More than a month after Gov. Nikki Haley signed a rushed bill into law giving aerospace giant Boeing Co. a $120 million taxpayer-funded gift, neither she nor state commerce officials have publicly released specifics on how the money will be spent.
But contacted last week by The Nerve, S.C. Sen. Paul Campbell, R-Berkeley, who says he was involved with some of the early negotiations on the bill, revealed some details.
Campbell said proceeds from the sale of $120 million in state bonds will be used to buy approximately 320 acres of Charleston International Airport property, located across from Boeing’s existing aircraft assembly plant, from the Charleston County Aviation Authority, which owns the airport property.
The bulk of the bond proceeds would be used for site infrastructure improvements to allow for the construction of at least one new building, he said.
“They’re (Boeing) not taking down the land to look at it or make it look pretty,” said Campbell, a retired Alcoa regional president, though he added he didn’t know specifically how Boeing will use the property.
Although, according to aviation authority meeting minutes provided to The Nerve and published reports, the airport land was sold to Boeing on March 21 for $12.5 million, Campbell said it was his understanding that the state or some state entity will own the land until the bonds, which have not yet been sold, are paid off. He said he expects that Boeing will assume ownership of the land after the debt is retired.
State taxpayers, however, will be entirely on the hook for paying back the bonds with interest. Taxpayers currently are paying off a 15-year, $270 million bond package, which will cost a total of at least $360 million with interest, for Boeing’s existing assembly site. Details of how that money was spent were not publicly revealed until nearly two years after legislation was passed authorizing the sale of bonds for the project, as The Nerve reported then.
The Charleston County Aviation Authority currently owns the land where the existing Boeing assembly plant is located, according to a state Budget and Control Board analyst, though a county spokesman toldThe Nerve that Boeing is in the process of buying that property.
Asked why he or other state officials didn’t release details on how the latest $120 million would be spent while the bond bill, which was introduced in the Senate on April 9 and signed into law just two weeks later, was before the General Assembly, Campbell replied, “We’ve got to keep some things close to the vest.”
Campbell, who was involved in the negotiations in the initial Boeing deal, contended that revealing too many details on the latest bond bill, sponsored by Sen. Hugh Leatherman, R-Florence and the Senate Finance Committee chairman, would have encouraged other states to compete with South Carolina for Boeing’s expansion project.
Leatherman was a key player in the initial incentives deal several years ago, which The Nerve projected then would cost taxpayers at least a half-billion dollars, to bring the Boeing assembly plant to North Charleston. In a rare, special session in October 2009, the Legislature unanimously approved part of that incentives package, without allowing public input beforehand on the bill.
As has been his practice with The Nerve, Leatherman, who is a member of the state Joint Bond Review Committee and Budget and Control Board, each of which deals with the issuance of taxpayer-funded bonds, did not respond to several written messages last week from The Nerve seeking comment on the latest Boeing bond bill.
The Nerve over the past two weeks left written or phone messages with Haley’s office, Commerce Secretary Bobby Hitt and other Commerce staff, Boeing’s South Carolina spokeswoman Candy Eslinger and Charleston County Aviation Authority Director Sue Stevens seeking comment on the bond bill and other related matters.
None responded.
Lack of Transparency
In an ETV-produced show that aired online on April 18, called “This Week in the State House” and moderated by S.C. Lt. Gov. Glenn McConnell, state Rep. Ralph Norman, R-York and a developer, complained about the lack of details surrounding the $120 million bond bill.
Norman was one of two House members – the other being Rep. Bill Chumley, R-Spartanburg – who voted against the bill (S. 578) when it came up for the critical second reading in the House on April 17; 115 House members voted in favor of it, according to the House Journal.
“It was very fast; very few of the details were known about where it (the bond proceeds) is being spent,” Norman said during the ETV program. “There’s no business in this state that wouldn’t like a check for $120 million, but I think the vetting … should be done now when we negotiate.”
“Boeing is out to make a profit, which we want,” Norman continued. “But my whole issue with the speed with which this went was very few people knew the details. Very few people knew where it was going. .. I wasn’t part of the negotiations that asked: ‘What did Boeing ask for initially? What did we negotiate down to?’”
“I think when you see the details and when they see the details, you’ll say this is a good investment for South Carolina,” Campbell replied, though he didn’t reveal any details then of how the $120 million would be spent.
Responding to Norman, Campbell also noted, “I was involved with some of the negotiations, so I had more information than you had.”
Campbell said during the program that based on his “back-of-the-envelope calculation” – the same phrase he used in a January 2010 Nerve story on the initial Boeing incentives deal – Boeing’s announced investment of $1.1 billion and 2,000 new jobs likely would allow the state to pay off the $120 million in bonds in as little as three years with additional state income and sales tax revenue, along with unemployment cost savings.
The additional revenue would be based in part on the creation of at least four additional spinoff jobs for every new Boeing position, Campbell said.
“I’m looking at somewhere between 20 and 25 percent return on the money we’re investing,” he said.
As part of the initial incentives deal, Boeing promised to create at least 3,800 jobs and invest $750 million by Dec. 31, 2016. Campbell said the company has fulfilled its end of that deal four years ahead of schedule.
