The Palmetto Insider

The blog of the South Carolina Policy Council

Incentives: Headlines Now, Potential Big Costs Later

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incentivesAn anouncement regarding Red Ventures LLC’s move to South Carolina – “1,000 New Jobs, Major Investment” – failed to disclose what it could cost South Carolinians down the road to land the Internet sales and marketing company.

Earlier this week, Red Ventures said it would move its operations 3 miles, from North Carolina over the border to a new $27 million facility in Lancaster County. The company plans to move 250 jobs and announced it would hire up to another 1,000 workers in the next five to seven years.

In return, Red Ventures will be granted incentives, including job-development tax credits, which the company will be able to collect once it creates new jobs, and 18 years of property taxes discounted by 50 percent. And the S.C. Department of Commerce is giving Lancaster County a $250,000 grant for related infrastructure upgrades.

Also, the state ReadySC workforce training program is working with the company to design and implement customized job training programs for Red Ventures’ employees and helping identify skilled workers for future positions that could become available, according to the S.C. Commerce Department.

ReadySC officials haven’t had a chance to work out any specifics with Red Ventures regarding setting up a training program, ReadySC spokeswoman Kelly Steinhilper said.

Workforce training, another incentive, is paid for by the state. In the most recent state budget, $2 million in unclaimed lottery prize money was allocated for the Center for Accelerated Technology Training/ReadySC program.

In general, assessing the effectiveness of tax incentives is difficult, according to a Federal Reserve Bank of Atlanta report.

First, determining the true cost of tax incentives is challenging because these costs are not typically detailed in a state’s budget.

Two main arguments against incentives are that they’re an inefficient use of scarce public resources and they’re not fair because they reward companies new to the state while doing nothing for ones already here.

As the Policy Council pointed out in The S.C. General Assembly: Best & Worst of 2009, the problem with government-driven economic development, like most forms of state-sponsored economic planning, is that it’s based on the premise that the free market can be controlled and manipulated by an external authority.

Obviously, with South Carolina’s unemployment rate among the highest in the nation, any time the state can convince a company to relocate within the confines of the Palmetto State it’s good news.

But it’s also important to consider the future expense of such efforts, so that incentives offered today don’t end up down the road costing more than they’re worth.

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Written by Cotton Boll Conspiracy

October 9, 2009 at 10:49 am

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