Aerospace giant Boeing properly spent $270 million in S.C. taxpayer-backed bond proceeds given to the Chicago-based company for its North Charleston assembly plant, state Commerce Secretary Bobby Hitt said in a letter obtained Thursday by The Nerve.
Hitt responded to a Sept. 12 request by S.C. Treasurer Curtis Loftis that Commerce confirm that the bonds were spent for the purposes as initially certified by former Commerce Secretary Joe Taylor.
Commerce’s written reply to Loftis arrived Wednesday morning, Loftis spokesman Brian DeRoy told The Nerve – two days after The Nerve first reported that nearly a month had passed with no response to Loftis’ request.
“We thank the Commerce Department for its timely response,” Loftis said in a prepared statement issued Wednesday to The Nerve.
Loftis said he made the request as a first attempt at keeping a closer eye on such bond sales. “These first steps of increased transparency and accountability will take some time to perfect, but we are confident that the state’s interest will be served by this new policy,” he wrote.
In a letter to Loftis dated Monday – the day of The Nerve’s initial story – Hitt said Commerce and Boeing have “complied with all legal and procedural requirements with regard to the expenditure of bond proceeds in support of the Boeing project in North Charleston and no further certification is required.”
“Should you express an interest in personally inspecting how the investment by the state of South Carolina has been implemented to support Boeing’s success in North Charleston,” Hitt wrote, “I anticipate that Boeing would likely invite you and your staff to visit the new assembly facility.”
Karen Manning, Commerce’s chief attorney, provided The Nerve with a copy of Hitt’s letter late Thursday afternoon, along with 59 pages of attachments that also were sent to Loftis.
DeRoy on Thursday could not immediately say whether the documents provided to Loftis by Commerce fulfilled Loftis’ request, noting, “It’s going to take a little while for him (Loftis) to review.”
The documents reviewed by The Nerve show that Commerce authorized 13 electronic payments totaling $270 million to Boeing starting on March 29, 2010, and ending last March 23. The first payment was the smallest – $3.6 million; the single-largest payment – $36.6 million – was authorized Dec. 9, records show.
Hitt in his letter said Commerce staff forwarded to Loftis’ office the final request for withdrawal of bond funds in March, noting, “As my staff explained during their meeting in your office, the final request for withdrawal as well as each of the prior 12 requests were made in compliance with agreed upon bond funding procedures.”
Loftis in his Sept. 12 letter cited an Aug. 19 meeting with Commerce staff on the status of the Boeing project.
The bonds, which were quickly approved by state officials in October 2009 and early last year with little public notice, were the single-biggest-revealed piece of an estimated half-billion-dollar-plus incentives package offered to Boeing. Because the bonds are classified as general obligation bonds, South Carolina taxpayers must repay them with interest.
With interest, the $270 million bond package will cost taxpayers at least $360 million over a 15-year period, The Nerve reported earlier.
Boeing’s 11-football-field-size plant in North Charleston, which officially opened in June, will assemble the company’s new generation of 787 Dreamliner passenger jets. Under a 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 minimum promised 3,800 jobs, the total taxpayer-funded bond cost works out to about $95,000 per worker.
In his letter to Loftis, Hitt, a former BMW spokesman who was not the Commerce chief when the Boeing deal was crafted, said that “there is no doubt” that Boeing is “well on its way to meeting its commitment to create a minimum of 6,000 jobs and invest a minimum of $750 million statewide by year-end 2016.”
As The Nerve reported earlier, the 6,000 jobs includes 2,200 workers already employed at two existing Boeing plants in North Charleston.
Hitt in his letter also upped Boeing’s investment, describing the new plant as a “billion dollar final assembly facility.”
According to project descriptions that were included with the original bond proposals by Commerce, about $206 million of the $270 million bond package was supposed to be spent on the plant construction, with $54 million and $10 million designated for site preparation and road improvements, respectively.
But details of the actual expenditures covered by the bonds had not been revealed publicly before Commerce’s release of documents to The Nerve on Thursday. The Nerve last week asked 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.
The documents include invoice descriptions provided by Boeing, with total amounts spent at various stages of the project, for site work, the final assembly and central utility buildings, a fuel system and the “flightline” – typically defined as the parking area and maintenance hangars where aircraft are onloaded, offloaded and serviced.
In his Sept. 12 letter to Hitt, Loftis asked 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.”
In sending the letter, Loftis was not singling out Boeing but rather was 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 when initially interviewed by The Nerve last week.
“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.
The Nerve last week asked Rob Godfrey, Gov. Nikki Haley’s spokesman, about the governor’s views on Loftis’ request but received no response.
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.
That amount 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 legislation.
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. The bonds were sold in March 2010 in three separate bundles to New York investment firms, records show.
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 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.
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.