This just in from the SC Policy Council:
Policy Council: Economic Development ‘Machine’ Costs Taxpayers More Than $300 Million a Year with No Discernible Result
Tuesday, June 19, 2012 – Today the South Carolina Policy Council released a report revealing that the state appropriates well over $300 million a year in the name of “economic development.” In a single year, 2009, state lawmakers appropriated $311 million on various economic development agencies, programs, and initiatives.
∙ In one year, the Department of Parks, Recreation, and Tourism received over $23 million for tourism marketing – taxpayer dollars given to market one favored industry.
∙ The Department of Commerce maintains a “deal closing fund” ranging from $7 million to $25 million annually. The fund uses taxpayer dollars to entice private companies to expand or relocate.
∙ About half of the state’s spending on economic development consists of “workforce training”: that is, training workers for the benefit of private companies instead of allowing those companies to pay for their own worker training.
Despite spending vast and ever-increasing amounts on economic development, South Carolina is where it has been for more than a generation: ranked near the bottom of the nation in employment (6th worst) and median income (8th worst), and poverty (9th worst).
“We spend $311 million a year to ‘create jobs.’ Yet there’s no proof that money is creating long term private sector job growth,” says SCPC President Ashley Landess. “Taxpayers are spending nnmore and more on high-paid government jobs, but those exist primarily to promote government, not genuine private-sector growth. If this economic development machine is delivering clearly measurable benefits to all taxpayers, then politicians need to prove it. Otherwise, they have an obligation to dismantle the failing system and give the money back to the real job-creators: South Carolina business-owners, workers and consumers.”
The report, “Quantifying the Machine,” is available on the Policy Council’s website here. For other material on state-driven economic development, click here.
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A couple of points:
- I think it would be good if the state entities concerned with economic development, starting with the Commerce Department, would respond to this, and demonstrate how they do earn their keep (and if they don’t, they should do some ‘splainin’). But will they? The Commerce Department, after all, reports to Nikki Haley, who got into office by kowtowing to the “government is always bad” point of view that the Policy Council espouses. Tough position to be in, really: The one thing Nikki likes to brag about the most is bringing jobs to the state, yet she is allied to those who hold the view that that is the job of the private sector, not government. (Now, let’s all have a moment of silence over the terrible situation that poor Nikki finds herself in.)
- If you were starting a gummint from scratch in SC — an evil thing to do, in the Policy Council’s eyes, but let’s just suppose you don’t have a conscience and are moved to engage in such wickedness — what would be the single most critical need you would identify as you looked out upon our state? Would it not be economic development?
The Policy Council is sincere. They honestly do believe that our state, with its inadequate public infrastructure, would thrive economically in a Hobbesian state of nature. They actually do believe that if the taxpayers who are here already would simply have all their tax money returned to them, they would inevitably spend all that money in ways that would most benefit the state’s economy. I do believe they believe that — as unlikely as it seems that anyone would.
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It’s debatable whether government at any level should be responsible for economic development. Not saying that I agree but the very fact that we even have such a debate suggest many other things are more important state responsibilities than economic development. Safety, air quality, the justice system to name a few seem like more important state functions than economic develepment.
I think there’s a few issues here. When we cut deals to lure major economic development projects to SC, are we giving away the store to do it? That is, after all of the tax breaks and money spent to attract the entity, are we as citizens better off? Of course that depends on the deal.
Ideally, we cut a big break to a major assembler/manufacturer like BMW or Boeing. Then their suppliers locate nearby (still in the state) and pay taxes, hire additional folks, etc. At least that’s the plan. If it doesn’t work out, you’ve basically used all of our tax revenue to give a handout to a megacorporation, putting it squarely on the backs of the little guys.
The same thing doesn’t really hold true when we try to do the incentive stunt with mega retailers, outlets or tourist attractions. Sure, they hire lots of employees, and attract additional tourist dollars but they don’t typically attract the same suppliers and therefore have less of a multiplier effect on the economy.
Also, does spending $23M on advertising Myrtle Beach result in $23M more tax dollars generated by beach goers? Hard to say, given all of the factors that go into the tourism industry – economy, weather, calendar, festivals, etc.
These agencies (Commerce mostly) should absolutely report their effects. If they fail though, it reflects badly on the administration, so I don’t think I’d trust their numbers at all.
Government economic development is usually pretty poorly done. The City of Columbia is a prime example.
The example with the Continental Tire plant in Sumter is pretty typical: SC got into a race to the bottom with NC for the plant, and basically, by the time we “won” there was probably not much (if any) margin left in the project for the taxpayer. We’ll see.
Relevant.
Two things at work–one, we have a ridiculous property tax structure, whereby the most desirable land use for an economy–manufacturing, is taxed at the highest assessment ratio–10 1/2%, while owner-occupied housing nets more like 2% since tax “reform.” We cannot compete with states with far lower assessment ratios.
