Under the hood: huge taxpayer tab, ESG mandates in Scout Motors deal

Under the hood: huge taxpayer tab, ESG mandates in Scout Motors deal


Taxpayers in South Carolina likely will be on the hook for more than the $1 billion already dispersed to help a recently created Volkswagen company build its first electric vehicle plant near Columbia.

On top of that, under a state incentives agreement obtained by The Nerve, Virginia-based Scout Motors Inc., an independent company backed by the Volkswagen Group, which is headquartered in Germany, will have to comply with an ESG-related German law dealing with environmental, human rights and property rights issues.

The Nerve over the past year has reported extensively about the liberal environmental, social and governance movement in South Carolina. In a May 2022 story, for example, the president of an Anderson-based food company expressed concerns that two corporate customers, including a foreign-based company, which he asked The Nerve not to identify, were starting to pressure his business to comply with ESG-related practices.

The 192-page state incentives agreement with Scout Motors – nearly a quarter of which was partially or entirely blacked out in the copy provided to The Nerve – provides numerous taxpayer-backed benefits to the company while laying out relatively easy paths for it to meet job creation and investment requirements.

The S.C. Department of Commerce recently provided the agreement and related documents to The Nerve under the state Freedom of Information Act.

Besides receiving state benefits, Scout Motors, which Volkswagen launched last year, would save millions in property taxes over 40 years under a separate fee-in-lieu-of-taxes and incentives agreement with Richland County, which would allow the industrial project site to be assessed at the lowest rate applied to owner-occupied homes, The Nerve’s review found.

The manufacturing plant, which would build electric pickup trucks and sport utility vehicles, would cover 1,100 acres on an approximately 1,600-acre site off Interstate 77 at the town of Blythewood, according to state and local officials. Scout vehicles were last produced from 1960 to 1980; production at the Blythewood site is set to begin by the end of 2026.

“Scout Motors will provide thousands of South Carolinians with previously unimagined opportunities and prosperity for generations to come,” Republican Gov. Henry McMaster said in a prepared statement on March 3 in announcing the project. “The Palmetto State, with its rich history, superior people, and sterling automotive manufacturing reputation, is the perfect place to re-start this iconic American brand.”

The state incentives agreement requires that a minimum of 4,000 “qualified” jobs be created “within the State” and a minimum of $2 billion be invested at the plant and project site over no longer than an initial eight-year “achievement” period.

But Scout Motors itself would have to create at least 400 jobs and invest at least $400 million during the period, allowing the differences to be made up by company “affiliates” – defined as any “business entity” directly or indirectly controlled by Scout – and “counted suppliers” that provide “products, services and/or personnel” in connection with the  project, under the agreement.

And up to 10% of the 4,000 jobs, or 400 employees, could be “badge” workers, defined in the agreement as “cafeteria, security, and janitorial maintenance personnel” employed by third parties.

No average wage or wage range for plant workers is specified in the agreement. In a separate cost-benefit analysis provided by Commerce to The Nerve, the average hourly wage and salary, as well as the total annual payroll, are blacked out for the planned 4,000 workers.

In an ironic twist, starting with the effective date of the agreement and continuing for two years after the start of production at the Scout Motors plant, local government agencies would be banned from offering “discretionary” incentives or tax credits to “competitive electric vehicle production facilities” within a  “defined boundary” of Richland County, while a similar incentives prohibition would apply to state agencies dealing with “competitive vehicle production facilities” within 75 “road surface miles” of the Blythewood site.

Volkswagen had earnings last year of $24.1 billion in U.S. dollars, according to a February Reuters story.

Billion-dollar taxpayer gift

When it comes to doling out taxpayer-funded incentives to major corporations, S.C. lawmakers typically have moved with uncharacteristic speed. In just one week in March, the Republican-controlled Legislature overwhelmingly approved an amended resolution, which was signed by McMaster on March 20 and took effect the same day, appropriating a total of $1.29 billion in actual and projected state surplus funds to “Project Connect” – the initial code name for the Scout Motors project.

That amount works out to be about $240 for every man, woman and child in South Carolina – which is on top of the hundreds of millions of state surplus funds that lawmakers have earmarked mainly for their favored local projects for the fiscal year that starts July 1, as The Nerve revealed earlier this month.

In their latest fiscal 2024 budget versions, the 124-member House and 46-member Senate designated none of their earmarks for taxpayer refunds. The South Carolina Policy Council – The Nerve’s parent organization – has called for accelerating tax relief with surplus funds. A joint legislative conference committee has yet to publicly release its budget recommendations.

The amended resolution for the Scout Motors project – the original sponsors of which were Rep. Bruce Bannister, R-Greenville, who is the Ways and Means Committee chairman; House Speaker Murrell Smith, R-Sumter; and Rep. Chris Murphy, R-Dorchester – mandated that nearly $1.1 billion of the total $1.29 billion appropriation be dispersed by the state treasurer to Commerce within five days of when the law took effect. That transfer was made as required, according to written responses last week from Commerce and the Treasurer’s Office to The Nerve.

