The Palmetto Insider

The debate is on and we’re streaming it LIVE right now! Click on www.thenerve.org/sembler.aspx to see what is happening with the major incentives bill S. 1054.

The House’s omnibus economic incentives bill, H 4478, passed on second reading today. By a vote of 105 to 9. This should come as no surprise given that the measure has 108 cosponsors. It also speaks to the need to constantly be watching what is going on down here in Columbia.

… which is apparently what lawmakers are hoping we are not doing. By all accounts, the House is going to meet tomorrow to push the bill through on third reading. Yet Fridays at the Legislature are usually reserved for local matters.

But if this bill is such a great idea, why push it through under a dubious Friday vote? What we need is more – not less transparency – when it comes to economic incentives. Stay tuned for more updates. We’ll be there bright and early – watching and recording – tomorrow morning.

Yesterday, the Policy Council released a study questioning whether retail incentives are constitutional. To be constitutional, incentives must have a public benefit, but retail incentives have been shown to generate no net new jobs. No jobs – no, or little, public benefit.

That piece highlighted one lawsuit in North Carolina over incentives given to Google. Another NC incentive challenged in court regards a $10 million subsidy given to the private, nonprofit business/culinary school Johnson & Wales. The case hits close to home because Johnson & Wales left Charleston in 2003 to go to Charlotte.

The lawsuit contended that the Johnson & Wales incentive is not constitutional because it was an “exclusive or separate emolument or privilege.”

An N.C. court dismissed the lawsuit last month, ruling that the incentive served a legitimate public purpose for “education and economic development.”

Now, here’s the question. Yesterday we heard from Boeing that they would have expanded in North Charleston without a multimillion incentives package; that their union troubles is what prompted them to come to South Carolina. What about Johnson & Wales?

Was the $10 million offered to them by North Carolina the tipping point? Or were they considering a move to Charlotte anyway?We may never know. But we should.

That’s why a Policy Council report on economic incentives argues that applications for economic incentives should explain why a taxpayer-funded subsidy or tax exemption is needed, with special attention as to why the project has failed to attract sufficient private investment.

Also necessary is independent analysis as to why the incentive is needed and what impact it will have on competing businesses and regional employment. Such reforms are part of new transparency legislation introduced last month.

It’s worth reminding ourselves that unless we know the real public benefits of economic incentives, such policies risk degenerating into a race to the bottom among the states.  For every Boeing coming to South Carolina, there’s a Johnson & Wales leaving. Who is benefitting? The players, definitely. The taxpayers funding the game, not so much.

Today the Senate took action to fast-track legislation giving more than $100 million in taxpayer funded incentives to The Sembler Co., a Florida-based developer, for a planned shopping mall in Jasper County. The Senate voted to place the bill on “Special Order,” which means that the legislation is now in a top priority position to be taken up by the Senate.  All bills voted on under Special Order must be recorded votes.

Costs of the incentive package for the new development continue to be unclear: ranging from a low of $22.5 million to as much as $174.5 million in tax breaks over 15 years. If Sembler is anything like the Boeing package legislators approved in October, the cost to taxpayers is probably being underestimated. (Read here for why future incentives deals should be capped so the costs are known upfront.)

Lawmakers who support the incentive package for Sembler are pushing for the quick vote in spite of vocal opposition to the taxpayer-funded giveaway:

• The Policy Council and the S.C. Coastal Conservation League issued a joint statement raising economic and environmental concerns.
• A series of reports in The Nerve raised questions about the development, and the developer.
• The Beaufort County Council (which shares part of the land sited for the project) voted against the deal.
• An analysis by College of Charleston economist Peter Calcagno projected that the Sembler tax incentives are unlikely to benefit South Carolina’s economy, or create new jobs.
• Even the state of South Carolina itself—by way of a report by the state’s chief economist, William Gillespie—concluded that the megamall is unlikely to increase overall sales, but would instead shift sales from existing retailers

A decade of failed experimentation in government-driven economic development, or the fact that taxpayers are being asked to subsidize their competition, ought to be enough to dissuade lawmakers—but the real issue with Sembler is less about economics and more about corporate lobbying and political connections.

Does the South Carolina electricity market need privatizing?  The last time South Carolina approved electricity deregulation was in 1997 with House bill 3414.  Yet consider what Texas has accomplished in recent years through privatization.

According to information released by the Texas Public Policy Foundation, privatizing the electricity market has lowered consumer prices, increased reliability, and fostered consumer choice through competition.

• Data gathered from the U.S. Energy Information Administration (EIA) reveals a reduction in prices for Texas residents under a competition-based electricity market.  The report shows, “Today, the average competitive price is 8.71% below the national average.”  The national average refers to the national regulated average.

• Competition has also increased reliability.  For example, private electric companies trying to turn a profit build new generators as their customer base increases.  More generators mean more capacity for stored/reserved electricity.  Reserved electricity is quite valuable during unexpected heat waves that often occur in summer months, especially in Texas. The same would be the case in South Carolina.

• The competition-based market in Texas is far more popular than the regulated electricity market.  In fact, “Almost 82% of consumers have actively chosen competitive rate plans.”

