Special Reports

S.C. counties give up millions in tax money for incentives

FLORENCE, SC (WBTW) - Thanks to a relatively new government accounting standard it is a little easier to see some of the tax money South Carolina counties give up each year. They give up that money in tax discounts to companies if those companies deliver a benefit such as job creation. 
New reporting standard
The disclosure of those tax abatements is a request in "Statement No. 77" of the Governmental Accounting Standards Board (GASB).
To follow the standards, South Carolina's counties now report how much tax they abated as part of deals with private companies each year. Based on the '16-'17 financial audits, South Carolina counties forewent millions of dollars in taxes because of deals that reduced the tax bill to companies. Those deals are most often a "fee in lieu of taxes" which charges companies a flat rate instead of normal property tax.
However, GASB No.77 is much more for accountants to use as a bond rating consideration - not public accountability. That is because what counties disclose varies widely.
For example, in Darlington County the audit included figures from the county, the school district and municipalities and other funds - totaling tax bills that totaled $7,898,836 less for companies there. Florence and Horry counties did not include school district figures or other funds. Florence County gave up $791,920 in business taxes, but the county's finance director says the county actually collected $916,548 more than it would have without the deals because S.C. allows several of the companies in Florence County to get a manufacturer's exemption for lower taxes. Horry County reports only three companies got reduced taxes in the '16-'17 fiscal year, for a total of $190,270 that the county did not collect from those companies.
However, some counties have incentives that don't include tax abatements, and therefore they are not reported in their annual audits. For example, Horry County has a total of 14 agreements in place that pay companies money if they meet certain criteria such as job creation.
Debate about merits
Florence County Council Chairman Kent Caudle is one of many local leaders who believes in the benefit of giving companies tax discounts.
"You have to invest to have a return, right? And we're doing that," Caudle said.
He feels those discounts are an important part of getting companies to locate, expand, or sometimes just stay in the county. 
There are skeptics of such deals, including Ashley Landess at the South Carolina Policy Watch.
"Why shouldn't we get a tax break first instead of having to pay for someone else's?" Landess said. "[Proponents say] we want you to write us a blank check, but not all of you are going to benefit from this, and that's essentially what they're saying."
Landess does not believe the state and counties are getting enough return on their investment when they give up taxes. One argument she makes is that the state's roads do not seem to be benefiting from the business that is attracted. She argues that businesses would locate in the state without tax breaks, and then the tax they pay could be put to use in the state. She also claims there's not much work to see if business will really last.
"Secrecy is the biggest problem," Landes said. "We have no idea how much due diligence is put in to know if these are a good investment."
Caudle disputes that, and he points out deals often become more public on the county level and that county agreements often allow them to recoup money if a company doesn't live up to its promises - as long as the business doesn't go out of business completely.
He also claims the deals help with roads, public services and overall economic vitality in counties. He says even if companies are paying discounted taxes, they're still putting money into the county.
"They put a lot of money in the economy, and we know every dollar spent in this county turns over about seven or eight times," Caudle claimed. "A rising tide will float all the boats."
However, economic researcher Allan Freyer disagrees. Freyer is the Director of the Workers' Rights division of the N.C. Justice Center. He says 20 years of research contradicts that idea.
"For the most part these tools are not effective on delivering on their promises," Freyer said. "They don't move topline numbers, like they're not able to grow overall employment or jobs in a county. They can't change the overall growth path in terms of GDP."
How incentives may work
He says local governments are a lot more likely to have long term success with incentives if they work to attract particular companies that are in someway relate - in particular industry sectors. He says what really works is if local governments invest in big-picture quality-of-life aspects that companies are looking for. Those investments help people and communities first and then the big businesses, instead of hoping big business investment will trickle down to people.
"A firm is going to want a trained workforce more than it's going to want a million dollars, right? - for an incentive. It's gonna want to know that they have a supply chain in place they're able to access - more than they're going to want a million dollars. Now, when you bundle the million dollars together with the supply chain, with the job training,  with entrepreneurship support, all of a sudden you've built an ecosystem for that company that means a whole lot more than just a bunch of cash," Freyer said. "We need to recognize what the real building blocks of economic growth are, and those are schools and neighborhoods and training programs and roads and not just in cash and tax giveaways."
Influence not proven
Furthermore, Freyer says  research shows only about 3 in 10 companies decide on where to locate based on incentives, which means 70% of the time local governments are giving incentives that weren't the deciding factor in a company's location.
Freyer also says that incentives can be beneficial if they are combined with investments in communities and integrated into "sector strategies." He says it's also important to have accountability measures in place to be sure businesses deliver the benefits they promise as part of incentive deals. Florence, Horry and other counties have incorporated some accountability standards into incentive agreements.
 


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