July 23, 2024

The Nerve Archive

Where Government Gets Exposed

Failed Companies: Money Down the Drain

The NerveWhen Canada-based Western Star Trucks Inc. announced in December 1998 that it would build a $25 million truck assembly plant in North Charleston employing 400 workers, local leaders were giddy with delight.

“I told my wife Deborah there really is a Santa Claus,” Mayor Keith Summey told a local newspaper.

But Western Star Trucks turned out to be more of a Grinch. It closed in December 2000 less than a year after opening, leaving 138 employees out of a job.

And taxpayers likely were left holding the bag.

The company reportedly was offered unspecified corporate income tax credits, job-training assistance and an agreement that would let it pay a greatly reduced fee in lieu of property taxes.

Western Star Trucks isn’t the first company in South Carolina to fail after receiving taxpayer-supported incentives. Other companies that closed or were forced to sell over the past 12 years include:

  • Mack Trucks, which operated a truck assembly plant in Winnsboro in Fairfield County from 1987 to 2002. It employed about 1,500 workers at its peak in the late 1990s, but new owner Volvo, citing a downtown in the heavy-truck market, decided to close the plant and relocate operations to a Virginia Volvo plant. When the Winnsboro plant closed, the number of workers there had dropped to about 600.
  • Air South, a start-up discount airline based at Columbia Metropolitan Airport that operated from 1994 until it declared bankruptcy in 1997 following dwindling revenues and problems getting more planes. About 700 workers were fired with the bankruptcy. Despite that failure, some state lawmakers are now working on legislation that would provide a taxpayer-funded bailout of up to $15 million to a start-up airline if it got into financial trouble.
  • Marine Energy Systems Corp., a Berkeley County firm that was supposed to build floating power barges for a Pakistani power company, potentially employing more than 700 workers. But less than three years after announcing the project, Marine Energy declared bankruptcy in 1997, with few workers and no manufactured barges.
  • Policy Management Systems Corp., a computer software firm for the insurance and financial industry that grew from about 600 workers in 1981 as a Columbia spin-off of Seibels Bruce to about 2,500 in the late 1990s at its Blythewood campus in Richland County. But the company, which later changed its name to Mynd, laid off about 700 workers in 2000 after earnings and stock prices plummeted. The company, which had offices worldwide, was sold that year to California-based Computer Sciences Corp., which cut another 550 jobs in Blythewood.

There likely are plenty of other examples, though state agencies have refused to release that information to The Nerve. The S.C. Department of Commerce, for example, denied separate FOIA requests seeking a dollar-amount list of every state incentive given over the past 25 years to companies that had investments of at least $1 million, and a database of every incentive given to all companies over the past 10 years, regardless of the size of the investment.In written responses to The Nerve, Commerce chief lawyer Karen Manning cited a 1996 S.C. Attorney General’s opinion that said the agency didn’t have to “create a record where the record does not otherwise exist.”

But Commerce also denied The Nerve access to records that do exist.

The department rejected an FOIA request on specifics of incentives given to Mack Trucks, Marine Energy Systems and Policy Management Systems Corp.

Current law requires the state to provide incentive agreements once they are finalized, but Manning said the three companies fall under an old law that exempts from disclosure “all information related to industrial recruitment prior to June, 12, 1998.”

Manning included Air South in that group but said that because the airline is no longer in business, and given other unspecified “special circumstances,” the department was willing to release those records “after a good faith search to determine whether the agency still has any records in its possession.”

The department required a $205 up-front deposit from The Nerve before conducting a search. The Nerve didn’t pay the fee and obtained various state and county incentive records on Air South from Lexington County for far less cost after filing an FOIA request there.

The Nerve also submitted an FOIA request to Commerce for details on the incentives agreement with Western Star Trucks. In a written response, Manning said that any “nonexempt public records that are or may be responsive to your request have been sent to State Archives and History and are no longer in the possession of the Department of Commerce.”

She did note, however, that the state Coordinating Council for Economic Development in December 1998 approved a $200,936 grant for Charleston County for “public road improvements that benefited Western Star,” though that grant was closed in June 2000.

According to news stories, Policy Management Systems Corp. received an $825,387 “set-aside” grant in 1989 from the Department of Commerce to be used primarily for roads, site improvement and water and sewer lines. The company was identified in 2002 news accounts as being among 15 businesses or organizations that received millions in set-aside grants and that also had contributed to a special Commerce entertainment fund.

