What was billed on Monday as the biggest jobs announcement in South Carolina history – a projected 7,000 jobs from a new tire manufacturing plant and two relocated Charlotte firms – hinged largely on the Palmetto State’s ability to throw money at companies that North Carolina can’t.
South Carolina was able to offer up $38.7 million for land improvements and infrastructure from a closing fund at Gov. Nikki Haley’s discretion. Such a fund does not exist in North Carolina.
North Carolina could offer the two other companies only income tax credits on new jobs they would create, while recruiters here were able to slash taxes for all their employees by the firms moving just a few miles south across the state line.
The big wins for South Carolina has some folks questioning North Carolina’s ability to compete against its smaller, but more aggressive neighbor – including some of that state’s top business recruiters.
“We weren’t in the ballpark,” Bob Morgan, chief executive of the Charlotte Chamber of Commerce, told reporters after Monday’s announcements.
The three companies – Singapore’s Giti Tire and the Charlotte companies, Lash Group and LPL Financial – will bring a combined 3,900 new jobs to York and Chester counties, swelling to 7,000 as the companies expand, company officials said.
The announcements had Tar Heel recruiters singing the Carolina blues.
Morgan tried to assure business leaders in Charlotte there was no need to panic, telling them that the state’s methods were “moderately aggressive, appropriately aggressive.”
But the state’s chief economic developer groused that he was hamstrung by the lack of a closing fund.
“The closing fund is often times what is needed to differentiate your state from another state,” John Lassiter, head of the N.C. Economic Development Board, told the Charlotte Observer. “Closing funds are a very big deal.
It was the second time that South Carolina had one-upped its northern rival.
In 2011, South Carolina landed the Continental tire plant – and its 1,600 jobs – for Sumter County when the N.C. legislature didn’t approve a $45 million infrastructure grant. The money turned into a partisan fight between Republican lawmakers and Democratic Gov. Beverly Perdue.
South Carolina Gov. Nikki Haley and Commerce Secretary Bobby Hitt stepped in with $31 million grant from the closing fund, the funding of which has bipartisan support as a general fund for economic development.
On Monday, after another big score, Haley played the gracious winner.
“I’m not going to get into what North Carolina is doing,” she said. “What I can tell you is South Carolina is doing a lot right.”
The governor’s closing fund was established in 2006 after a survey commissioned by Duke Energy and the S.C. Manufacturers Alliance found that the state was trailing in the number of tools in its economic development toolbox.
“One of the things that was missing was a closing fund used by a lot of other states such as Texas, which is the big boy,” said Lewis Gossett, chief executive of the manufacturers alliance. “We were at a disadvantage.”
So the General Assembly, at the behest of other pro-business organizations like the State Chamber of Commerce and the S.C. Economic Developers Association, established a fund governed by the Coordinating Council for Economic Development, made up of the heads or board chairs of 11 state agencies concerned with economic development, such as the State Ports Authority and the S.C. Department of Employment and Workforce.
Because the heads of many of these agencies are appointed by Haley and the panel is chaired by her commerce secretary, Hitt, the grants are controlled by the governor, hence the nickname “governor’s closing fund.”
The funds are approved by the Legislature through the regular budgeting process and include both recurring and non-recurring funds. The non-recurring funds include surplus funds left over from the previous fiscal year and the state’s Capital Reserve Fund, or rainy-day fund.
Lawmakers approve a set amount as a general fund, but can add funds if necessary and requested by the governor or commerce. They usually rubber stamp the request.
“In South Carolina there is bipartisan support for economic development,” Gossett said.
The funds can be used as grants for infrastructure improvements such as water and sewage lines, new interstate interchanges, rail spurs and other specific purposes.
“We don’t write companies a blank check,” Gossett said.
Hitt called the closing fund and other incentives “essential to our success.”
Closing fund brings criticism
But not all agree with the concept of the closing fund. Critics say funneling taxpayer money to companies to persuade them to move or expand here amounts to corporate welfare.
The Libertarian-leaning S.C. Policy Council on its website “The Nerve,” noted that the closing fund grant was bigger than the annual budgets for the Commission on Indigent Defense ($33.5 million), the Forestry Commission ($29.9 million), the University of South Carolina-Beaufort ($26.8 million), the Department of Agriculture ($23.6 million) and the S.C. Attorney General’s Office ($23.4 million).
Also, according to the advocacy group, in 2012, the General Assembly funneled into the closing account – over Haley’s veto – $10 million of a $25 million federal grant sent to states to reimburse families that were the victims of illegal foreclosures.
“This is the wrong way for states to be competing with each other,” said Ashley Landess the council’s executive director. “We should be competing (in) the best way for everyone to prosper rather than how much of the people’s money they can redistribute to a few companies.”
But advocates say that job creation is the best way to help the state, and noted that the jobless rate in South Carolina has dropped from a high of 11.9 percent in 2009 to 5.3 percent today, due in large part to increases in manufacturing.
“If you can find a single person in Chester County that doesn’t think it’s a good idea, there is something wrong with them,” Gossett said.
Also, the job development credits that Lash and LPL were able to leverage for moving their workers just across the state line are a double -dged sword. North Carolina could also persuade companies to head north of the border so that their existing jobs in South Carolina are considered new to North Carolina.
“That happens sometimes and you just have to work hard to win,” Hitt said. “The door swings both ways.”
Economic philosophy aside, the announcements were a coup for Haley.
The Republican governor, in the midst of a re-election campaign against Democratic opponent Vincent Sheheen of Camden, is certain to use the announcements as fodder to pitch herself as a successful jobs governor. Her website already touts 40,000 jobs created since 2011.
“You can be critical of her in other areas, but on economic development she’s done quite a good job,” retired Francis Marion University political scientist Neal Thigpen said. “Economic development will be her strongest suit.”
Having the closing fund at her disposal and reaping the political benefits of the jobs it creates, “is one of the benefits of the incumbency,” Thigpen said. “The end game is this is not just good for her, but great.”