Imagine going to a bank and asking for a $120 million loan but refusing to tell the loan officer how exactly you plan to spend the money.
Odds are you’d be laughed out of the bank. But if you’re the Boeing Co., you apparently can get away with that thanks to state officials – especially when it comes to taxpayers’ money.
More than seven months after Gov. Nikki Haley signed a rushed bill giving the Chicago-based aerospace giant a $120 million, taxpayer-funded gift, state officials still are reluctant to reveal – or contend they don’t know – how exactly the proceeds of the sale of general obligation bonds, which S.C. taxpayers are on the hook for repaying with interest, will be spent.
To finance Boeing’s latest largely undisclosed plans, the S.C. Treasurer’s Office last month accepted a bid by New York-based J.P. Morgan Securities LLC to buy the first $85 million in state bonds, which come with a total interest cost of nearly $23.4 million over 10 years, records provided to The Nerve show.
When asked this week by The Nerve for specifics on what the $85 million will be used for, the Treasurer’s Office provided a document listing only the following general description, as allowed under state law:
“Land acquisition and site preparation, including but not limited to clearing, grading and filling the site and environmental mitigation, and construction of any necessary water service and wastewater treatment.”
In a written response this week to The Nerve, Alex Stroman, spokesman for Treasurer Curtis Loftis, said none of the bond proceeds will be “provided directly to Boeing,” but instead will remain with the Treasurer’s Office until Commerce “makes requisitions for funds – whenever the property is acquired, and as construction progresses for the improvements thereon.”
“The Treasurer’s Office has made one disbursement for the land acquisition pursuant to a Commerce draw,” Stroman said, noting the amount requested by Commerce was $49 million.
But when asked about specifics of the draw, Stroman replied, “You should direct questions about the property acquisition to the Commerce Department.”
In a written response this week, Commerce spokeswoman Allison Skipper said $49 million of the $120 million bond package was used on Dec. 13 by Commerce, through its Palmetto Railways division, to buy 468 acres in North Charleston, which will be leased to Boeing. She said the remaining approximately $70 million of the bond package will be “expended by Boeing on eligible items of infrastructure” under state law, though she didn’t provide specifics.
In a recent interview with The Nerve, S.C. Sen. Paul Campbell, R-Berkeley and executive director of the Charleston County Aviation Authority, which owns the property on which Boeing’s 787 Dreamliner assembly plant is located, said approximately $13.8 million of the $120 million bond package would be used by Palmetto Railways to purchase 267 acres of airport property across from Boeing’s main assembly plant, and that the purchased property would be leased to Boeing.
The lease would be in effect until the bonds are paid off, at which time Boeing would have the option of purchasing the property, Campbell said, adding that the state also could deed the land over to Boeing at no cost.
Skipper in a Dec. 3 response to a state Freedom of Information Act request by The Nerve said none of the $120 million in bonds would be used for new buildings as part of Boeing’s “Project Phase II,’ though she noted that the company’s recent announcement of a 737 MAX engine assembly facility is “related” to the latest project. Boeing also announced this month it will begin construction later next year on a building to paint 787 Dreamliners that are built at its main assembly plant.
Campbell said it was his understanding that part of the $120 million bond package would be used by Palmetto Railways to purchase another 201 privately held acres, which would be leased to Boeing. The cost of that property is $35.2 million, according to media reports. State officials have not publicly released specifics of Boeing’s plans for that property.
Asked what the remaining approximately $70 million of the bond package would be used for, Campbell said he was informed it would be committed mainly to filling in wetlands at the 267-acre site, which he noted covers about half of the property, and purchasing wetlands elsewhere in the state for preservation, often required under federal law when wetlands are allowed to be filled in at a construction site. But he said he didn’t have a precise cost breakdown of those projected expenses.
“That’s going to cost a significant among of money,” Campbell said, adding, “I don’t think the $120 million will cover the purchase of land and the convertibility of wetlands.”
State officials certainly know how to get a lot of money in a hurry to Boeing. In less than two weeks in April, the Legislature approved a bill (S. 578), sponsored by Sen. Hugh Leatherman, R-Florence and the Senate Finance Committee chairman, authorizing the $120 million bond package in exchange for the creation of at least 2,000 jobs and a minimum investment of $1.1 billion. Haley quickly signed the bill into law.
And in June, the S.C. Budget and Control Board, chaired by Haley, approved a “bridge” loan to Boeing pending the sale of the $120 million in bonds, though Loftis, a member of the BCB along with Leatherman, recently told The Nerve that Boeing has not requested any loan money.
The S.C. Constitution (Article 10, Section 11) says the state’s credit cannot be “pledged or loaned for the benefit of any individual, company, association, corporation or any religious or other private education institution.” Asked whether the constitutional prohibition was violated with the Boeing bond sale, Stroman said that question would “best be answered by the Commerce Department and their attorneys.”
It’s not the first time that state officials have been largely silent about how bond proceeds for Boeing will be spent. In locating its main 787 Dreamliner assembly plant in North Charleston on property owned by the Charleston County Aviation Authority, Boeing received $270 million in state bonds that with interest will cost state taxpayers at least $360 million over 15 years. In exchange, Boeing promised to create at least 3,800 jobs and invest $750 million by Dec. 31, 2016.
In October 2009, the S.C. General Assembly – with no prior public discussion and in a rare, special session – unanimously approved the first $170 million in taxpayer-funded bonds for Boeing. No details were revealed then on how exactly the bond money would be spent. In October 2011 – four months after the Dreamliner plant opened – Commerce Secretary Bobby Hitt in a letter to Loftis said the bonds for Boeing were properly spent.
Records released then to The Nerve showed that of $270 million in bonds initially approved for Boeing, about $206 million was designated for plant construction, with $64 million to be spent on site preparation and road improvements.
A 2010 review by The Nerve projected the total incentives package offered to Boeing for the Dreamliner plant to be at least $500 million. The true taxpayer cost likely will never be known because of state privacy laws and the reluctance of state agencies to release information.
Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.