If South Carolina were to follow Texas’s lead, privatizing could lower consumer prices by encouraging competition and increasing reliability/power reserves.

Moreover, by monopolizing the electricity market, the state is directly competing with would-be private entrepreneurs. If state leaders are serious about growing the economy and stimulating free enterprise, they might start by deregulating the electricity industry.

It seems the South Carolina General Assembly has had no problem thinking up wacky ideas this week.

First is a proposal “that would mandate that gold and silver coins replace federal currency as legal tender in this state.”

First talked about in the SC blogosphere, this idea made its way into the national news and surely provided many folks across the country with some good laughs.

Next is a bill that would ban alcohol sales on Christmas and Thanksgiving Day.

This idea will likely anger eggnog drinkers and those who enjoy spirits on these two holidays. But it’s a good complement to another proposal that confirms that while it should be illegal to sell alcohol on Sundays, paying a fee to sell alcohol on Sundays makes it OK.

And just yesterday, the House of Representatives passed a bill that would ban secret compartments in cars. That’s right, no compartments or fuel tanks other than those installed by the car manufacturer.  This bill was introduced last session, as noted in our Best/Worst review of property rights legislation. The intent of the bill is obviously to discourage drug smugglers, but the act of creating a secret compartment in itself should not be illegal.

These three ideas kicked around by the General Assembly this week may be humorous, but there is nothing funny about lawmakers playing around with our personal freedoms. To read more, click here.

With all of the Boeing and Sembler talk, the hottest topic of conversation recently has been economic incentives packages.

Yet there’s actually very little information out there on exactly how much of our tax dollars the government has been doling out to private companies.

Take, for instance, the Boeing deal. Analysis by The Nerve investigative reporter Rick Brundrett found that the Boeing incentives package will cost at least $500 million to create some 3,800 jobs. Yet, notes Brundrett, “The true total cost to taxpayers remains unknown – and may never be known because of state privacy laws.”

But don’t state taxpayers deserve the same level of disclosure that would be afforded to any private investor? – that is, a clear accounting of how much such deals will cost and what the return on investment will be.

According to the Policy Council, the answer is yes. A report issued today argues for greater transparency in the economic incentives game the state has been playing with taxpayer dollars. Here are four specific ideas recommended by the white paper:

1)      Requiring any incentives legislation to be introduced as standalone legislation that receives a recorded vote

2)      Requiring a formal application process for businesses seeking incentives

3)      Requiring a detailed, dynamic cost-benefit analysis of proposed incentive packages

4)      Requiring an annual report that details all economic incentives agreements and their cost to taxpayers

Thus far, the process of granting economic incentives in South Carolina has been akin to handing money to a broker, asking him to invest, and never asking what stocks are purchased and how they are performing.

The Policy Council’s recommendations would foster greater transparency, enabling taxpayers to at least determine whether such economic incentives deals are working as promised. Our guess is that they’re not. But if they are, state leaders should welcome the opportunity to shed additional light on their endeavors to make South Carolina more prosperous.

Legislators in South Carolina will tell you they are a “Friend of the Taxpayer” because there has been no general tax increase in more than two decades. A general tax increase would be too obvious, and too politically unpopular. What’s happening is that the General Assembly and state agencies squeeze money out of taxpayers through fees, assessments and fines.

How much do these fees and fines amount to?  How about $7 billion—fully a third of the state’s annual budget. If you’ve been keeping an eye on the state budget, like we do, you heard about a series of cuts to the General Fund during the past year. Yet during the same period, the fees and fines category of the budget actually increased by $147 million.

Fees and Fines Facts:

• In 2009, the General Assembly introduced 108 proposals to raise fines and fees – 96 as standalone bills and 12 as budget provisos.

• State agencies are able to increase their own fines and fees without specific legislative authorization.

• The General Assembly essentially exercises “no oversight” over agency fine and fee revenue.

A new report, “Fine and Fee Increases: You’re Next” from the Policy Council lists who is likely to be affected by proposed fine and fee increases. OK, there’s a hint in the title.

High wages. Creative. Hollywood stars. What’s not to like about the film industry?

Nothing, if film productions choose to come to South Carolina of their own accord. But when government gets into the business of incentivizing the film industry, there’s plenty not to like.

And it gets worse the deeper you dig.

From 2006 to 2007 $8 million in wages were paid to South Carolina residents for work in the film industry.

That sounds great … until you realize that the state paid these productions $8.4 million in rebates.

Bear in mind, too, that these are not simply incentives in the form of tax credits. This is cold, hard cash paid to the movie industry to film in our state.

As the Policy Council details in Unleashing Capitalism, film credits actually “generate a net loss in revenue equal to 81 percent of expenditures on rebates.” In addition, when government subsidizes a targeted industry, the relative tax burden to other individuals and businesses increases.

What about spending on goods and services? There, the state spent $7.3 million in rebates to generate $14.4 million in supplies and service sales for in-state vendors. Sounds like a productive activity – until you realize the state was subsidizing about half of the business expenses for these productions, a sweetheart deal that no one else in the private sector receives.

These videos from the Mackinac Center for Public Policy detail the perverse incentives that are common in Michigan – and reasons why South Carolina should avoid similar policies.

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.