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Is $433 million that S.C. pays to lure businesses well spent? State doesn’t know, study says

tdominick@thestate.com

South Carolina gave up $433 million in taxes to companies moving or expanding here in fiscal year 2015 alone. But was it worth the money?

A new study says the Palmetto State has no way of knowing.

The report, released Wednesday by the Pew Charitable Trusts, found that South Carolina is one of 23 states “trailing” in evaluating the effectiveness of the tax breaks that it offers economic-development projects. The state does not have a well-designed plan for reviewing all economic-development incentives and gauging whether those benefits work, the study says.

The 10 states that are doing a good job evaluating incentives have set policies that require regular review. Effective evaluations determine whether the money that states give up in tax breaks to entice businesses “successfully changed business behavior, as opposed to rewarding what companies would have done anyway,” according to the report.

“That’s the question we’re always asked: ‘Would the company come but for the incentive?’ ” said Frank Rainwater, executive director of the state’s Revenue and Fiscal Affairs Office. “We have no way of answering that question.”

Commerce says it verifies jobs created

In South Carolina, tax incentives come in different forms.

For example, state lawmakers approved borrowing $123 million to pay for site and road work to lure Volvo’s first U.S. auto plant to the state.

Companies have lists of tax credits available for them to claim, and counties can offer their own packages to sweeten the deal.

The S.C. Department of Commerce oversees some of the state’s incentives. Companies must prove they have hired the employees and made the investments they promised before they can claim those incentives, Commerce officials said Wednesday.

After claiming tax credits, the companies must report their employment numbers regularly to ensure they are maintaining the employment levels that they promised to win the incentives, they added.

“The state is confident that the economic development incentive program is easily one of the most competitive in the country, and the number of businesses we locate or help to expand here in South Carolina is proof of that,” Commerce spokesperson Adrienne Fairwell said.

Needed? More transparency, accounting

The push for states to evaluate the effectiveness of incentives is new.

In 2015 and 2016, 13 states passed laws requiring evaluations, according to Pew.

State Sen. Larry Grooms, R-Berkeley, said S.C. lawmakers would benefit from a more “transparent reporting and accounting of the value of incentives” offered to industries.

Having been involved in negotiations for Volvo and other large-scale economic-development projects, Grooms said, “They all should be measured by the same yardstick.”

“I would like to be able to quantify that instead of saying, ‘This was a bad deal and this was a good deal.’ ”

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