Written by Rick Brundrett and Eric K. Ward
Two state economic analyses paint widely different pictures of the public costs and benefits of Boeing’s 787 Dreamliner final assembly plant under construction in North Charleston.
The Nerve this week obtained the analyses by the state Board of Economic Advisors and S.C. Department of Commerce under the state Freedom of Information Act.
The bottom line: The studies differ by nearly $900 million in projected benefits and more than $120 million in projected taxpayer costs of a huge incentives package the General Assembly crammed through a special session in October to buy the 787 plant for South Carolina.
In fact, the four-page BEA analysis inexplicably leaves out the single largest known taxpayer cost, while Commerce’s two-page study lowballs it.
Moreover, in the public costs, neither analysis includes sales tax breaks Boeing is eligible for under the legislation. The same appears to be true for a reduced corporate income tax rate, which the law allows the company to obtain if the state Department of Revenue enters into an agreement with Boeing.
The disparities in the reviews point up major weaknesses in the state’s process for doling out incentives, not least of which is an inability for taxpayers and government watchdogs to vet the deals before they are inked.
That can happen only afterward because the agreements are negotiated in secret.
Also, the analyses would seem to be based on optimistic, if not incorrect, assumptions, including:
- That all of the new jobs will be filled by people who are unemployed;
- That it is possible to accurately project what state revenues, property tax collections and other important variables used in the studies will be 15 years from now; and
- That the entire state will reap the benefits of the new plant.
The BEA analysis was done at the request of state Senate Finance Committee Chairman Hugh Leatherman, R-Florence, and provided to him on Oct. 8 – about three weeks before the Legislature unanimously approved the incentives package for Boeing.
“Overall, the model estimates enormous benefits to the state as a whole,” William Gillespie, the state’s chief economist, wrote glowingly in a letter to Leatherman that was attached to the BEA analysis.
No date is listed on the Commerce analysis provided to The Nerve.
The two analyses project very different income benefits and public costs of the project over a 15-year period. The BEA analysis, for example, estimates the present-day value of total benefits at about $6.1 billion and total public costs at $232.3 million, for a benefit-to-cost ratio of 26:1.
The Commerce analysis, on the other hand, estimates the present-day value of total benefits at $5.2 billion and total public costs at $353.4 million, for a benefit-to-cost ratio of about 15:1.
Perhaps just as striking, the BEA analysis makes no mention of the largest-known single chunk of taxpayer expense: about $400 million in projected general obligation bond costs, including interest. The Commerce analysis lists $263.3 million in bond costs, which is nearly $7 million short of the principal alone.
In a previously unannounced move, the Legislature in the special October session approved $170 million in economic development bonds for Boeing, along with the income and sales tax breaks.
Then earlier this month, the state Joint Bond Review Committee and Budget and Control Board signed off – without any public input – on another $100 million in bonds for the company.
The total $270 million in bonds, plus an estimated $130 million in interest, will be paid back entirely by state taxpayers over the next 15 years.
Besides the bond costs, there are a number of other differences between the two analyses. Following is a sampling:
- The BEA analysis is based on an employment level of 4,800 plant workers; the Commerce analysis assumes 3,800 plants jobs, the minimum number promised by Boeing.
- The Commerce analysis projects 5,971 indirect jobs, while the BEA study estimates 4,766 spin-off jobs.
- The BEA analysis cites a state average annual salary of $38,000; the Commerce study lists it at $28,000. (Both studies project an average hourly rate of $19, though news reports have put the figure at $14 to $16 per hour.)
- The Commerce study estimates project-related property taxes over the 15-year period at nearly $85 million, compared to about $18 million in property fees and taxes cited in the BEA analysis.
- The Commerce analysis lists training costs by ready SC, a division of the S.C. Technical College System, at nearly $34 million over 15 years. The BEA study did include a category called special schools, under which it allocated $9.6 million.
Reach Brundrett at (803) 779-5022, ext. 106, or rick@scpolicycouncil.com. Reach Ward at (803) 779-5022, ext. 117, or eric@scpolicycouncil.com.