Tax breaks need review

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Economic development incentives are needed in South Carolina to help counties attract and retain manufacturing companies that generally increase wages in an area and spawn other businesses. But a comprehensive study shows that laws creating such incentives have serious loopholes in reporting requirements and have been watered down to the point that it's fair to question whether such tax breaks accomplish the original purpose.

Tax incentives are important because they help attract industries to our state that could locate anywhere. Used correctly, tax breaks can help lure much-courted companies to a state that needs high-paying jobs.

The study, commissioned by the Greenville Alliance for Quality Education, was prepared by Columbia economist Harry Miley, who looked specifically into the tax breaks given out by Greenville County Council. Miley was an economic adviser to former Gov. Carroll Campbell, and he helped write the 1987 law that created a plum tax incentive called FILOTs, which are fees in lieu of taxes.

Used incorrectly, tax incentives can have a negative impact on several groups. The incentives can take money from local schools or other governmental entities that must deal with the consequences of growth. And inappropriate or too generous tax incentives can shift a heavy tax load onto other taxpayers, such as homeowners and other businesses that don't have those special breaks.

The Miley study had some words of praise for the Greenville County Council. It was noted that the County Council has a formula for distributing revenue on a pro rata basis with other tax districts, including the Greenville County School District. And unlike many counties, Greenville County doesn't deduct "expenses," for purposes such as infrastructure improvements, from multi-county industrial parks before any distribution is made, and that voluntary act allows more money to be distributed to other tax districts.

The study said Greenville County "should be commended" for having a set of investment guidelines that are used in granting incentives. And the report noted Greenville County does a "better than average job" of collecting and maintaining data about agreements involving incentives.

So, the Greenville County Council clearly is doing better than many of its counterparts across the state in implementing state laws governing several forms of tax incentives. There's room for improvement, and the study contained six recommendations that should be taken seriously — such as increasing the requirements for giving some tax incentives and establishing a rigorous reporting and monitoring system.

Miley's recommendations were to Greenville officials, but his report should get the attention of the state Legislature. Miley exposed some glaring deficiencies in state law that can only be corrected in the Legislature.

The Legislature really is responsible for critically needed reforms. Legislators are responsible for the laws that as currently written do not require much-needed transparency in local economic incentive deals. The state should set the requirements for reporting these deals and maintaining a database accessible to the general public.

Of even greater urgency, the Legislature should review the ridiculously low thresholds for some of these incentives. For example, companies had to invest at least $85 million in the late 1980s to qualify for a FILOT agreement but that threshold has dropped to as little as $5 million. And tax credits once reserved for manufacturing companies are now being granted to commercial shopping centers, corporate headquarters and speculative office buildings, according to the Miley study.

Where once such special tax breaks were reserved for "footloose" manufacturing plants that might go anywhere "but for" these lower taxes, these economic development incentives are being handed out across South Carolina to companies that likely would locate here without such special tax treatment.

Across South Carolina, property taxes are being shifted to other classes of taxpayers at least in part because economic incentives have not remained true to their original purpose. And in many counties, local school districts are being deprived of critically needed tax revenue.

Reviewing and changing these special tax incentives should be at the top of the Legislature's long to-do list next year.