Of the estimated half-billion-dollar-plus state incentives package to bring a Boeing plant to North Charleston, the single-biggest-revealed piece of corporate-welfare candy offered to the aerospace giant involved the sale of $270 million in bonds.
But if taxpayers, who are entirely on the hook for 15 years to repay the bonds, want to know exactly how their tax dollars were spent by Boeing, they’re out of luck for now.
In fact, the Chicago-based company isn’t even required to simply verify in writing that the bonds were spent properly.
With interest, the $270 million bond package, which was quickly approved by state officials with little public notice, will cost South Carolina taxpayers at least $360 million over a 15-year period, The Nerve reported earlier.
The 11-football-field-size, $750 million plant, which officially opened in June, will assemble Boeing’s new generation of 787 Dreamliner passenger jets. Under the state incentives agreement, Boeing must hire at least 3,800 workers within seven years, though there are plenty of loopholes in the deal, an earlier review by The Nerve found.
Based on the promised 3,800 jobs, the total taxpayer-funded bond cost works out to about $95,000 per worker.
According to project descriptions that were included with the original bond proposals by the S.C. Department of Commerce, about $206 million of the $270 million bond package was supposed to be spent on the plant construction, with approximately $54 million and $10 million designated for site preparation and road improvements, respectively.
But whether the bonds were actually spent for those purposes is unknown. The Nerve last week asked Commerce Secretary Bobby Hitt and Candy Eslinger, Boeing’s South Carolina spokeswoman, for a specific breakdown of how the bonds were spent, but received no response to written questions by publication of this story.
The Nerve isn’t the only entity asking questions about the Boeing bond package.
In a Sept. 12 letter, a copy of which was provided to The Nerve, S.C. Treasurer Curtis Loftis asked Hitt for confirmation “to indicate that the project has been completed in compliance with the original certification and that all expenditures from bond proceeds were proper and made in accordance with the purposes for which the bonds were issued.”
As of Friday – nearly a month later – Loftis had received no response from Hitt, according to Loftis spokesman Brian DeRoy, who noted, though, that Loftis did not set a timetable for a reply.
In sending the letter, Loftis was not singling out Boeing but rather is setting a “new standard of transparency and accountability” for any company receiving taxpayer-funded bonds, which are sold through the treasurer’s office, DeRoy said.
“We’re giving out this money; we need to know where it’s going,” DeRoy replied when asked why Loftis was seeking the written certification from Commerce.
(After publication of this story, Loftis issued the following prepared statement this morning to The Nerve: “The Office of State Treasurer is placing a higher responsibility of transparency for parties doing business with the state. This is a new process of accountability which will no doubt require a period of adjustment. As of now, we have not received information from the Commerce Department with regard to our request for the accounting of bond money used on the Boeing project.”)
Commerce typically crafts state incentives agreements on behalf of the S.C Coordinating Council for Economic Development, made up of the heads of Commerce and other state agencies involved with economic development.
Among The Nerve’s unanswered written questions sent last week to Hitt, BMW’s former spokesman, and Eslinger was whether Commerce and Boeing intended to provide the written certification to the treasurer’s office.
The Nerve also asked Rob Godfrey, Gov. Nikki Haley’s spokesman, about the governor’s views on Loftis’ request but received no response by publication of this story.
The total taxpayer cost of the Boeing project, including the bonds and various corporate income, sales and property tax breaks, was projected earlier by The Nerve to be at least $500 million, though the exact costs are unknown partly because of state privacy laws protecting companies receiving incentives.
The General Assembly in a rare special session on Oct. 28, 2009, approved the first $170 million in general obligation bonds for Boeing – a day after it was first discussed publicly in a Senate Finance Committee hearing. The committee chairman, Hugh Leatherman, R-Florence, was a key player in the Boeing deal.
The $170 million was approved under a section of the S.C. Constitution that allows lawmakers to disregard general obligation bond debt limits if approved by a two-thirds vote of each chamber. Both chambers unanimously approved the Boeing bonds in a bill that laid out much of the incentives given to the company.
At a Jan. 12, 2010, special hearing – the first day of last year’s legislative session – the Joint Bond Review Committee, headed by Leatherman, approved, without prior public discussion, the sale of another $100 million in bonds for Boeing.
The next day, the S.C. Budget and Control Board, which includes Leatherman and was then chaired by former Gov. Mark Sanford, quickly signed off on the entire $270 million bond sale.
Besides the $270 million in bonds, the BCB last year also approved a $102.5 million “bridge” loan to Boeing, though the treasurer’s office later informed The Nerve that the actual loan was $4.75 million and was repaid by Boeing in April 2010 with proceeds from the bond sale.
The bonds were sold in March 2010 in three separate bundles to different New York investment firms. Boeing was to receive the full $270 million in bond principal by the end of August 2010, records show.
The bonds are scheduled to be paid off by S.C. taxpayers by April 1, 2025. Under the state constitution, if there are not enough general fund revenues to make the bond payments, the shortfall must be covered with a statewide property tax.
In a related matter, The Nerve in May reported that Loftis might have unwittingly opened a debate about whether the Boeing bond sale violated the state constitution.
In an April 29 letter, Loftis told Senate President Pro Tempore Glenn McConnell and House Speaker Bobby Harrell, both Charleston Republicans who were main players in the Boeing deal, that the constitution “prohibits lending of the public credit for the benefit of any individual, company, association, corporation or any religious or other private education institution.”
In contrast to Loftis’ letter, then-Commerce Secretary Joe Taylor in a Jan. 8, 2010, letter to the BCB and the Joint Bond Review Committee asked the panels to approve the issuance of general obligation economic development bonds “for the benefit of The Boeing Company.”
Loftis’ April 29 letter did not mention the Boeing project but rather dealt with an unrelated issue involving the repayment of federal loans for state unemployment benefits. Loftis told The Nerve for the May story that he believed the Boeing bond sale complied with the constitution, despite his opinion in the April letter.
To put the $270 million taxpayer-funded gift to Boeing in some perspective, the company reported second-quarter net income this year of $941 million, according to a quarterly earnings report. Boeing’s net earnings for all of 2010 were $3.3 billion, which represents more than half of the state’s general fund budget for this fiscal year.
Reach Brundrett at (803) 254-4411 or rick@thenerve.org.