South Carolina

Tax incentive evaluation ratings

Fact Sheet May 3, 2017 Read time:

Projects: Economic Development

Rating: Trailing

Key points:

South Carolina is trailing other states because it has not adopted a plan for regular evaluation of tax incentives.
As of fiscal 2015, economic development incentives cost South Carolina $433 million.
The state’s Revenue and Fiscal Affairs Office had begun to publish reports on incentives every two years, though it has not yet analyzed the effectiveness of the programs.

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Incentives have been central to South Carolina’s economic strategy since the state used a $130 million incentive package to help lure a BMW manufacturing plant to the state 25 years ago.^a In the fiscal year ending June 30, 2015, the most recent year for which data is available, economic development incentives cost the state $433 million.^b Despite the size of that commitment, South Carolina lacks a process to regularly evaluate these programs.

In recent years, though, researchers in the executive branch have begun to fill in this information gap. In 2016, the Revenue and Fiscal Affairs Office published a report that included an inventory of the state’s incentives, along with analysis of usage trends for the programs.^c The report did not assess the effectiveness of incentives, however. The office is planning to update the research every two years, with the next report scheduled to be published in 2018.^d

Since the BMW deal, South Carolina has used incentives to try to attract other major manufacturers. Under a 2009 agreement, the state is providing hundreds of millions of dollars in incentives to Boeing, which is assembling 787 Dreamliners in the state.^e South Carolina also landed Volvo’s first American manufacturing plant in 2015.^f Retailers—rather than manufacturers—have prompted some of the most heated debates over incentives in the state Legislature. In 2011, lawmakers struck a deal with Amazon to build a distribution center in the state in exchange for a temporary sales tax exemption.^g More recently, Bass Pro Shops announced plans for a new store in North Charleston with the expectation of receiving tax incentives the state offers for “extraordinary retailers.”^h In both cases, competing retailers have argued that these deals put them at a disadvantage.ⁱ

Other states have objective information on whether those types of concerns are warranted. In Florida and Mississippi, high-quality evaluations have examined the extent to which incentives boost the economy overall, as opposed to helping some businesses at the expense of others.^j With regular, rigorous evaluations, lawmakers in South Carolina would possess similar information, which they could use to improve the effectiveness of the state’s incentives.

Endnotes

Betty Joyce Nash, “When South Carolina Met BMW: Behind the Deal That Brought a Halo Effect and Bavarian Meatloaf to Spartanburg,” Region Focus (Federal Reserve Bank of Richmond), 2011, 20–22, https://www.richmondfed.org/~/media/richmondfedorg/publications/research /region_focus/2011/q2/pdf/feature2.pdf.
South Carolina Revenue and Fiscal Affairs Office, “Tax Incentives for Economic Development in South Carolina” (Sept. 9, 2016), 4, http://rfa.sc.gov/files/Tax%20Incentives%20for%20Economic Development%20-%20FY2015%20%28TY2014%29.pdf.
South Carolina Revenue and Fiscal Affairs Office, “Economic Development Incentives” (January 2016), http://rfa.sc.gov/files/Economic%20Development%20Incentives Report 2016.pdf.
Frank Rainwater (executive director, South Carolina Revenue and Fiscal Affairs Office), interview with The Pew Charitable Trusts, June 23, 2016.
David Wren, “A Look Back as Boeing Marks 100th: Decision a Dream Come True for S.C.,” The Post and Courier, July 13, 2016, http://www.postandcourier.com/business/a-look-back-as-boeing-marks-th-decision-a-dream/article_4de52d80-e8ef-5526-8db6-378476959ad9.html.
Jeremy Borden and David Wren, “Advantages Help Steer Volvo to S.C.,” The Post and Courier, May 10, 2015, http://www.postandcourier.com/business/advantages-help-steer-volvo-to-s-c/article_8ce8378b-35c1-50d2-89f9-bfaaa856ff12.html.
Cassie Cope, “Controversial Amazon SC Tax Break Set to Expire in 2016,” The State, Dec. 28, 2014, http://www.thestate.com/news/local/article13930880.html.
David Dykes, “Bass Pro Revives Tax Break Debate,” The Greenville News, updated April 19, 2014, http://www.greenvilleonline.com/story/money/business/2014/04/18/bass-pro-revives-tax-break-debate/7899301.
Cope, “Amazon Break”; Dykes, “Bass Pro.”
Florida Office of Economic and Demographic Research, “Return-on-Investment for Select State Economic Development Incentive Programs” (Jan. 1, 2014), 58–65, http://edr.state.fl.us/Content/returnoninvestment/EDR_ROI.pdf; University Research Center, Mississippi Institutions of Higher Learning, “The Annual Tax Expenditure Report” (January 2016), 69, http://mississippi.edu/urc/downloads/TER/2015.pdf.