June 20, 2024

The Nerve Archive

Where Government Gets Exposed

Gallo Winery project: No cheap buzz for SC taxpayers



E.&J. Gallo Winery, a multibillion-dollar global corporation, will get at least $25 million in assistance from the state of South Carolina to locate a plant in Chester County – plus could receive tens of millions more in taxpayer-backed incentives over decades, records released to The Nerve show.

And the California-based wine and spirits giant would face relatively light financial penalties if it doesn’t fully live up to its end of the deal, according to records recently provided by the state Department of Commerce under the S.C. Freedom of Information Act.

In fact, the performance agreement for a $16 million state grant would allow state and county officials to lower job creation and investment requirements for the company to receive incentives.

It’s more than just words on paper: The Nerve in 2018, for example, revealed that officials sharply lowered required job and investment targets to keep the Element TV assembly plant in Fairfield County.

In mid-June, Gov. Henry McMaster, along with other state and local officials, publicly announced that Gallo would build a $423 million production and distribution plant outside Fort Lawn, creating 496 full-time jobs over eight years.

“Gallo’s investment will transform Chester County and contribute greatly to South Carolina’s economic prosperity,” McMaster said then in a prepared statement. “Creating a business environment in which world-class brands can grow and thrive is critical to South Carolina’s long-term economic success, especially in our rural communities.”

In prepared remarks, company CEO Ernest J. Gallo said, “We could not be more appreciative of the collaboration and support shown by the state of South Carolina, the South Carolina Department of Commerce, and those in Chester County along with all of the public and private entities who have embraced this project throughout the planning process and have welcomed us to the community.”

The month before, McMaster signed a law – over the objections of some alcoholic beverage wholesalers and retailers – allowing Gallo to operate three off-site tasting rooms in the state.

Based in Modesto, Calif., the privately held Gallo company employs more than 7,000 workers worldwide and offers a variety of wines, distilled spirits and other beverage products under a total of more than 130 brands, according to a company fact sheet. It owns 19 wineries in California, Washington and New York, and more than 23,000 acres of vineyards in California and Washington.

It earned $5 billion in revenues in 2019, according to a company profile by the Forbes business publication.

About three months before the official announcement of the company’s South Carolina project, the state Coordinating Council for Economic Development (CCED) – administered by Commerce and made up of the heads or board chairpersons of 11 state agencies involved in economic development, including Commerce – awarded a $16 million grant to Chester County to help Gallo with the purchase of approximately 662 acres in the county, and with the costs of off-site water, sewer, road and rail improvements, records show.

In addition to the grant, lawmakers in June slipped in $8.3 million in the state budget through Commerce for the project.

The State Fiscal Accountability Authority and Joint Bond Review Committee in May approved the sale of up to $8.3 million in state taxpayer-backed bonds, which according to Commerce records, would have been used for environmental “mitigation,” or off-site projects designed to offset damage to wetlands and streams with the project. A spokeswoman in the state Treasurer’s Office said this week the bonds weren’t sold because lawmakers instead later approved the $8.3 million cash appropriation.

“Gallo has not and will not receive any portion of the appropriation,” Commerce spokeswoman Alex Clark said today in a written response, noting that the eventually restored “mitigation” site will be transferred to the state Department of Parks, Recreation and Tourism to expand Landsford Canal State Park in Chester County.

Besides that financial assistance, the State Ports Authority agreed to provide a $1 million grant to Gallo, half of it payable upon “announcement of the Project,” with the remainder due when the company reached an annual volume of 10,000 containers through the state port system, according to an incentives agreement, dated March 1, between Gallo and the Department of Commerce, the CCED and Chester County.

To put the collective $25.3 million into some perspective, it’s more than the total budgets this fiscal year of dozens of state agencies, including, for example, the State Election Commission and Department of Insurance.

Hidden taxpayer tab

And Gallo is eligible for plenty of other big incentives that state and local officials typically don’t discuss publicly. Those benefits include, according to the March 1 incentives agreement and related records provided to The Nerve:

  • Job tax credits, which are corporate income tax credits based on the number of jobs created and the location of a company, and traditionally are available for five years. A cost-benefit analysis included with the incentives agreement projected the total state cost of the credits at $55.2 million.
  • Additional job tax credits based on the plant being located in a designated “multi-county industrial park” involving Chester and York counties.
  • Job development credits, which are refunds of a portion of employee state tax withholdings. The cost-benefit analysis estimated the total state cost of that benefit at $7.1 million. The credits, which would run for 10 years, would be available for jobs paying at least $16.50 an hour, which works out to $34,320 annually based on a 40-hour work week.
  • Approximately $1.5 million for “special schools,” according to the cost-benefit analysis, which typically refers to employee training through the state Technical College System’s “readySC” program. In a Jan. 20 letter to Commerce, Brad Neese, the Technical College System’s vice president of economic development, said the readySC program could provide recruiting and training for about 388 full-time workers at an estimated value of up to $3,500 per employee.
  • Sales tax exemptions for construction materials used to build Gallo’s plant and for material-handling equipment at the site.
  • Fees-in-lieu-of-taxes (FILOT) to be offered by Chester County, which would substantially reduce Gallo’s annual property tax bill. Under a 50-year agreement, initial FILOT payments would be based on a millage rate locked in at the 2021 level and on a property assessment rate of 4% – the same rate for owner-occupied homes – compared to the 10.5% rate for manufacturing property.
  • “Special source” revenue credits to be offered by Chester County and applied against annual FILOT payments over the 50-year period, with the aim of helping to offset the cost of undefined project expenditures.
  • An unspecified amount of Duke Energy grants to be used by Gallo for site preparation and off-site public infrastructure improvements, contingent upon the company purchasing power from Duke.

Under a performance agreement that was effective March 4, Gallo would have to repay, based on a formula, a relatively small portion of the $16 million state grant if it, for example, created 400 jobs but fewer than the required 496 jobs – a nearly 20% shortfall – by the eight-year deadline.

And the agreement would allow the CCED and Chester County to lower job creation and investment requirements if undefined “extenuating circumstances” prevented Gallo from “fulfilling its commitments.”

As has been done with past open-records requests from The Nerve, Commerce blacked out portions of incentives documents on the Gallo project. The redactions included information about the company’s expected annual payroll, average salaries and hourly wages, and specifics on the projected value of land, buildings, machinery and equipment at the project site.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-254-4411 or rick@thenerve.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

Nerve stories are free to reprint and repost with permission by and credit to The Nerve.


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