Daimler AG, which announced plans last month to build a Sprinter van plant in North Charleston, will be able to claim state tax credits for jobs that pay nearly one-third less than the area’s average wage, documents show.
The tax credits, which Daimler can use to buy real estate and make infrastructure improvements at the plant, were outlined in minutes of meetings at which the state’s Coordinating Council for Economic Development approved incentives to lure the German automaker.
The council on March 5 originally set the minimum wage rate at $15 an hour for Daimler to claim the tax credits. The council held an “emergency meeting” later that day to lower the rate to $14 an hour.
The average wage in Charleston County is $20.62 an hour, according to the federal Bureau of Labor Statistics.
The $14-an-hour figure also is lower than the $19.33 average hourly wage that production workers, such as those working for vehicle parts manufacturers, make in the Charleston region.
The council, which is part of the state’s Commerce Department, does not talk publicly about its incentive grants. Minutes of the March 5 meetings, however, state the tax credits were awarded “given the significant economic development of this project, the size of the project, and the expected return on investment to the state of South Carolina.”
Despite the lower-than-average wages required for the tax credits, the state “got a good deal by getting Daimler,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte.
Vitner said the $14 wage figure represents starting pay that likely will increase as Daimler production ramps up. Construction on the new van factory starts next year.
“I never like to pass judgment on starting salaries in a new plant,” Vitner said. “That’s like trying to judge a person’s success by looking at their baby pictures. Every worker there is going to become more skilled over time and their earning potential will go up. This is just the start.”
Greg LeRoy, executive director of Good Jobs First, a Washington, D.C., group that tracks government subsidies and incentives to businesses, said he laughed when he heard the $14-an-hour figure.
“If I’m a South Carolina taxpayer, I would want my governor and my commerce department to drive the hardest bargain possible,” LeRoy said, adding that claims Daimler might not have come without the incentives are unjustified. LeRoy said the state should have required a higher minimum wage for the credits.
“The pattern of investments, especially for German multinationals, has been in great part in the Southeast,” he said. “So the idea that Daimler wouldn’t have wanted to come to your state is facially questionable.”
Commerce Department spokeswoman Allison Skipper said the Coordinating Council “looks at each project on its own merits, and the overall benefit it will bring to the state and to the region.” The tax credit program, she said, is “reserved for those projects that will provide a great impact on the community.”
Daimler has said it will invest $500 million in the plant, which will create 1,360 new jobs. Daimler will make its popular Sprinter commercial vans at the plant, which will be an expansion of the Palmetto Commerce Park site where the company currently reassembles vans imported from Germany. The new plant will make the vehicles from scratch.
Vitner said Daimler “is going to pay off in a huge way down the road,” adding that criticisms previously leveled over incentives to BMW’s plant in Greer, were overblown.
“It’s become bigger and more successful than anyone expected,” Vitner said of the BMW plant. Like the Boeing Co.’s Dreamliner campus in North Charleston, Vitner said Daimler can be “transformative” for the Charleston area’s economy.
LeRoy worries that the state gave too much to Daimler, saying Charleston’s port and its proximity to a supplier base probably played more of a role in the company’s decision than the tax credits. LeRoy said state and local taxes typically make up 2 percent of a corporation’s expenses while issues such as logistics, right-to-work laws and a skilled workforce are a much larger concern.
“All of those things are tangible and have more to do with a company’s decision than any tax credit tied to $14-an-hour jobs,” LeRoy said.
The tax credit tied to job creation lets the state refund a portion of the South Carolina income taxes withheld from employee paychecks. The amount that is refunded depends on the hourly wage that is paid. The state’s policy is to set the minimum wage available for the credit at the average pay for the county where the company is locating. However, the council can set the minimum at whatever level it wants.
Under the program, a portion of the employee’s state income tax goes to the Revenue Department with the rest refunded to the company as reimbursement for land and infrastructure costs. Five percent of the refunded money will go to the state’s Rural Infrastructure Fund, which is used to promote economic growth in the state’s primarily disadvantaged counties. The other 95 percent of rebate money will go to Daimler.
The Daimler deal calls for the automaker to get annual tax credits ranging from $798 — the amount for a $14 hourly worker — to a maximum of $5,000 for a worker making $52 an hour. The credits will be refunded for 10 years unless Daimler creates at last 1,000 jobs, in which case the program will last 15 years.
“It is essentially a tax-sharing program, where a portion of taxes paid on newly created jobs through employee withholding can be rebated back to the company as reimbursement for certain expenditures,” Skipper said. “The state benefits in two ways: from taxes collected and from the portion of the credit that goes into a fund for improving infrastructure in the state’s rural areas. Because the credits are performance-based, the company must meet its commitments before collecting.”
The first North Charleston-built Sprinter van will roll off the assembly line by the end of the decade. Daimler sold 26,000 of the boxy commercial vehicles in the U.S. last year. Company officials declined to say how many vehicles will be produced each year at the new plant.
The Sprinter has been available in the U.S. since 2001, accounting for 9 percent of the country’s large van market. Daimler offers the Sprinter as both a Mercedes-Benz and a Freightliner-branded vehicle. Sprinters of both brands will be made at the North Charleston plant.
Reach David Wren at 937-5550 or on Twitter at @David_Wren_