Palmetto Pilfering
South Carolina audited its corporate incentives. Calls for a resignation followed.
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As I’ve been saying, states and cities should audit their corporate tax incentive programs. Scandalous stuff always turns up.
The latest state to undertake an audit is South Carolina, the results of which were released recently by the state’s Legislative Audit Council. It looked at two major corporate incentive programs: One that gives corporations back a percentage of the money their employees pay in taxes, which is called the Job Development Credit, and another that provides grants to specific companies. Both are run by the state’s Department of Commerce.
In pretty unsexy audit-y language, the report details a department that is handing out incentives without even basic safeguards for taxpayers, using outdated models that inflate the expected benefits the state economy will receive. Here are a few numbers that jumped out:
2,197: That’s how many indirect jobs — meaning jobs not at the project in question, but connected to it through increased economic activity — the Department of Commerce overestimated would be created by just one project, due to its use of economic models that haven’t been updated since the 1990s. Auditors re-did several projections using newer models and found the Department of Commerce consistently overestimated how many jobs would result from individual projects, making deals look better for taxpayers than they actually were.
$17 million: That’s the amount of money the state should have clawed back from companies that didn’t meet the job or investment targets they promised. However, instead of going after that money, corporations were given a break and their targets were revised. Of the $17 million, the state only attempted to claw back $9 million, and has received $7 million. That’s millions of dollars lying on the table that could be used to provide government services.
95 percent: That’s the percentage of claims for Job Development Credits the South Carolina Department of Revenue says have discrepancies between the amount of money claimed and the number of jobs or amount of investment the company created. But the Department of Revenue is simply overwhelmed and can’t check enough companies claiming credits; it only gets to a couple of dozen out of hundreds of applications. Some companies have literally never had their claims checked.
7: That’s the number of approved applications for credits, out of 13, that the auditors said had red flags showing the company in question might not be in good financial shape, even though the Department of Commerce said it looked for such flags before approving incentives.
Also, here’s a great sentence: “[The Department of Commerce] does not perform any sort of ‘look back’ analysis at the cost-benefit analysis performed prior to an award to determine if the project was successful and actually created the projected jobs and investment stated in the news releases.” Not great!
The department also didn’t bother verifying that companies had actually created the number of jobs they said they did. And even though the credits can only be applied to jobs that pay a certain wage, companies don’t supply wage information, yet get their credits anyway.
This isn’t the most damning audit of corporate tax incentives I’ve seen, but it’s still not good. The state is spending millions of dollars annually without knowing what it’s getting for them — maybe no jobs, maybe crappy jobs, it’s all a big mystery.
And only two of the state’s incentive programs were examined; there are others — including both a corporate headquarters tax credit and an enhanced corporate headquarters tax credit — that also presumably have issues. Overall, South Carolina has spent some $2.5 billion on corporate incentives dating back to the 1990s (about half of which has gone to Boeing).
Following the audit’s publication, some South Carolina state lawmakers said that the state’s secretary of commerce should resign. I’d certainly like to live in a world in which a damning corporate tax incentive audit leads to changes in state leadership.
One more thing: Speaking of South Carolina, the state gave a big incentive package to the NFL’s Carolina Panthers in order for the team to construct a new practice facility there. (Yes, a practice facility, not even a stadium.) And now the rest of us get to chip in too, due to the state receiving a federal grant to construct a highway interchange to the new practice spot.
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— Pat Garofalo