Contacted last week by The Nerve, Norman said he is “still in the dark” about how the latest $120 million in bond money will be spent.
“The details are just missing on this, and that’s the problem I continue to have,” he said.
Boeing’s Environmental Issues
Campbell told The Nerve that preparing the expanded Boeing site for one or more buildings likely would involve constructing several roads there and other infrastructure projects, including “wetlands mitigation,” which can involve protecting wetlands off site in exchange for being allowed to fill in on-site wetlands.
Contacted last week by The Nerve, Glenn Jeffries, a spokeswoman for the U.S. Army Corps of Engineers’ Charleston office, said Army Corps staff initiated a March meeting with Boeing representatives about wetlands issues at the expansion site, and Lt. Col. Edward Chamberlayne, commander and district engineer for the Charleston Army Corps district, visited the site area on April 29.
“If we know something’s coming, it’s just easier if we are in it from the beginning,” Jeffries said. “We would do so with any large project.”
Jeffries said Boeing has not submitted any application to the Corps of Engineers seeking permission to fill in wetlands, adding, “If they move forward and if they will impact a wetland, they will have to have a permit.”
Dana Beach, director of the Charleston-based Coastal Conservation League, told The Nerve last week that his office has not been contacted by any government or Boeing officials about wetlands issues at the expansion site. He estimated that much of the area is made up of wetlands.
“It is probably a permittable fill,” he said, noting that area had been mined years ago for phosphate.
More than 30 acres of wetlands were filled in at Boeing’s existing North Charleston site for the construction of two plants owned then by Boeing suppliers Vought Aircraft Industries, which opened its facility in 2006, and Global Aeronautica. The two plants were purchased by Boeing before the larger Boeing plant, which opened in June 2011, was constructed.
In exchange for filling in the wetlands for the Vought-Global Aeronautica project, a $4.75 million wetlands-mitigation fund was established, which led to the creation of the Ashley-Cooper Rivers Environmental Trust to protect wetlands in the Ashley River watershed. Beach said approximately 13,000 acres have been protected to date, adding that the state Department of Commerce worked with his organization in setting up the plan.
“It was completely transparent,” he recalled.
But Beach said he has questions about how the latest $120 million approved for Boeing will be spent. He pointed out, for example, that even if a similar wetlands-mitigation fund were set up to allow some wetlands to be filled in at the 320-acre expansion site, it likely would represent a relatively small percentage of the bond proceeds.
“South Carolina taxpayers should ask, ‘Why is the state buying land for them (Boeing)?’” Beach said.
Sweetheart Land Deal
The Charleston County Aviation Authority owns the land where the existing Boeing assembly plant is located and leases it to S.C. Public Railways – a division of the Department of Commerce – which subleases it Boeing, said Rebecca Griggs, a government affairs analyst with the S.C. Budget and Control Board. The massive assembly plant, which covers the equivalent of 11 football fields, sits on 240 acres, according to company literature.
Griggs could not provide details of the sublease between S.C. Public Railways and Boeing. Jeff McWhorter, the Public Railways president and CEO, did not respond to several phone messages left for him by The Nerve.
In a written response to The Nerve, Charleston County government spokesman Shawn Smetana said Boeing is in a “long-term lease but is in the process of buying the land it’s using for final assembly.”
“Part of the process is waiting on the FAA (Federal Aviation Administration) to approve the deal,” Smetana said. “Right now, the County doesn’t have a solid timetable to give on the process.”
Besides the March purchase of the 320 acres of airport property, Boeing also has first-refusal rights on an additional 488 acres of nearby land, according to Charleston County Aviation Authority minutes of its March 21 meeting.
As for the existing buildings on Boeing’s North Charleston site, which include the main assembly plant, the former Vought and Global Aeronautica plants, and several other buildings, Smetana said each are owned by Boeing, adding that the S.C. Department of Revenue (DOR) “handles the appraisal on those.”
DOR spokeswoman Samantha Cheek did not respond to several phone and written messages from The Nerve over the past two weeks seeking details on her agency’s appraisal of Boeing property.
In its first taxable year, Boeing paid the county slightly more than $6 million, which was distributed to local taxing entities, under a fee-in-lieu-of-taxes (FILOT) agreement with the county as part of the initial incentives deal, according to Smetana. Half of that amount – $3 million – was returned to Boeing as a “special source revenue credit,” he said; under the FILOT agreement, Boeing will receive the rebates for 15 years.
The FILOT agreement also allows Boeing property to be assessed at the owner-occupied home rate of 4 percent for 30 years instead of at the standard industrial assessment rate of 10.5 percent.
In contrast, assuming the new assembly plant property was appraised for tax purposes at the promised investment level of $750 million and applying the industrial-property assessment rate and a fixed millage rate used in the FILOT agreement, Boeing would have owed $21.2 million in property taxes in its first year – more than seven times the amount the company actually paid under the FILOT agreement.
The Chicago-based Boeing is not hurting for money, reporting net income of $3.9 billion in 2012 and $1.1 billion in the first quarter of this year, according to company filings with the U.S. Securities and Exchange Commission.
Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and on Twitter @thenervesc.