If a yet-to-be-released state incentives agreement with the Boeing Co. looks anything like the one for the company’s existing North Charleston assembly site, the aerospace giant will get one sweet deal – courtesy of taxpayers.
The S.C. Department of Commerce so far has declined The Nerve’s request under the state Freedom of Information Act to release details of the state incentives package for the 787 Dreamliner final assembly plant.
But The Nerve has obtained the initial and final state incentives agreements for Boeing’s two existing assembly plants and a related shipping facility that houses several large cargo transport planes.
Dubbed “Project Emerald,” which opened in 2006, the assembly plants were owned by Boeing suppliers Vought Aircraft Industries and Alenia Aeronautica until purchased by Boeing in 2008 and 2009. Boeing already owned the cargo transport planes.
That incentives agreement among the companies, the Department of Commerce, S.C. Public Railways, Charleston County and the Charleston Airport District could provide a blueprint for the latest incentives deal with Boeing.
Initially approved in November 2004, the 14-page agreement and 90 pages in attachments reveal a minimum of tens of millions of dollars in incentives that state and Charleston County taxpayers will pay for up to 30 years. But the agreement, which was finalized after the plants had already opened, does not give specific cost figures for many of the incentives, so the total projected cost to taxpayers is not known.
In addition, the agreement does not specify any penalties if the plants close after 2021. Other than a back-up site rental agreement, there are no “claw-back” provisions to protect taxpayers.
And the agreement doesn’t say how the state will verify the employment and investment numbers, though Commerce spokeswoman Kara Borie told The Nerve in a written response last week that since the plant site “became operational, Vought exceeded expectations by over-performing its commitments with regard to jobs and investments.”
Borie also said Vought assigned its incentives agreements to Boeing when Boeing acquired Vought, and “accordingly, Boeing assumed all rights and obligations associated with those agreements.”
The new Boeing project, known as “Project Gemini,’ will be located at the existing site and will include a 610,000-square-foot assembly plant and several other buildings, according to company literature. For that project, Boeing will receive, among other incentives, economic development bonds that are projected to cost state taxpayers a total of about $400 million over the next 15 years.
Boeing has promised to employ at least 3,800 workers and invest $750 million at the project site within seven years. Under special legislation passed Oct. 28, if the company doesn’t uphold its end of the deal, the S.C. Department of Revenue can, though it’s not required to, assess unspecified taxes on the company to recoup certain income and sales tax breaks.
According to the earlier “Project Emerald” incentives agreement, Boeing has to create a total of 745 jobs and invest $450 million in the existing facilities by Dec. 31, 2013. Of the total number of jobs, as many as 10 percent can be “badge employees,” defined as employees of suppliers or companies that provide other services, such as janitors and security guards.
A group of Boeing workers told The Nerve in December that outside contractors make up about half of the plant workers.
Under the “Project Emerald” incentives agreement:
- Boeing must meet the employment and investment requirements at the existing facilities by Dec. 31, 2013, to continue renting the project site from the Airport District and S.C. Public Railways for $1 annually. If it fails to meet the thresholds, it faces an initial one-time rent payment, the amount of which would depend on how close it came to the thresholds.
- If Boeing doesn’t meet the thresholds by the end of 2013, the thresholds would be adjusted downward for remaining eight years of the agreement. If the new thresholds aren’t met during the period, Boeing could face total rent payments of up to $71.5 million. But under example situations listed in the agreement, the annual payments during the “maintenance” period would be less than $1 million – to be held in escrow – and Boeing would receive refunds with interest if it exceeded adjusted thresholds in subsequent years.
- Boeing faces no penalties if it has fewer than 100 employees at the existing facilities after Dec. 31, 2021. Under the “abandonment” clause, if there are fewer than 100 workers, the annual rent due before that date would be double for what it normally would be. But the time frame for those payments would be shorter, and Boeing could recoup that money if it met thresholds during the period.
- The company has four five-year lease renewal options, though the terms weren’t specified.
The incentive goodies under the agreement include:
- At least $123 million in state-issued bonds, most of which was used for construction of the buildings, including a $2.5 million training center. Additional bonds could be issued with more workers and investment. According to an earlier analysis by The Nerve of bond sale documents for the project, S.C. taxpayers will be entirely responsible for repaying the nearly $186 million in principal and interest on the issued economic development bonds. A cost-benefit analysis that was included with the incentives agreement doesn’t mention the bond interest owed by taxpayers.
- Various existing state income and sales tax breaks, including job-creation, investment and economic impact zone tax credits. In addition, Commerce would assist in an “application(s) for an alternative apportionment method” to reduce the project’s corporate tax liability. The amount of those breaks aren’t estimated in the agreement, though they likely are worth at least millions. The Commerce and Revenue departments previously denied The Nerve’s requests for specific cost figures, contending those breaks are private tax records under state law.
- Assorted county incentives, including a fee-in-lieu-of-taxes (FILOT) agreement that assesses real property for 30 years at an owner-occupied home rate of 4 percent instead of the standard 10.5-percent rate for manufacturers. In addition, 25 percent of the FILOT payments will be rebated over 10 years on the FILOT payments for infrastructure costs. As with the state income and sales tax breaks, the agreement gives no cost estimates of the county tax breaks.
- Although not specified in the state incentives agreement, under a separate county agreement, Boeing is exempted from paying personal property taxes for 10 years on two large cargo transport planes at the site.
- Training for plant workers through partnerships with the S.C. State Board for Technical and Comprehensive Education, and the Center for Accelerated Technology Training. The estimated cost of that training isn’t specified in the state agreement.
- An estimated $13 million in taxiway and other airport improvements, to be funded by the state, Federal Aviation Administration “and/or other sources.”
- A payment of $500,000 to $1 million by the utility company SCANA Corp. to the county for “qualified infrastructure” at the site, which isn’t defined.
- A Norfolk Southern Railway spur to the project site.
- Free temporary office space near the site in an office building owned and operated by the S.C. Research Authority, a state-created agency.
The state agreement also will require Boeing to take over grant payments that will total $10 million over seven years. The grants will go to unspecified public and private colleges and universities, as well as unnamed companies, for “research and development and related activities” in the aerospace and “high-technology” industries.Reach Brundrett at (803) 779-5022, ext. 106, or rick@scpolicycouncil.com.