PMSC was headed by USC graduate Larry Wilson, an S.C. Research Authority board member and venture capitalist. About three years ago, a Missouri-based insurance software company whose board included Wilson was announced as the first major private tenant on USC’s financially struggling Innovista research campus in downtown Columbia. But the move never happened.

Besides state incentives, PMSC also received a number of tax breaks from Richland County in the late 1990s for an expansion project of at least $20 million, according to county documents provided to The Nerve under the FOIA.

Although specific costs of the incentives were not listed, they included:

  • A fee-in-lieu-of-taxes agreement for up to 20 years. State Department of Revenue records show the company was billed nearly $1 million in total FILOT payments for tax years 2000 through 2004 after the company was sold to Computer Sciences Corp., though the department said it “does not appear that this agreement was assigned.”
  • Infrastructure credits equal to 25 percent of the annual FILOT payments, for up to seven years.
  • A designation of the site as a multi-county industrial park, which would enable the company to take advantage of increased state corporate income tax credits.
  • Free or reduced water and sewer tap fees by the city of Columbia.

Mack Trucks received at least $17 million in state and local tax breaks, land, and improvements to roads, sewers and rail lines, according to news articles, though specifics on every incentive were not reported.An FOIA to Fairfield County for its incentive agreement with Mack Trucks is pending. The state Department of Revenue, which also keeps FILOT agreements, said it had no such records for Mack Trucks, Air South or Marine Energy Systems.

Air South and Marine Energy Systems each received a state-approved, $12 million federal Housing and Urban Development-backed loan that would be repaid with the state’s share of annual federal block grant funds if the companies failed to make the payments, according to news articles and Air South documents reviewed by The Nerve.

In addition, Air South received a $1.5 million HUD-backed grant from the city of Columbia, a $500,000 start-up loan from the Columbia Development Corp., and separate grants of $750,000 each from Lexington and Richland counties, documents show.

With state training assistance, the total incentives package to Air South was pegged at about $17 million.

The $12 million loans to Air South and Marine Energy Systems have been repaid, Paul Webster, the director of HUD’s Financial Management Division, said in a written response to The Nerve.

About $4.8 million in interest was paid on the Air South loan, Webster said, though he didn’t have records of interest payments on the other loan. He also couldn’t say how much each company paid on their respective loans.

The Berkeley County Attorney’s Office told The Nerve it had no records on Marine Energy Systems.

As for the Air South deal, there were plenty of early skeptics. A group of Lexington County residents, for example, voiced their opposition to the $12 million loan at a public hearing in March 1994 in Lexington County – three years before the airline folded – according to a transcript of the hearing.

“I would like to go on record as being against this project – not against Air South, but against the fact that we will be in debt for this venture,” said one resident. “I think they should pay for their own ventures. I’ve had to pay for mine, and I feel like the taxpayers do not need any more burdens of this sort.”

Said another resident: “We’re going to give away $750,000 to help somebody – why can’t we help the people that’s already in business here?”

Added another prophetic resident: “I think that the airline industry is very speculative. I don’t like putting my tax money into Russian roulette.”

But despite Air South’s failure, some state lawmakers these days want to dangle millions of tax dollars to attract other discount airlines to the state. State Rep. Bill Wylie, R-Greenville, House Speaker Bobby Harrell, R-Charleston, and other legislators are working to introduce legislation that would provide up to $15 million to reimburse airlines that locate in South Carolina for certain losses up to 24 months.

Upstate leaders have been trying to woo Southwest Airlines to the Greenville-Spartanburg International Airport, though the large discount carrier has yet to commit.

In an interview with The Nerve, Wylie, a business consultant, bristled a bit when asked if he was aware of Air South’s failure.

“I know all about it,” he said. “Southwest Airlines has never pulled out of a market they’ve gone into. They are not that other discount airline.”

According to news accounts, however, Southwest pulled out of three markets over its 30-plus-year history, though it later returned service in two of the cities.

Wylie said under the yet-to-be-introduced legislation, an eligible airline would not get any special incentive money up front. Instead, he explained, state funds would be spent only if the carrier was in financial trouble, and any reimbursements would be limited to a 24-month period.

“It’s some assurance that they will not take a real bath in the first 24 months,” Wylie said. “There’s no guarantee they’ll get any of the money. It’s just an insurance policy.”

Reach Brundrett at 803-779-5022, ext. 106, or rick@scpolicycouncil.com.

We need your help to continue our mission of holding government officials accountable! As part of the South Carolina Policy Council, a nonprofit, nonpartisan research organization, we rely on donations to operate. Please consider giving today so we can keep bringing accountability to government. It’s your power, and it’s time to take it back!
The Nerve