The Buzz

SC counties gave businesses tax breaks worth more than $200 million in 2016

FILE – Donna Fortner (cq), production supervisor at Haier's Kershaw county production plant, waits to welcome the arrival of Chinese vice premier Madame Wu Yi, for her tour the Haier America manufacturing facility on 04/10/2006. (Brett Flashnick/Special to The State)
FILE – Donna Fortner (cq), production supervisor at Haier's Kershaw county production plant, waits to welcome the arrival of Chinese vice premier Madame Wu Yi, for her tour the Haier America manufacturing facility on 04/10/2006. (Brett Flashnick/Special to The State)

S.C. counties and others gave tax breaks worth more than $221 million to new and expanding businesses in 2016.

For the first time, the counties and others that levy taxes – including school districts, cities and airports – are being required to disclose the value of tax breaks they give businesses.

But the $221 million is just the tip of the iceberg.

The actual total likely is far higher.

The $221 million total is from only 33 of the state’s 46 counties. Thirteen counties have not yet released their financial reports for their most recent fiscal year, including details of the tax breaks.

Also, some of the 33 counties that have filed their financial reports included only the tax breaks they granted. Others reported a countywide total, including tax breaks given, primarily, by cities and school districts.

The $221 million total also does not include tax credits granted by the state, often the largest incentive given to new industries.

However, for the first time, the disclosures give South Carolinians a glimpse of the value of tax breaks given to companies to locate or expand in the state.

The tax breaks are controversial.

Officials defend them as necessary to compete with other states in attracting new businesses. Tax breaks are sometimes the No. 1 reason that companies – from BMW to Boeing to Volvo – come to the Palmetto State, they say.

Without the tax breaks, those companies likely would have broken ground elsewhere, avoiding the state’s high property tax rate on manufacturers – 10.5 percent, the highest in the nation. Offering the companies deals to reduce those taxes is necessary to boost and diversify a local economy, add jobs, and redevelop blighted and otherwise neglected areas, officials say.

However, critics decry them.

Some say there is not enough transparency when counties issue the tax breaks. Others question whether companies actually are creating the jobs and paying the higher wages that they promise. Others question their fairness, saying the breaks mistreat smaller businesses by shifting the tax burden onto them.

‘Not a tax loss to the county’

To come up with the $221 million tax-break figure, The State newspaper reviewed the 2017 financial disclosures of S.C. counties.

Thirty-three have completed those disclosures, which, for the first time, had to include the value of the tax breaks given businesses.

Various counties reported the tax breaks differently. Some counties included the value of tax breaks granted by school districts, cities and other taxing agencies in the county. Other counties reported only the value of the tax breaks the county had granted.

In some of those cases, the newspaper also looked at financial disclosures by school districts.

Some counties disclosed tax breaks from tax year 2016. Others disclosed tax breaks that stretched through the end of the budget year, on June 30, 2017.

Richland County, for example, reported tax breaks given by just the county, totaling almost $2.5 million in tax year 2016. Separately, the Richland 1 school district reported about $13 million in property taxes were reduced following tax breaks approved by the county, while the Richland 2 school district reported its property taxes were reduced by $9 million.

“It may appear we’re giving away a lot, but what we’re taking (in) is well worth it,” said Jeff Ruble, Richland County’s economic development director.

Meanwhile, Lexington County reported that it, its cities and school districts had given tax breaks worth $44 million, including $11 million in tax breaks granted by the county.

On one hand, that $11 million looks like it is money out of the county’s pocket, said former S.C. Department of Revenue director Burnet Maybank.

But, really, it is not, he said. Instead, the county agreed to accept $11 million less in property taxes from industries – via so-called fee-in-lieu agreements – than it would have been entitled to had they paid at the 10.5 percent tax rate for manufacturers.

“But South Carolina having the highest taxes on manufacturers, no one would come without a fee-in-lieu,” Maybank said. “Therefore, it’s not a tax loss to a county.”

‘100 percent of nothing is not very good’

Before this year, there was no way to track the amount of money that counties and other taxing authorities gave up in property tax breaks for companies.

That all changed in 2015, when a new accounting rule was adopted by the Governmental Accounting Standards Board. That rule commonly is known as GASB 77.

The accounting board noted “many state and local governments have tax abatement programs in place.” And, it said, they needed to be disclosed because “these programs can have a substantial effect on the governments’ ability to generate revenue and their overall financial health.”

For example, fee-in-lieu agreements effectively lower the property tax rate for companies to 6 percent – or even 4 percent for larger investments – from the state-set 10 percent.

South Carolina also offers incentives to new industries, most of which are not made public, including tax credits and grants.

Absent the fee-in-lieu agreements, S.C. counties simply would not be competitive with other Southeastern states in attracting new industry, said Aiken County Administrator Clay Killian.

“Without going through a fee arrangement and multi-county park arrangements, we’re not going to be competitive for companies like Bridgestone or MTU (which makes diesel engines) that contribute mightily to the tax base,” he said.

But there is a cost.

Aiken County agreed to lower the property tax bill for industries by $7.6 million in its budget year that ended June 30, 2017. The county’s school district also agreed to pass up about $25.5 million in tax revenues.

