Sunday, Nov. 01, 2009

Analysis defends big incentives for Boeing

COLUMBIA -- Boeing's new production line in North Charleston could ultimately bring $10 billion to the state's economy, according to an analysis by a state economist.

The analysis by the Board of Economic Advisors was provided to Senate Finance Committee Chairman Hugh Leatherman. He and Senate President Pro Tem Glenn McConnell issued a statement Friday that the income tax alone collected from new employees at the plant would pay for the state incentives package offered to Boeing, which Leatherman has valued at $450 million.

"We have a track record with BMW and Michelin to show that we can expect great things with Boeing and the tremendous impact they will have on our state," the two Senate leaders said in their statement. "The cost of the incentives is eliminated by the financial benefit. We think that most South Carolinians understand this."

The statement was released in response to criticism of the incentives by the South Carolina Policy Council, a Columbia-based research group, which called it "bad public policy."

Gov. Mark Sanford signed the incentives legislation Friday.

Sanford, who philosophically opposes incentives, has said Boeing's incentives were warranted and will be more than outweighed by the benefits.

"This is the largest jobs and investment announcement in South Carolina history," Sanford said. "Just as BMW catalyzed a now extensive automotive presence across South Carolina, we think Boeing will set off a ripple effect of high-tech manufacturing and supplier chains across the state."

Robert Martin, a BEA economist, said his analysis showed Boeing's direct and indirect investment in the state over the next 15 years would top $5 billion. When all suppliers are considered, he said, the total reaches $10 billion.

Greenville attorney and former federal judge Billy Wilkins of Greenville, who helped negotiate the incentives package, said he believes the $10 billion estimate "may be on the conservative side."

The aerospace giant is guaranteed incentives, including $170 million in low-cost loans, provided the company brings 3,800 new full-time jobs and a capital investment of at least $750 million over 10 years.

Boeing announced Wednesday it would build the North Charleston facility for a second production line of its 787 Dreamliner aircraft. Construction on the plant is expected to begin soon and production is expected in 2011.

The Policy Council argued that the process for deciding the incentives was less than transparent, with no public cost-benefit analysis. It also argued that targeted tax breaks have failed in the past to create jobs and grow the economy and that there is no guarantee the state will see 3,800 jobs or that its incentives will produce rewards for taxpayers. Washington State in 2004 gave Boeing $3.2 billion in incentives, the Policy Council argued, yet Boeing decided to open its newest facility in South Carolina.

McConnell and Leatherman, however, accused the Policy Council's report of being filled with inaccuracies "that paint a false picture of how this deal came about and what it means for South Carolina."

For every job created at Boeing, the two said, two to three jobs will be created at suppliers and elsewhere in the economy.

While there is no guarantee of 3,800 jobs, the company must produce at least those numbers or repay the tax breaks, the two leaders said. There is no cost to the state unless the jobs are created and the investment made, they said.

A BEA fiscal impact statement of the legislation concludes the incentives will not reduce sales tax or income tax revenue to the state this fiscal year.

"While no one can guarantee the future, we along with many others are confident that the new Boeing plant will prosper due to the hard work of our workers and the support of both our elected officials and business leaders," the two men said. "We wish the Policy Council had more faith in the people of this state than outsiders do."

Ashley Landess, president of the Policy Council, said the organization is pleased at Boeing's announcement but believes the issues the council has raised are justified.

"We aren't trying to just create discord," she said. "We're trying to raise substantive legitimate concerns about whether politicians ought to be investing public money in economic development when it hasn't paid off and we are in such dire unemployment straits."

She said incentives packages have not paid off for the economy as a whole during the past two decades. Politicians, she said, would better serve the state's businesses and taxpayers by cutting taxes than by offering hefty incentive packages to draw new industry.

"No one should get the impression we aren't delighted Boeing is in South Carolina," she said. "But they should come here for the right reasons, not because we pay them to do it. We contend that they'll do just fine on their own. Boeing is a successful company that doesn't need politicians to tell them how to run their business."