Guest Editorial: Incentives a dirty word, but necessary

Summerville Journal Scene | July 10, 2019

What comes to mind when you hear the word “incentives?” In the context of economic development that word has a pretty negative reputation. At best, they are deemed unnecessary by some and at worse they are labeled corporate welfare. On some level, I may not disagree with those statements.

It’s my duty, as Economic Development Director, to recruit in-demand industries to Dorchester County. In a perfect world, my job would be much easier without incentives, but we don’t live in a perfect world. Without incentives, Dorchester County would be at a distinct disadvantage in the competition for new business growth – particularly recruiting manufacturing companies.

Incentives were created as a tool to mitigate intrinsic problems with our state’s tax code and level the playing field a little to give us a chance in the competition for business. For example, in NC and GA the formula for property tax rates is fairly straightforward. The value of the property is multiplied by a millage levy set by the local government.

Here in SC, we add a third factor to this equation. We assign assessment ratios based on the type of property. Generally speaking, residential and farm land are assessed at 4 percent, commercial and rental property are assessed at 6 percent and manufacturing (the prime industry we are recruiting to Dorchester County) is assessed at 10.5 percent.*

Of course, homeowners, myself included, aren’t likely to vote to change this setup because we enjoy some of the lowest property taxes in the country. That’s why comprehensive tax reform in the South Carolina Legislature, which is the most direct correction for this situation, is such a political minefield. Many legislators see the value in making our tax equation more fair across the board until you realize that the only way to do it, in a zero-net scenario, is to raise the property taxes of every homeowner in the state. Even political novices can see why that would be a nonstarter in the Legislature.

On the other side of the coin, if I owned a manufacturing business, this tax issue would weigh heavily on my decision to relocate or expand in South Carolina. And believe me, this is pointed out to me often by prospects. The truth is, without being able to offer property tax incentives, our success rate in recruiting industry would significantly decrease, even in the tri-county because our millage is higher than Berkeley and Charleston Counties.

Most of the incentives that we deal with at the local level are property tax reductions. These reductions are performance based, which means if the company does not perform, by investing in land, buildings and machinery, they don’t get the reductions. There is no risk for the local government because no money is outlaid on the front end. This means that in exchange for a reduced property tax rate, we benefit from new capital investment being spent in our County and new jobs for our citizens.

To make Dorchester County competitive, County Council uses the FILOT tool to lower property taxes. Understand, except in extreme cases, this only brings down the manufacturer’s property taxes to the 6 percent level that all other businesses are paying already. No one is getting a completely free ride.

Ask yourself this: Would you rather have half a loaf of bread or no bread at all, because getting a full loaf is just not reality. Refusing to budge on property tax assessment rates would almost certainly ensure a loss for Dorchester County. Prospects would simply take their business to another location where they are able to negotiate terms.

Where would that leave us?

For me, I’ll take half a loaf over none any day. It may mean that we have to work twice as hard and win twice as many deals to get a “full” loaf, but we will just have to do it a half a loaf at a time.

*The SC Legislature has initiated a plan to lower the manufacturing assessment ratio from 10.5 percent to 9 percent by decreasing it ¼ percent a year for six years and using growth to pay for it rather than shifting it suddenly.