Better reporting, accountability needed for tax incentives

e-mail this story discuss this issue in our forums Guest column • Rep. Jim DeMint: Saddam's trial will let Iraqis turn away from tyranny (12/21/03) • Lewis F. Gossett: Manufacturing produces benefits for state's economy (12/21/03) • David Shi: Land-grant colleges planted a legacy (12/21/03) • Jan B. Brown: Domestic violence does not discriminate (12/16/03) • John Warner: State's industries don't measure up in productivity (12/16/03) More details Jennings L. "Sonny" Graves Jr. is chairman of the board of the Alliance for Quality Education, and he is an attorney in private practice with the firm of GravesSieffert P.A. in Greenville. He attended public schools in Greenville County and is a graduate of Davidson College and the University of South Carolina School of Law. For more information, visit http://www.allianceforqualityed.org/ or call the Alliance for Quality Education at 233-4133. The telephone number published in Sunday's newspaper was incorrect. It has since been corrected online

Few have an understanding about what the incentives are and their consequences, in part because there are no requirements governing the reporting of such incentives. There is no readily available source of reporting and, therefore, no accountability. No practical method exists for any citizen, including any legislator, to make any analyses or determinations regarding the benefits and consequences of the incentives authorized by the state and granted by the counties.

In the summer of 2002, after realizing that there was no available compiled information in Greenville County, the Alliance for Quality Education engaged Dr. Harry Miley of Columbia to find and study the available data for Greenville County and to evaluate the fiscal impacts on the school district resulting from the county's use of economic development incentives.

It is important to emphasize that the goal of the Alliance was not to attack the tax incentive system. Instead, our primary purposes were: (1) to collect information, (2) to determine the fairness of and consequences on funding for the school district and (3) to consider recommendations for improvements regarding reporting and accountability.

Dr. Miley, who, as an adviser to then-Gov. Carroll Campbell helped write the original laws, benefited, during this more than year-long study, from the cooperation of Greenville County. And, as his report indicates, Greenville County has established criteria for the granting of the property tax incentives and generally distributes the fees received fairly, neither of which is true in all counties in the state.

Beyond that, however, the report presents the following conclusions:

1. State law allows the counties to assess an eligible business a fee in lieu of property taxes (FILOT).

2. The counties can then, and generally do, both reduce the assessed ratio on the property of the business from the 10.5 percent to 6 percent (on your home, it is 4 percent), consequently reducing the "property taxes" by over 40 percent, and allow the business to lock in its millage rate for up to 20 years, protecting it from future millage rate increases.

3. None of the other entities funded by property taxes are required to receive notice of the counties' proposed actions and decisions and have no input on such decisions which affect their revenues.

4. The counties are authorized and routinely grant to the eligible businesses an infrastructure tax credit which typically means in Greenville County an additional reduction of 25 percent in the "fee" paid for a period of years, for the purpose of providing the business additional funds for construction of facilities, roads, utilities, etc.

5. The counties can distribute the reduced "fees" in any manner they determine, even keeping all of the revenue for itself and distributing none to the school districts or other taxing entities.

Based upon the above and other conclusions, Dr. Miley's report recommended the following:

1. The county and the school board need to establish a rigorous reporting and monitoring system (Dr. Miley included a draft format of such a reporting system).

2. The reporting system developed needs to be open and easily accessible by the general public.

3. The county should review its current procedure of allocating the fees received to the various taxing entities (Dr. Miley concluded that Greenville County may not be distributing the fees based upon the updated allocation among the taxing entities, which could have resulted in a reduction in the amount the school district should have received by as much as $600,000 per year since 1996).

4. The county should consider increasing the requirements for granting infrastructure tax credits and fixed millage rate agreements.

5. The county and the school district should undertake a comprehensive financial audit of the past incentives granted by the county.

Dr. Miley's findings and report were presented to a number of members of our legislative delegation, County Council and school board in mid-November. The presentation resulted in an open and healthy discussion.

It is imperative that our County Council and school board work together to ensure openness, fairness and understanding on the tax incentive process. The two governing bodies must affirmatively coordinate to correct any inequities and to establish an appropriate reporting and accountability system.

At the same time, our legislative delegation needs to consider advocating revisions to the current laws to require equitable distribution, notice, disclosure and reporting.