotiations.

Because South Carolina taxpayers are the who ones who will be picking up the tab for Boeing’s incentives, it only seems fair that these same South Carolina taxpayers have some idea of what it is they’re being saddled with before the deal is inked.

Lawmakers, both at the state and local level, seem to feel differently.

The Charleston Post and Courier deserves plaudits for its recent work analyzing stimulus job creation in South Carolina.

The paper took time to scrutinize stimulus statistics put forth by elected officials and found large discrepancies in the process.

Unfortunately, that same critical eye has been severely lacking in the Post and Courier’s reporting regarding Boeing. 

There’s been little investigation of claims that the aerospace giant will create 3,800 jobs in the next few years with the construction of a new 787 aircraft assembly line in North Charleston.

The Post and Courier appears almost afraid to fact check information being put out by state leaders for fear that this hometown eco devo windfall might dissipate upon closer reflection.

Consider some of the phrasing the paper included in an editorial it ran shortly after Boeing’s plans were revealed:

“The big news Wednesday afternoon was a Dreamliner come true: Boeing has decided to build a massive facility in North Charleston for production of its 787 airliner. That landmark victory for economic development in our community and state will bring thousands of well-paying jobs – an especially impressive and important achievement during these tough times. … It’s hard to imagine how we can lose on a deal that adds 3,800 good jobs to the local economy.”

But Boeing has never actually come out and specified the amount of its economic investment or the number of jobs that will be created, a fact state Sen. Glenn McConnell included in a Nov. 6 press release.

In fact, the job creation numbers have all come from political leaders, others involved in negotiating the deal and the bill that made the deal possible, rather than the company itself:

• “At minimum, Boeing will hire some 3,800 employees, while investing more than $750 million.” – State Sen. Hugh Leatherman, newsletter, Oct. 29. 
• “Greenville attorney and former federal judge Billy Wilkins, who helped negotiate the incentives package for Boeing, said he expects 3,800 new jobs and a network of new parts companies in North Charleston.” – Greenville News, Oct. 29.
• “Boeing’s new facility, which will be adjacent to the existing plant in North Charleston, will bring hundreds of millions of dollars in capital investment and in excess of 4,000 new jobs.” – S.C. Department of Commerce press release, Nov. 3.

About the only time the Post and Courier has managed to put down its Boeing pom-pons was in a Nov. 5 story acknowledging that aspects of economic incentive packages like that negotiated by Boeing can be kept under wraps for up to a year.

Of course, we appreciated this last article because it made clear that such secrecy makes it impossible for outsiders to calculate the real cost-benefit analysis of such deals.

But the real question is why is no one else asking these questions? Perhaps they don’t want to know the answers.

SCPC in the News

We are not the first Boeing state to be kept in the dark- Everett, Washington’s Herald Net highlights SCPC’s criticism of the Boeing deal and shows this isn’t the first time a state’s lawmakers have managed to keep the lid on incentive details  

http://www.heraldnet.com/article/20091105/BLOG01/911059995

Local Government

Richland County approves spending $60,000 of your taxes for high-powered Columbia lobbyists

http://www.midlandsconnect.com/news/story.aspx?list=~\news\lists\local%20and%20state&id=372408

Transparency

Comptroller General Richard Eckstrom talks transparency to concerned citizens in Hartsville

http://www2.scnow.com/scp/news/local/pee_dee/article/comptroller_general_says_transparency_can_improve_economy/85281/

Stimulus Watch

Lee County to receive $175,000 in stimulus funds for government building renovations

http://www.theitem.com/article/20091106/ITNEWS01/711069875/-1/ITNEWS

Article of the Day

Backdoor government deals are not in anyone’s best interest.

–SCPC President Ashley Landess

“There is something fundamentally wrong in a system in which politicians shut the door when making decisions about (taxpayer money) and refuse to tell them what they are,” said Landess in the Post and Courier.

http://www.postandcourier.com/news/2009/nov/05/details-to-be-kept-quiet/

http://www.greenvilleonline.com/article/20091105/BUSINESS05/91104007/1003/BUSINESS/Boeing-incentive-package-could-stay-secret-for-a-year

SCPC in the News

SCPC: Five reasons the Boeing deal is bad public policy.

http://www.free-times.com/index.php?cat=1992912063981076&ShowArticle_ID=11010311092877100

When will taxpayers learn the hidden consequences of Boeing’s big tax breaks?

http://www.statehousereport.com/CurrentIssue.aspx?ID=50#Commentary

Transparency

Comptroller General Richard Eckstrom tells school officials his office will help them put their check registers online.

http://www.independentmail.com/news/2009/nov/04/sc-comptroller-general-talks-transparency-schools/

Taxpayer-funded lobbyists fight for more of your taxpayer dollars.

http://www.aikenstandard.com/OpEdColumns/vaughters-column2009-11-03T21-30-41