The other problem is that the places that most need factory jobs–Allendale, say, have no tax base to speak of, so the millage rate is outrageously high a few years back it was more than double Lexington’s–so a smart factory won’t locate there without some serious incentives.
I suppose the third thing (among the many things are) is that everyone likes to think he got a deal, a discount–studies repeatedly show we’d rather get x off than actually pay less!
How many years of attempting to reach a goal is sufficient before you admit that the spending doesn’t achieve the goal and give up?
It’s like PACT testing in the schools. The goal is admirable, the implementation was flawed, and the results were negligible despite spending tens of millions of dollars.
We should always scrutinize our ecodevo efforts for their effectiveness — not, as Doug suggests, with the idea of quitting if we don’t succeed, but with the goal of changing approaches until we DO succeed.
I remember there was a time — when I was a reporter in my early 20s, covering local government ecodevo efforts — that the whole thing seemed unsavory to me. The very idea of GOVERNMENT having anything to do with the private sector seemed illegitimate to me. I felt like government should only do government stuff — build roads, run the schools, provide police protection. I thought that expecting politicians to provide JOBS was not only unrealistic, but improper, reeking of potential corruption.
But then, over time, I came to understand more about how the world works, and to see that in fact, such “purely governmental” functions as those I wanted government to stick to were, in fact, economic development initiatives. Building roads. Educating the workforce. Protecting private property through laws and enforcement.
I came to understand that everything, including civil rights and basic issues of justice under the law, were all essential elements in a prosperous society — the kinds of things that separated us from, say, Somalia.
So here’s where I stand now: I think instances of direct involvement with the private sector, such as providing incentives for a new business, are not illegitimate — but they should be subjected to scrutiny, to make sure each deal you do is either worthwhile in and of itself, or a contributing part of a coherent and effective larger strategy. (For instance, even if the state lost slightly on the individual Continental Tire deal, if it were part of an overall effective and advantageous strategy of boosting the automotive cluster in SC, it could be worth it. But I think we should demand that our agencies demonstrate that it IS worth it.)
Whether or not incentives benefit the SC economy as a whole is a simple question but answering it require some complex analysis. Fees in lieu of taxes as an example gives a new (or expanding) plant predictable expenses for a fixed period time. Local gov’t get fees usually less than them might if they received property taxes but they also receive benefits from increased employment–more employees with disposable income spend that income in local businesses and stimulate new business. Residents benefit from improved infrastructure. Social lives improve as new folks relocate to a community.
The locating of Carolina Roche to Florence with all those PhD employees did much to improve the quality of schools in Florence County. It did much to improve health care services, the arts, local restaurants, a new library, and better highways. Summing it all up benefits often exceed the costs of incentive packages if the businesses locating or expanding are solid efficient firms.
This:
http://www.colbertnation.com/the-colbert-report-videos/415483/june-18-2012/paul-krugman?xrs=share_copy
One more point is that a lot of incentives can make sense if you are locating something monumental, like some sort of heavy industry. Once you get them in, they stick around pretty much forever (as long as forever can be to a business these days). I am dubious that it works with the “new economy” or “knowledge economy” type jobs. If the entire company can be packed in moving vans in a weekend and sent somewhere else, then it’s just a matter of time before someone cuts them a sweeter deal.
Of course, if you can get some sort of agglomeration of skilled workers, researchers, that type of thing going on, you would have something. See the NC research triangle, Wall St., Redmond or Silicon Valley.
“with the idea of quitting if we don’t succeed, but with the goal of changing approaches until we DO succeed.”
No matter how much it costs us. Obamanomics 101
No, Steven. Nothing that I said could be accurately construed to mean, “No matter how much it costs us.”
So how does the next attempt get funded? What you’re saying is if you fail, you get back up and try again, if you fail, you get back up and try again, if you fail… Sooner or later you need to realize that you need to find something else to do and that it’d probably be cheaper in the long run if you had let someone who knew what they were doing do it in the first place.
@Silence–Reputable eco-devo efforts put in “clawbacks” to recoup benefits if the company closes up or otherwise fails to meet jobs and capital investment targets.
At the risk of exciting one or more of our commenters, I also did this work for a while.
One other benefit, aside from those cited by Lynn, is that while the local government isn’t getting as much in tax rev. from the property as it might have, it certainly reaps more even from the developed site that it did when it was agricultural property with no improvements–usually (always?–I’d need to double check the statutes) a FILOT lowers the rate to 6%, not the 4% agricultural rate, but also the assessed value goes up considerably with a new factory–or even office building, on the previously unimproved land.
@Silence–FILOTS reduce the assessment ratio to 6%–the commercial property rate–they don’t do much for a non-manufacturing property. There are state Jobs Tax credits, whereby the company gets tax credits for meeting certain job creation targets. Blackbaud in Chucktown benefited from those.
