Boeing's whopping incentives
Months after celebrating the groundbreaking for a massive jet assembly facility in North Charleston, state officials credited with luring Boeing to the Lowcountry say they still don't know what all the incentives offered to the aircraft giant are worth.
And they don't necessarily care.
As details of the top-secret deal slowly trickle out, a Post and Courier analysis has found that the incentive package promised to Boeing is worth more than $900 million, at least double the highest estimate first circulated by state officials.
In fact, the incentives' value will easily exceed the $750 million the aviation giant has agreed to spend on building its plant near the Charleston airport.
In interviews during the past week, the legislative leaders who negotiated directly with Boeing each said they couldn't say what all the incentives are worth, but each defended the deal as a good investment for South Carolina.
"I'm not sure I've ever seen a number that's been compiled because you have the county involved and the statutory incentives," Senate Finance Committee Chairman Hugh Leatherman said. "What I do know is, this is a tremendous deal for our economy that will impact our economy and provide jobs for generations."
Senate leader Glenn McConnell, House Speaker Bobby Harrell, both Charleston Republicans, and a spokesman for Gov. Mark Sanford made similar comments.
Though top leadership couldn't speak to the incentives details, officials at the state Commerce Department did give The Post and Courier a copy of a cost-benefit analysis that estimated that for every $1 in so-called "public cost," the community and state will benefit with a return of $14 dollars.
That study, however, did not factor in the property and sales tax money that Boeing won't be paying from generous breaks.
The reasoning? If the company didn't come here, it wouldn't be paying it anyway.
Boeing's North Charleston expansion is expected to boost the Charleston economy with thousands of jobs and provide millions of dollars of state and local taxes for generations. Beyond that, Boeing could become the center of a thriving hub of aviation companies.
Coming during a time of recession, Boeing was in a peerless bargaining position.
But of the 163 state and county officials who voted on the deal, it was difficult to find a single person who claims to know what the incentives were actually worth.
How could the state use incentives to lure Boeing, or any company, if the state's negotiators could not put a value on those incentives? How could the state consider the costs and benefits if the costs were largely unknown?
What $450 million?
Until now, the incentive deal has been widely reported to be worth $450 million, a value first put forth by Leatherman during a question-and-answer session with reporters immediately after state lawmakers approved a handful of deals at a special session in October.
Now, no one seems to be taking credit for that estimate.
"I don't know where the $450 million came from," Leatherman, a Florence Republican, said Thursday.
A state Commerce official also denied putting a number on the deal.
The Post and Courier's analysis, which relied on conservative figures, put the incentives-package value at more than $900 million, and it could easily be worth more.
The bulk of the incentive package comes in the form of property tax breaks in Charleston County worth at least $306 million over the next 30 years, and up-front money to be given to the company through state bonds at a cost of roughly $399 million.
Some items, like exempting Boeing from paying sales taxes on computers, jet fuel and construction materials, are difficult to value and were not included in The Post and Courier's estimate.
This much is clear: For every dollar Boeing has promised to invest, the state has promised Boeing more than $1.25 in benefits, either in up-front cash or in future tax breaks.
Most of the incentives were directly offered by the state or already existed in state laws designed to attract large industrial investments.
The promises are conditional: If Boeing does not uphold its end of the bargain, there's a claw-back provision for the state's up-front money, Leatherman said. And most of the tax incentives are performance-based, so Boeing doesn't get them unless it invests the money and creates the jobs.
But other incentives are Boeing-specific, such as a 10-year property tax exemption on the two Dreamlifter freighters that Boeing will use to transport massive aircraft parts. Such aircraft sell for about $250 million each, so the 10-year property tax exemption could easily be worth more than $100 million.
Charleston County Council approved that part of the deal, along with a $50 million incentive that will give back half of Boeing's already-reduced property taxes on the assembly plant for 15 years.
And if Boeing invests the agreed-upon $750 million within 10 years, some of the property tax breaks could remain in force beyond 2060.
Only the state is putting money out of pocket. It plans to foot the bill for the $33 million in training costs for future Boeing workers.
And it's borrowing $270 million to help pay for Boeing's new facility. With interest, the state expects to spend $399 million paying off that debt.
"I see the $270 million as an investment for the state," Leatherman said. "It will have a transformative effect on our economy."
Ben Fox, press secretary for the governor, said Sanford agrees with the Legislature and Commerce Department that "it was a large investment by the state, but there's a massive payoff for the taxpayers."
"While it's easy, in the wake of the deal, to downplay it and dwell on the details, it's worth remembering that this is the biggest economic investment ever in our state," Fox said.
Fox and several lawmakers suggested to The Post and Courier that state incentives available to any company that invests enough money and creates enough jobs shouldn't be counted when adding up the Boeing incentives.
They also noted that the value of the performance-based incentives would grow if Boeing invested more and created more jobs than planned, which is the purpose of such incentives.
For example, for each additional job created, Boeing could get a tax credit worth up to $12,500.
The Post and Courier's conclusion that the incentives are worth more than $900 million tops any tally Harrell has seen. But without the deals, Boeing would have gone elsewhere, he said.
"You shouldn't lose sight of the fact it's not the amount of incentives, but it's the amount of the return on incentives," he said. "The economic impact of this would have ended up in some other state."
To that effect, state Commerce officials ran a cost-benefit study on Boeing's economic impact, which valued the company's payroll benefits at $3.8 billion during the plant's first 15 years of operation. That figure takes into account the 3,800 jobs Boeing is expected to create along with 5,971 additional, indirect jobs.
It doesn't take into account new jobs from aviation suppliers that will follow Boeing to the Lowcountry.
Overall, Commerce's cost-benefit analysis put an estimated $5.2 billion in total economic gain against the projected $353 million in public costs over a 15-year period.
Behind closed doors
The Boeing deal still is widely regarded as a win for the Charleston economy, but the new incentive-package value raises questions about whether most of the state's lawmakers knew what they were promising in October.
Some lawmakers told the S.C. Policy Council, a conservative Columbia-based think tank, that they never saw a detailed breakdown.
The void of information left lawmakers scrambling during the special session to put together their own back-of-the-envelope estimates.
Sen. Paul Campbell, R-Goose Creek, calculated his own rate of return, taking into account supplier jobs, income tax from the new jobs and the state's alarmingly high unemployment rate, which hit a record high of 12.3 percent in November. By his estimate, the Lowcountry still came out on top.
Ashley Landess of the S.C. Policy Council contends that the state's top lawmakers should have shared more information with their colleagues and with the public.
"They were angry about being challenged and questioned, but taxpayers and business owners out there, this is your money they're spending," said Landess, who asked state leaders for an estimate of incentives hours after the legislation passed.
"And those guys shut the door, made up some number ... and said, 'Here's the deal, and we don't have to tell you how we came up with that.' "
McConnell defended the process that day, saying he and Leatherman did their best to make sure that legislators had all their questions answered. The Legislature did as much due diligence as it could, he said.
"If they had questions, I tried to get them answered," McConnell said.
"As far as I'm concerned, it was all an open process," he said.
The perception of secrecy, however, aggravated the divide between rank-and-file lawmakers and the power brokers at the top.
Sen. Mike Rose, R-Summerville, for example, said he asked for more incentive details but hasn't gotten much. He added that lawmakers were under high pressure to vote for the measure without asking questions.
"For all I know, there are people laughing at us for being scared into giving ... all that money," he said.
Ultimately, Rose voted for the measure.
"I don't doubt I made the right decision," he said. "But it was not the prudent process we should be following, and I have to blame the leaders for that because they hoarded the information."