For as long as South Carolina has had a Commerce Department, lawmakers have given it free rein to hand out incentives, often in the form of massive tax breaks, often in secret, in order to bring jobs to South Carolina.
The results have generally been good — in many cases excellent. But we’ve always suspected that the agency was sometimes too generous — that it could have spent less to persuade some businesses to move to our state or expand. That was the central issue in 2019 when the department offered Charlotte’s Carolina Panthers football team a huge package of incentives to build what it called a headquarters in Rock Hill: The package required a tweak to state law, and it looked for a bit like the Legislature might not sign off.
The department won that battle but triggered a war that has been waging since, led by the unlikely duo of Democratic Sen. Dick Harpootlian and Republican Sen. Wes Climer, one of the biggest critics of the Panthers deal and one of its biggest advocates, to force the department to tell us more about how it spends our money.
Earlier this year, the department released a list of all the grants it gave out in 2020 from three large incentive programs, with some details about those grants, in an effort to tamp down legislative momentum toward making it harder to keep such information under wraps.
But the report also showed that the department refused last year to claw back state incentives from 39 businesses that failed to meet the meager requirements they agreed to meet in return for their taxpayer funds or tax breaks. In most cases, the companies created some of the jobs promised, but not all of them. But not in all cases.
Two stood out as particularly egregious: Commerce allowed GE Gas Turbines of Greenville to keep its $750,000 grant when it spent 10 times as much money as it had promised but produced none of the 83 jobs it promised. Likewise, ICE Recycling in Florence County got to keep its entire $55,000 grant after it invested about a third more money than promised and produced none of the 25 jobs promised. That’s right: zero jobs. In both cases.
We’ve told you all this before. What we haven’t told you is this: This revelation was finally enough for the Senate.
The Senate Finance Committee — which has been one of the agency’s fiercest protectors and enablers — added two provisos to the state budget bill last month aimed at identifying and preventing some excesses. One requires the agency to transfer funds to the Revenue Department to hire two auditors “for the review of economic development incentives and credits”; the other adds two legislators to the uber-secretive S.C. Coordinating Council on Economic Advisors, which is chaired by the commerce secretary and signs off on the incentives.
In addition to adopting those provisos, the full Senate adopted an amendment by Sens. Harpootlian and Climer that strips Commerce of the authority to waive those clawback provisions. Actually, it strips the agency of the authority to grant extensions, modify or waive any of the conditions under which incentives are awarded, but clawbacks are the issue here. Instead, the department would have to get permission from the State Fiscal Accountability Authority if it didn't want to claw back incentives.
We don’t like the idea of adding legislators to executive-branch boards, and we aren’t convinced that it will solve any problems, because even the most critical legislators tend to become champions of agencies whose boards they serve on. But giving the Revenue Department the resources it needs to make sure the Commerce Department and the companies it awards incentives are complying with state law is a good step.
And while the Fiscal Accountability Authority is largely sympathetic to the Commerce Department — it’s composed of the governor, state treasurer, state comptroller general and the chairmen of the House and Senate budget committees — it’s not an appendix of the department, like the Coordinating Council. And unlike the Coordinating Council, it would have to make its decisions in public, so all five elected officials on the board would have to answer to the public if they decide to let a business keep all of its tax breaks and other incentives even if it breaks its promises to our state. Even if it doesn’t produce a single job — which is, after all, what we gave it money to do.
That won't cure the problem of too-generous incentives, or of unwarranted secrecy, but it should at least erode our state's image as an economic development sucker.
We would urge House members to reject the proviso adding the House and Senate budget chairmen to the Coordinating Council on Economic Development but to authorize the ongoing audits of the incentive programs and to strip the council of its power to let companies default on their promises to our state. And if representatives won't do that, the Senate needs to insist on those provisions during budget negotiations. These are modest reforms for an agency that has acted as a government unto itself for too long.