This reminds me of that long forgotten project called the Innovista. The plan was to become the new generation Research Triangle of the Carolinas. They tried, it failed, they tried again, it failed, they hired a new six-figure director, he tried, it failed, and that was over a year ago. What is the latest update? I mean besides the cleaning crew saying it’s the easiest building on campus to keep clean. Companies have realized that they can go 180 miles Northeast and have access to more IT talent in one building than they can in this entire state.
@steven Looked at Bob Coble Lobbysist disclosure.
The highlights are
-The Boeing Company
-The Beach Company
-South Carolina Hydrogen and Fuel Cell Alliance
-Southern Carolina Regional Development Alliance
about 10 others as well.
The research economy isn’t a horrible idea just the implementation. Fuel Cells and other pie in the sky projects.
In reality Columbia does well in some areas. Columbia fits well in housing Headquarters of businesses. It also is doing very well in insurance technology.
Sure they aren’t green industry but they are solid and have and can exist without subsidies.
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I don’t think advertising south carolina is a bad idea. Look at Central SC alliance. for every $ they receive they bring in over $700 in business development to the midstate.
Of course the problem is measuring how much was really due to their contact though.
When asked by Columbia city council they provided who have been contacting them. They show what their dollars are doing.
Now all economic development is not created equal. Take for example Mast General Store. Its a great place. The city provided around $80,000 in tax rebates for them moving in. Meanwhile Moe Levys has been in Columbia for DECADES and gets nothing but increased competition. How is that fair?
Another example is Columbia’s TIFs. Bob hughes is asking for 40 million to pay for parking garages and infrastructure. For this he promises high end housing and retail and businesses. He will take credit for anything that moves into bull street.
The question is where will the business come from? If it just comes from another part of Columbia (for example a lawyer moving from one part of richland to bull street) there is no net business increase yet on paper it looks like a success. Also the additional police, fire, and utilities have to come from somewhere. The increase is going into the TIF so the rest of the city has to pay.
Then there is just examples of Economic development going bad. Canalside is my go to project for that. Millions of brownsfield rehabilitation cash went into developing the former penitentiary. Still decades later a huge portion sits empty.
As a moderate I don’t think spending city money for economic development is bad. Lets pick our spots though. Lets avoid risky spending in industries that can’t survive in the free market without govt handouts.
Promoting the city is good. Just not at the expense of businesses that are already here contributing.
OT: Mr. W, please read this. Thanks.
http://www.nybooks.com/blogs/nyrblog/2012/jun/18/curse-political-purity/
Yes, it also reminds me of a long ago project called BMW. Today SC is the No. 1 state in terms of automobile exports. There have been a few jobs and industries pop up associated with that project.
Face it folks. When it works, it works. Whether it works can be debated — but there is nothing more sweet than success.
And, back to the Policy Council. That is an outfit that has, as Mae West said, drifted.
“Companies have realized that they can go 180 miles Northeast and have access to more IT talent in one building than they can in this entire state” because some government and business leaders had a plan to use the Research Triangle as a seedbed for business development. Here it’s apparently not wise to think in terms longer than 2-4 years at a time.
BMW was a huge success. Mack Truck and Air South, not so much. Boeing, we’ll just have to wait and see. I would maintain that most job growth occurs within small companies and these huge companies only help employment at the margins. Perhaps it’s worth a bit of investment to lure a few but let’s not sell the farm for a promise that may never materialize. In some cases like Amazon the few jobs may not be worth the soul selling required to seal the deal.
@Steve – “because some government and business leaders had a plan”
The difference here is they left out the “business” part.
If one accepts that government-driven economic development is a legitimate use of tax dollars – and there’s debate on that – one should at least expect an honest accounting of how tax dollars are being used in those endeavors.
That, unfortunately, is not possible in South Carolina. Confidentiality agreements, a toothless Freedom of Information Act and the unwillingness of politicians to do more than go for the instant gratification associated with big job announcements versus having to follow up down the road and maybe let the public know that a major project didn’t pan out all serve to keep the residents of the state in the dark as to whether the money the state spends is actually working.
The bottom line is the ones who are telling the citizens that incentives work are the ones either doling them out or receiving them. And there’s no way to check their claims because of how the system is set up. Not exactly a recipe for honesty.
What do these cities have in common? Hint: It’s indirectly relevant to the topic at hand.
Albuquerque, NM
Alexandria, LA
Asheville, NC
Atlanta, GA
Austin, TX
Bloomington, IN
Boise, ID
Cape Coral, FL
Columbia, MO
Columbia, SC
Corpus Christi, TX
Fargo, ND
Ft. Myers, FL
Huntsville, AL
Knoxville, TN
Las Cruces, NM
Lynchburg, VA
Pensacola, FL
Phoenix, AZ
Pittsburgh, PA
Salt Lake City, UT
San Antonio, TX
Savannah, GA
Tuscon, AZ
Tulsa, OK
I think she was just mad that a state agency would spend half of it’s budget on education.
Maybe this is just another good example of the maxim pay now or pay more later?