For the seven years I served as director of South Carolina’s Department of Revenue, I also served on the S.C. Coordinating Council for Economic Development — the entity that approves state economic incentive agreements now at the center of a heated debate regarding how much information to share with the public.
Having some context regarding why the Legislature wrote certain laws the way it did should help citizens make an informed opinion on how to balance the importance of protecting key confidential business information and the use of state dollars. Indeed, this is a balancing act if we want to continue the historically strong success South Carolina has enjoyed by recruiting some of the best companies in the world to the Palmetto State.
Not all economic development incentives are the same. One of the most important is the Job Development Credit. This incentive is a withholdings tax credit based on wages paid. That means a business gets a percentage back of what it paid in withholding taxes for all workers. The more people you employ, the larger your possible credit.
I am one of the co-authors of what became the Job Development Credit Act, and I can assure you that the paperwork contains some of the most sensitive information that private companies possess. This includes employee positions, wages paid by position, planned capital investment by years and dollar amounts and, most importantly, financial statements that are obviously highly confidential for nonpublic companies. While the application, final agreement and cost benefit are routinely disclosed, the Commerce Department has always rightly redacted this kind of confidential business information as allowed by law.
While this confidential business information might be interesting to the public, making it widely known could be disastrous for companies competing on a global scale. It’s akin to asking you for your personal tax return and then sharing it with your neighbors who don’t like you. I am not aware of any other state that requires disclosure of such sensitive business information. And our General Assembly agrees. Our Freedom of Information Act provides that “confidential proprietary information provided to a public body for economic development … purposes is not required to be disclosed.”
From reading a recent Circuit Court order on this topic, it appears that Commerce may have failed to disclose certain information that should have been disclosed (the name of the corporate executive who signed the paperwork, for example), and the media have focused on this. That one apparent oversight should not blind us to the bigger issue. Namely, how do we conduct business in a way where key information is protected while also informing our public regarding the use of tax dollars?
Obviously, Commerce is subject to FOIA, and when the state gives millions of dollars of incentives, clearly the public is entitled to see the cost-benefit analysis to justify the incentives — which Commerce routinely provides. But providing key, sensitive business information like the Job Development Credit information — number of employees by position, wage scales and financial statements — would hamper, if not largely end, economic development in South Carolina.
Hindering economic development hurts all of us. This is particularly true for nonpublic companies, including most small to medium-size businesses that produce the great majority of the state’s new jobs.
As we emerge from this pandemic, now, more than ever, we need to be mindful of the need for jobs — and economic prosperity — for the millions of people who call South Carolina home.
I encourage you to educate yourselves on economic development incentives. The Commerce Department provides a huge amount of information related to incentives each year on its website, sccommerce.com. You can also read comprehensive annual Commerce-related reports on scstatehouse.gov/reports/reports.php.
Also, consider the needs of companies to maintain sensitive, competitive information in an open business market. Remember they can operate anywhere in the United States. I hope they choose South Carolina. And I hope our leaders can agree on a productive balance when it comes to deploying economic development incentives and keeping taxpayers informed.
Burnet Maybank is a tax and economic development attorney at Nexsen Pruet.