Two Clemson University economists say Beaufort County offered an "unusual" incentive package to lure the maker of a device that lets diesel engines run on natural gas as well.
The incentives, approved June 10 and announced a week later, call for the county to buy an $850,000 engine-testing device that EcoDual and possibly other companies would use. The county will own the device, and the company likely will maintain it.
In return, EcoDual has pledged to create 307 jobs in five years and build a manufacturing plant in Beaufort's Commerce Park within two years.
David Hughes, who specializes in rural economic development for Clemson, said the arrangement the county has with EcoDual is rare. Normally, he says, a municipality or economic development entity offers to build part of the infrastructure a company needs, such as a road.
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"I don't really ever recall hearing about equipment purchases," he said. "Sometimes you will try to access other sets of funding that might be used to finance equipment purchases, but I don't really recall this happening anywhere off the top of my head."
Rob Carey, who directs the economic modeling laboratory at Clemson's Strom Thurmond Institute, said the approach was new to him, too.
"A lot of places do spec buildings where they will essentially build a shell of an industrial building that a company can come in and utilize later on," he said. "But that's very generalized. Something this specific (as buying a machine) does seem a little unusual."
The county says it bought the $850,000 dynamometer to spur a new business sector in the region. Once the dynamometer arrives in six to nine months, it will be the first of its kind in the state, and county officials hope it will attract other automotive or mechanical companies. The device is used to make sure engines are functioning properly after their fuel systems have been converted to use natural gas.
EcoDual, which makes natural gas conversion kits for diesel-powered big rigs, will be required to share the machine with similar companies that open or relocate to the area. Exactly how that will work is still being sorted out, however.
"There are lots of needs for large engines and equipment of this type," Councilman Jerry Stewart said. "I think there is logic to it."
WORTH THE RISK?
Less clear is how much risk the county assumed by purchasing a specialized piece of equipment for a two-year-old company with 20 employees. The company says trucking customers are already using its conversion kits, which are being marketed to mid-sized, privately owned firms.
The council voted to purchase the $850,000 dynamometer on June 10. However, Stewart said late Friday that only $200,000 has been spent so far, and no more will be unless EcoDual meets certain fundraising benchmarks.
Stewart, who was traveling when reached by telephone, could not provide details about the benchmarks, and the county did not provide a copy of its agreement with EcoDual when it announced the deal June 18.
The county will be better off buying -- and owning -- the machine instead of simply giving the company $850,000 in cash, Stewart said.
Carey, the economist, say the county's purchase really amounts to the same thing: "It's a direct subsidy whichever way you slice it."
Nonetheless, the county purchase is a gamble that just might pay off, Carey said.
There's a debate among economists, he said, about whether incentives make sense for the governments that provide them. Some data suggest tax credits can be costly in the long run, but one-time purchases like this one are different. In fact, he said, the county probably will recoup its investment eventually.
"Assuming the business would not come but for the piece of equipment, and (the county) is going to have additional revenue created by the business, that revenue is eventually going to pay off that up-front cost," Carey said.
It's unclear what would happen to the machine if EcoDual is sold, moves or goes under. Stewart said that would depend on whether other companies are using it.
"That's an open-ended question that I don't think there is an answer to now," he said.
Kim Statler, executive director of the Lowcountry Economic Alliance, which helped facilitate the partnership between the county and EcoDual, could not be reached for comment.
In addition to the county's dynamometer purchase, EcoDual also could qualify for job creation tax credits from the S.C. Department of Commerce. The value of those credits depends on how many jobs are created.
The company also is expected to seek property tax breaks from the city of Beaufort for the facility built in the commerce park.
"I think the investment is going to pay for itself time over time," said Blakely Williams, CEO of the Beaufort Regional Chamber of Commerce. Incentives are a relatively new economic-development tool in Beaufort County but appear to be working well elsewhere in the state, she said.
Of course, there are others who question the nature of business incentives altogether.
Ashley Landess, president of the S.C. Policy Council, a free-market advocacy group, says cutting taxes and creating a healthy business climate makes more sense than offering incentives to individual companies.
"If cutting taxes is good for one company, why isn't it good for all of them?" she said. "If it is going to pay off for one, why wouldn't it for all of them?"
Follow reporter Casey Conley at twitter.com/IPBG_Casey.