Editorials

Valuable lessons taught in recent incentives fight

Secrecy and inconsistency undid the ill-fated Amazon deal as much as anything.

Unfortunately, those characteristics too often describe economic development deals in this state.

Many lawmakers, state officials and businesses see nothing wrong with this. But the secrecy and deal-to-deal approach leaves us vulnerable to high-pressured lobbying. And it often leaves lawmakers voting out of ignorance on a deal that is for all intents and purposes a fait accompli by the time it gets to them.

The 71-47 vote in the House to turn down a five-year sales tax exemption for Amazon's Internet sales to South Carolina residents was an unusual event, although reminiscent of last year's fight over incentives for The Sembler Co.

The loss of Amazon's planned distribution center and its 1,250 jobs was magnified when two other companies looking at opening manufacturing facilities in Lexington County said they would be pulling out. They cited uncertainty about promises that might be made to them.

But uncertainty is a two-way street. No one -- not lawmakers, not the governor and especially not taxpayers -- can say with certainty that we come out ahead in these deals. And down the road, when we do have some proof that we didn't get what we thought we were paying for, there's no way to recoup our losses.

The Commerce Department under former Gov. Mark Sanford had pledged to use "good faith, best efforts" to get the Amazon exemption passed.

Critics said it would give Amazon an unfair advantage over retailers who have to collect sales taxes. Supporters pointed to the jobs Amazon would bring.

This sales tax fight is bigger than South Carolina. Amazon is steadfast in its opposition to collecting sales taxes on its Internet sales. It does so in only five states.

The fact the company fights collecting sales taxes so hard shows that it sees not having to do so as a big advantage.

Amazon wouldn't be paying this money; its customers would. But not collecting sales tax helps the company beat out its competitors on the final price.

And remember, in South Carolina, the company already was getting other incentives for the distribution center -- free land, property tax reductions and state job tax credits.

But this debacle is an opportunity for South Carolina to rethink how it recruits new businesses. It should boost legislation introduced by state Sen. Tom Davis of Beaufort, the "Economic Incentive Transparency Act."

Davis points out in his bill that economic incentives have grown from $35 million in 1998 to $525 million in 2008. The state's sales tax exemptions totaled $2.75 billion in 2010.

He also makes this very salient point: Increasing tax credits and sales tax exemptions to targeted individuals, entities and industries makes it more difficult for South Carolina to reduce taxes across-the-board for all taxpayers.

Among the bill's provisions are a requirement that before an incentive is approved, the entity granting the incentive has to notify the public and hold a public hearing. A business seeking an incentive must submit an application, and after the application is made public, a hearing is held.

No state official or agency could make any representations about the likelihood of an incentive that isn't already authorized.

The incentives would be loans that would be canceled if job-creation promises are kept. Legislation creating new incentives would expire automatically after five years. The Commerce Department would get a separate assessment from an independent economist not employed by a state agency.

The analysis would include the ratio of public spending to each job created, and the incentive could not be awarded if the cost for each job exceeds the average per capita income in South Carolina.

If these economic incentives are good deals, they should be able to withstand the scrutiny this bill calls for. It offers certainty to prospects and transparency and accountability to South Carolinians.

Lawmakers should support it.

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