The county still gets property taxes from the companies to which it gives tax breaks. It just gets less.

“Granted, the fee-in-lieu has reduced their (tax) bill by 40-something percent. That’s a big number when you have a large investment,” said Aiken County administrator Killian said. “But, like the old adage says, 100 percent of nothing is not very good.”

‘Secrecy is the big problem’

But the cost of counties providing tax breaks to multimillion- and multibillion-dollar companies does not sit well with some.

For starters, the details – the negotiations, the tax breaks and whether companies actually fulfill their promises of more jobs and higher wages – largely are kept from the public, said Ashley Landess, head of the S.C. Policy Council, a think tank that advocates for lower taxes and smaller government.

“The secrecy is the big problem. That’s where reform needs to start,” she said. “These incentive deals at the state and local level need to be 100 percent transparent from the beginning.”

Others say the tax breaks for big business shift the tax burden to smaller businesses.

“In reality, where the large companies are big and flashy, say will bring in 1,000 or 500 jobs, the tax burden shifts onto the smaller companies, which by and large hire more people,” said Talbert Black, chairman of the board of the S.C. Campaign for Liberty, a tea party group. “There’s no talk about the jobs not hired, not created or lost.”

The public should know what is in the incentive agreements, Black said. “It’s public tax money being played with. ... We just give so much away to bring companies in.”

Charleston County Councilman Joseph Qualey said counties need to justify the incentive packages they offer, especially those for companies looking to expand.

“It needs to be then verified that this company would not have located here but for that package,” he said. “Then, we need to have accountability to be sure that what was promised ... in exchange for those tax incentives actually occurs.

“I’m very skeptical of giving incentives to companies which are already functioning and apparently thriving in Charleston County. That, to me, borders on subsidizing expansions of business, which gives them an unfair advantage over similar businesses also in the county.”

State Senate Majority Leader Shane Massey, R-Edgefield, said there should be some oversight to determine whether the value that counties get from incentives is worth the tax breaks handed out.

“If you’re a county giving up $7 million in property tax revenue, people who are paying for county services should have some understanding of what they are getting in return.”

Growing pains for some

The tax breaks have real-world impacts.

Take Kershaw County, for instance.

Kershaw’s population has boomed in the past several years, growing to 64,000. County officials point to lower taxes and good schools as factors.

But the growth also has occurred at a time when industry is growing in Kershaw. Its major employers include a Target warehouse and distribution center, Invista and Chinese company Haier America, which in 2015 expanded its Camden plant, investing $72 million and promising the creation of 410 jobs.

“Companies have announced over $278 million in new capital investment and over 700 jobs” over the last half-dozen years, said Peggy McLean, Kershaw County’s economic development director. “That means we’re growing in all sorts of ways.”

Incentive packages – tax breaks – are critical in talks with companies looking to come to South Carolina, McLean said.

But that growth can strain county services.

Kershaw County, including its school district, reported giving tax breaks worth almost $6 million in the fiscal year that ended June 30, 2017. The county school district’s property tax revenues were reduced by $4.2 million under incentives approved by Kershaw County, according to its 2017 financial report.

That has strained budgeting for the school district of about 10,500 students as new industries have brought new residents, who have new students.

At the same time, a 2006 state law has shifted the property tax for schools off owner-occupied homes and onto businesses, and vacation and rental properties.

“We’ve seen more growth in recent years than we’ve seen in the last 15 (years) in terms of our student population,” said Donnie Wilson, the district’s chief financial officer.

And more students translate to higher demand for services, which cost more money, officials said.

“When we get more kids, it’s not like (we get) some generic, garden-variety kid, if that even exists,” said district Superintendent Frank Morgan. “We get more kids that require special education services, more kids with medical services. Our second-language population has doubled in the last several years.”

Wilson frets that cost is not fully considered when county officials decide a tax break to a new business will be beneficial to the county.

“We certainly want to trust in our county leaders to make the correct decisions,” he said. “But we’d like to know how it’s made, how is it determined and if this is the appropriate tax break to give.”

Special interests have spent at least $10.4 million since 2009 to employ a stable of lobbyists, excluding the $4.6 million that Pascoe says Quinn was paid by groups with business before the state. Those lobbyists legally are paid to sway lawmakers

Maayan Schechter: 803-771-8657, @MaayanSchechter

The cost of luring big business

For the first time, S.C. counties and other taxing authorities were required to disclose the value of the tax breaks that they have given businesses and industries. The tax breaks largely are for agreeing to accept low property taxes from a business. Disclosures included:

▪  $5.9 million in Kershaw County for the county, its school district and other taxing districts

▪  $24.5 million, in Richland County for the county and its school districts

▪  $44 million in Lexington County for the county, its school districts, municipalities and any other taxing districts

SOURCE: S.C. county, school district 2017 financial reports

Findings

▪  33 S.C. counties and others that levy taxes – such as school districts – gave tax breaks of more than $221 million to companies in 2016

▪  It is the first time that the value of those tax breaks is being disclosed publicly

▪  Without the tax breaks, county officials say companies would go elsewhere, where property taxes for manufacturers are lower

▪  Critics say there is not enough transparency or accountability in the tax breaks. Others say they create inequities, shifting the tax burden onto smaller businesses

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