A state incentives agreement for Boeing Co. to build a new assembly plant in North Charleston gives the aerospace giant a financial soft landing if it doesn’t meet job-creation targets.
The 20-year deal also gives the Chicago-based company plenty of latitude in counting new jobs and extending deadlines, and doesn’t require that the state verify the company’s job-creation and investment numbers, according to a review by The Nerve of the 18-page agreement, obtained from the S.C. Department of Commerce under the state Freedom of Information Act.
In return for the relatively lax terms, Boeing will receive $270 million in bonds – most, if not all of which, likely will be paid out within several years - that with projected interest will cost state taxpayers nearly $400 million over 15 years.
Conservatively, the total incentives package will cost S.C. taxpayers at least $500 million over the next decade and beyond. To put that in perspective, a half-billion dollars is the budget hole lawmakers will have to fill in next year’s general fund budget.
But even with Boeing’s final incentives agreement, the true total cost to taxpayers remains unknown – and may never be known because of state privacy laws.
The Nerve’s review of the agreement found that:
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Boeing has to employ at least 6,000 workers – up from its initial announcement of 3,800 jobs – and invest $750 million by Dec. 31, 2016. But those jobs include workers already employed at Boeing’s two existing North Charleston assembly plants (estimated by Commerce at about 2,200); any other Boeing workers in the state; up to 600 “badge” employees employed at the project site by other companies, such as cafeteria workers and security personnel; and counting two part-time Boeing workers as one.
- Commerce can extend the seven-year deadline for Boeing to meet its minimum job and investment targets if the company claims a “force majeure” event, or something outside its control. That includes not only such things as “acts of God,” terrorist acts and labor strikes, but also any other unspecified cause “to the extent such cause is beyond Boeing’s control after its exercise of reasonable diligence.” The company also can request to delay the deadline pending the “conclusion of … third-party legal proceedings.”
- Commerce “reserves the right” to – but isn’t required to – request that the state Department of Revenue or third party selected by the state Coordinating Council for Economic Development audit Boeing’s records provided to Commerce to make sure the company complies with minimum job and investment requirements.
- Boeing will have to reimburse the state for part of the issued bonds if it doesn’t hold up its end of the deal within the seven-year “investment” period, but it’s a relatively small percentage of the cost to taxpayers. Under the “claw-back” provisions, the percentage of the reimbursement for failing to employ 6,000 workers is based on 60 percent of the bond principal – $270 million – not bond plus projected interest – $400 million – pro-rated over 20 years. The reimbursement rate for failing to invest $750 million also is pro-rated over 20 years, based on 40 percent of the bond principal. The same reimbursement percentages apply on a pro-rated basis in each of the 13 subsequent years of the “maintenance” period under the agreement.
- According to an example cited in the agreement, if Boeing created 3,000 jobs and invested $375 million by the end of the seven-year investment period, it would owe a total of $47.25 million to the state, or 17.5 percent of the $270 million in bond principal. If the projected $130 million in interest is included, that percentage drops to about 12 percent over the total 20-year period, assuming Boeing met and maintained its job and investment requirements after the initial seven-year investment period.
- The minimum job requirement replaces a previous incentives agreement for Boeing’s two existing plants at the site, though unlike the earlier agreement, it contains no specifics on possible penalties should the company abandon the site during or after the 20-year period.
- If it holds up its end of the deal, Boeing will receive a total of $270 million in bonds, all of which would be repaid – with interest estimated at about $130 million – with state tax dollars. The incentives agreement breaks that amount into two chunks – $220 million in general obligation bonds and $50 million in bonds authorized under the Air Carrier Hub Terminal Facilities Act. Of the $220 million, $156 million, or 71 percent, will be spent spent on construction of the final assembly plant. The other $50 million in bonds under the air hub act will be paid as reimbursement for “qualifying expenses,” said Commerce spokeswoman Kara Borie, though she did not provide The Nerve with specifics about those expenses, despite repeated requests.
Taxpayer Tab Unknown
The total taxpayer cost of the state incentives deal remains unknown even with the final agreement. In a written response to questions last week by The Nerve, Borie said besides the $270 million in bonds, the state incentives include:
In a separate written response on Feb. 3 to a Freedom of Information Act request by The Nerve, Borie said Boeing has not yet requested a $102.5 million state “bridge” loan approved Jan. 13 by the state Budget and Control Board. Under the board’s action, the loan was approved to allow Boeing access to taxpayer funds for construction pending the sale of the bonds, with bond sale proceeds to be used to repay the loan.
More Taxpayer-Funded Goodies
Besides state incentives, Boeing also will receive plenty of incentives from Charleston County. That deal, according to county documents, includes:
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A 30-year, fee-in-lieu-of-taxes (FILOT) agreement that will fix the assessment rate for real and personal property at the owner-occupied home rate of 4 percent instead of the standard 10.5-percent rate for industrial property, and also will fix the millage rate for the payment period.
- Special source revenue credit rebates, which will equal 50 percent of the FILOT payments over 15 years.
- A $150,000 set-aside grant to perform a traffic study around Charleston International Airport, where the plants are located.
- A $100,000 utility tax credit grant to defray public infrastructure costs.
- In a separate agreement reached earlier with the county, Boeing is exempted from paying personal property taxes for 10 years on two large cargo transport planes at the site.
As with the state incentives, however, the total taxpayer cost of the county package is unknown. The county, for example, estimated that taxing entities will collect about $139 million in FILOT payments over 30 years, though county officials have not publicly provided the basis for that calculation so that taxpayers can better determine how much Boeing is estimated to save in property taxes.
In a written response last week to a Freedom of Information Act request by The Nerve, Bernard Ferrara, the county’s deputy attorney, declined to release the projected appraised valuation of Boeing’s new plant and equipment. He cited an exemption in the FOIA that allows government agencies to prohibit the release of “confidential proprietary information provided to a public body for economic development or contract negotiation purposes.”
“Therefore, because the records you request are not incidental to the final incentive agreement with the County, any records relative to that request are exempt,” Ferrara wrote.
According to publicly released county documents, Boeing will pay an estimated $188.4 million in FILOT payments over the 30-year period, though taxing entities will collect less because of the special source revenue credit rebates. But had the company been taxed at the usual manufacturing rate, its property tax bill easily would be more than twice as high in the initial years.
Over the first seven years – the deadline Boeing has to meet its minimum employment and investment levels – the company could save as much as $71 million in property taxes, assuming a fixed millage rate of 269.8 mills and an average annual assessed property valuation of $23.3 million at the 4-percent rate.
Many would say that’s a sweetheart deal.
Reach Brundrett at 803-779-5022, ext. 106, or rick@scpolicycouncil.com.