States, counties will have to reveal more about incentives given to create jobs

South Carolina taxpayers soon will be able to learn more about tax breaks and inducements that state and county officials give companies to attract jobs.

Starting Dec. 15, state and county officials must disclose the value of such incentives that many companies receive to settle in the area or to expand significantly.

Those incentives most often are given in the form of state income tax credits and partial waivers of county property taxes through fee-in-lieu-of taxes agreements.

The new disclosure requirement was adopted last week by the Governmental Accounting Standards Board, a private nonprofit agency that oversees financial reporting for public agencies nationwide.

The change means taxpayers not only will be told what kind of break a company is getting – for example, a 10-year tax break – but also how much that tax break is costing taxpayers, such as $1.2 million over those 10 years. It also requires governments to report the value of other incentives given, such as new roads and donations of land.

Critics applaud the deal as a step toward greater government transparency. But they wish the move would go further.

In a GASB report, board officials said more disclosure about tax abatement is necessary for both taxpayers and bond investors to measure better the financial health of states, counties and municipalities nationwide. Giving up revenue is a gamble at times, the study said.

The use of incentives is “highly prevalent,” the study says, with South Carolina among 44 states in which such breaks are a major tool to attract jobs. In South Carolina, cities aren’t allowed to provide tax incentives, but it’s an issue elsewhere.

Some taxpayer advocacy groups say the new rule is insufficient. They say governments should reveal tax breaks and other incentives when a deal is proposed instead of after it’s final, as the new rule calls for.

“It’s an improvement, but it doesn’t go far enough,” said John Crangle, executive director of the state chapter of Common Cause. “Taxpayers will only find out after the fact if they’re the victims of a real rip-off.”

But some economic development officials say that talking about lost revenue from tax breaks is misleading.

Many companies wouldn’t consider coming without those incentives, they say. So what might seem like a loss to taxpayers isn’t a loss at all.

“The amount of revenue forgone is a false number, since those companies are very unlikely to invest” without enticements, said Nelson Lindsay, Richland County’s economic development director.

Still, the change promises to help residents better gauge the decisions of county and state leaders and hold them accountable.

Lexington County officials receive estimates on the impact of proposed deals and often roll back the requests, County Council members said.

“What we give is less that what companies ask for in most cases,” Councilman Jim Kinard of Swansea said.

State commerce officials don’t expect the disclosure requirement to deter efforts to attract firms with major payrolls.

“Based on our preliminary understanding of the new GASB rule, from an economic development perspective, we do not anticipate a negative impact on recruitment – or use of such incentives,” S.C. Commerce Department spokeswoman Alex Clark said.

More detail about the tax breaks given by the state should start appearing in financial reports for the year starting July 1, 2016, she said.

A few tax breaks in South Carolina already are well known, usually because legislative approval is required. Counties disclose as well, but their incentives often aren’t as well-publicized or as large.

South Carolina and Lexington County coffers are netting at least $11 million yearly in payroll and property taxes after online retailer Amazon opened a distribution center following a sales tax exemption in 2011 on some sales estimated to cost $2.5 million annually. The break expires Dec. 31.

Confusion is common about disclosure of many aspects of economic development since much information can be withheld from the public until the deal is complete, said Bill Rogers, executive director of the South Carolina Press Association.

Reports estimating the impact of any tax breaks at the state and county levels are public record once a company commits to the deal, Rogers said.

But, right now, sometimes those disclosures don’t address the value of the breaks.

The timing of when the new reports are made also could be an issue for some.

The new GASB disclosure rule allows states and counties to decide whether to report tax breaks given annually, for all recipients, or incrementally, for individual deals, spokesman Kip Betz said.

There are 79 fee-in-lieu of property tax deals in Lexington County that generated nearly $22.3 million in 2014, officials said. Revenue from three, such as Amazon’s distribution center, go to schools countywide.

Developing the estimated value of all tax breaks promises to be complex given there are two dozen state tax credits that companies can receive over varying deadlines, Lexington County Auditor Chris Harmon said.

“Every one is a little bit different,” he said. “It’s just got a lot of layers to it.”

The fee-in-lieu agreement usually allows a company to pay about half of what it would pay in taxes for up to 20 years and deems the payment a “fee.”

Those trade-offs are worthwhile, some officials say.

“You can complain about what we lose in the short term, but we look at the gain in the long term,” Lexington’s Kinard said.

Lexington County officials reserve tax incentives for manufacturers, distribution centers and other operations – aside from retailers.

Tax breaks are a must for Richland County, Lindsay said.

“Counties will still need to offer companies this incentive to remain competitive,” he said. “This rule just makes the reporting more burdensome.”

This story was originally published August 14, 2015 at 8:07 PM with the headline "States, counties will have to reveal more about incentives given to create jobs."