Much has been reported about Gov. Nikki Haley’s secret out-of-town economic development mission, likely a trip abroad to court businesses to expand or build in the state. The governor long has stated that her highest priority is bringing jobs to every part of the state. And that’s for good reason: While South Carolina’s economy has improved steadily since the financial crisis, with the state unemployment rate dropping to its lowest level in six years in 2014, some areas continue to struggle. Indeed, the unemployment rate was actually up for the past quarter because of the number of new residents pouring into the state. Uneven recovery still persists in pockets of the state, especially rural communities. Meanwhile, small businesses continue to struggle to get the credit they need.
South Carolina legislators soon will consider whether to take up legislation that would create a state New Markets Tax Credit program. The legislation is patterned after a federal program that was the brainchild of Jack Kemp, signed into law in 2000.
If enacted, the S.C. New Market Jobs Act would provide tax credits to qualified community-development entities that make loans and equity investments in qualified businesses located in low-income communities. Because South Carolina is still poor, almost 60 percent of the state will qualify under the federal guidelines. S.337, introduced by Sens. Billy O’Dell and Paul Campbell, increases the ability of the state to attract federal new-markets funding and leverages the federal New Markets Tax Credit program.
As the former director of the S.C. Department of Revenue, I have watched firsthand the value of bringing in private investment in low-income rural communities and urban neighborhoods that have limited access to capital. And small business owners to a person will tell you their biggest problem is not taxes, governmental regulation or red tape; it’s getting financing. Indeed, bank loans made in South Carolina were completely flat from 2010 to 2013 and even went down in 2011 and 2012. And the number of financial institutions making loans in South Carolina decreased by 15 percent. By contrast, loans at the national level increased by 27 percent.
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The New Markets Tax Credit program addresses these problems by injecting economic development into communities with high unemployment and poverty rates. It promotes the private sector to invest upfront in small businesses and requires the lender to keep those investments for seven years.
Fourteen states already have put such state programs into place, and many have renewed their programs multiple times, such as Illinois, Kentucky, Louisiana, Mississippi and Florida. Earlier this month, Georgia passed a New Markets bill. The results are clear: States that have enacted similar legislation have developed a competitive advantage by attracting investment dollars through their own programs.
Indeed, states such as Florida have seen the staggering benefits, with study after study validating that the program is a proven jobs-creation tool and an effective incentive for community revitalization. A 2014 report prepared by the New Markets Tax Credit Coalition found that between 2003 and 2011, “NMTC financed businesses directly generated 358,832 jobs, including 111,277 full-time jobs and 247,555 construction jobs.”
South Carolina could expect to reap similar economic benefits. A March 3 study by the Regional Economic Models, which examined the economic and fiscal implications of new-market tax credits in South Carolina, noted that the proposed $140 million allocation “could generate 3,000 to 10,000 new jobs.” Because of the expected economic activity, the program also could “bring in an additional $15-51 million in annual revenue to the state.”
The General Assembly should act quickly to pass this legislation, allowing South Carolina to attract this transformative style of community investing and bringing what every small and medium-sized business needs most in this state: low-cost financing and equity investments.
Mr. Maybank is a two-time former director of the S.C. Department of Revenue and a member of the S.C. Coordinating Council for Economic Development; contact him at firstname.lastname@example.org.