Asked what the money, which is more than twice the amount of Commerce’s total current budget, has been spent on to date, Commerce spokeswoman Kelly Coakley in her written response said $27.9 million was used by Richland County for land acquisition, while $12,200 was provided to the Haynsworth Sinkler Boyd law firm, which has offices in the Carolinas, for attorney fees.

“Costs must be incurred before S.C. Commerce can make payments,” Coakley said.

The amended resolution requires that besides land acquisition, the nearly $1.1 billion is to be spent on a bridge to support the construction of a rail spur; site improvements and mitigation; road access and related improvements; soil stabilization; water and wastewater infrastructure; an employee training center; and “any such other purpose as is necessary and recommended” by Commerce.

Another $200 million of the $1.29 billion appropriation is to be loaned by Commerce to the “Project Connect sponsor,” which is not identified in the resolution though is listed in the county incentives agreement as Scout Motors, for “additional soil stabilization.”

The S.C. Technical College System’s “readySC” program will provide employee training for Scout Motors under the state incentives agreement, which specifies that a minimum 40,000-square-foot, “state-of-the-art” training center be built near the proposed plant. The agreement also requires that Commerce provide the first $25 million toward the center’s construction.

In addition, the readySC program must provide temporary hiring and training space “at no cost or charge” to Scout Motors while the permanent training center is being built.

Under the state agreement, Scout Motors would be required to repay “all economic development funds expended” if it didn’t create at least 400 jobs and invest at least $400 million – not the overall promised 4,000 jobs and $2 billion investment – by the end of the initial “achievement” period, or eight years after the funds were approved.

The company would have to repay a portion of project funding if it couldn’t meet the overall 4,000-job, $2-billion-investment requirements through company “affiliates” or “counted suppliers” during the period, under the agreement. Those repayments would be calculated independently based on 50% of certain expended funds.

The calculations wouldn’t include public funding for several big-ticket items connected to the project, such as a new interchange and the railway bridge, according to the agreement.

Incentives goody bag

A cost-benefit analysis included with the incentives agreement estimated various public costs over 15 years, including:

*$850 million in grants through the Coordinating Council for Economic Development (CCED), made up of the directors or board chairpersons of 11 state agencies, including Commerce, and which by law is headed by Commerce Secretary Harry Lightsey, who was appointed in 2021 by McMaster. The Nerve repeatedly has pointed out the secrecy surrounding the CCED.

*$200 million in public infrastructure improvements;

*$118 million in job development credits, which are rebates of a portion of employee wage withholdings;

*$39 million in increased state education costs;

*$26.7 million in corporate job tax credits;

*$17.8 million in additional “multi-county industrial park” job tax credits;

*$15 million in investment tax credits; and

*$12 million in “special schools,” typically the cost of employee training provided by readySC.

The state agreement also requires that state and local agencies provide the “same or equivalent assistance with state and local tax incentives” for a planned “Phase II” of the project, which would involve an additional $2 billion in capital investment and up to 4,000 additional “qualified” jobs – which by definition could include workers employed by company “affiliates” and “counted suppliers,” as well as “badge” employees.

In her written response to The Nerve, Commerce spokeswoman Coakley said the total current number of company affiliates and counted suppliers with Scout Motors “has not been determined.”

In its project analysis, the CCED estimated a rosy benefit-to-cost ratio of 13:1 over 15 years, though the total direct and indirect payroll figures were blacked out of that calculation. Of the 192-page state agreement provided by Commerce to The Nerve, 47 pages, or about 24.5%, were partially or entirely redacted, including a “Parent Company Guarantee” from Volkswagen, the project schedule and site plan specifications, and even the corporate email address of Scott Keogh, Scout Motors’ president and CEO.

The Policy Council has proposed greater transparency in the state incentives process.

Besides grants and tax breaks, the state agreement, which includes Richland County, the town of Blythewood and city of Columbia as parties, provides a variety of other public benefits to the company, including:

*Commerce “agrees to use its best efforts to encourage” state universities and colleges to consider all eligible full-time employees and their dependents eligible for in-state tuition rates;

*Commerce and Richland County will provide a groundbreaking ceremony at the project site at “no cost or charge” to the company;

*Richland County will “facilitate” reimbursement to Scout Motors for lease payments at a temporary office building of at least 40,000 square feet within “reasonable proximity” of the project site through 2025 or earlier if the company vacates the building;

*Richland County will “dedicate” six acres within the Blythewood Industrial Park for future “childcare, health and wellness, and/or recreational uses, to support the workforce and local community”; and

*Richland County, at “its sole cost and expense,” will name or rename all roads within the industrial park, as requested by Scout Motors.

In addition, Commerce and the Governor’s Office are required to assist Scout Motors in relocating employees, either temporary or full-time, and their families to the United States with “respect to obtaining necessary visa and work permits from the federal government.”

ESG-related mandates

For its part, Scout Motors is required under the state agreement to comply with the “German Supply Chain Due Diligence Act” in establishing that the project site was:

*Never the subject of “an unlawful eviction or unlawful taking of land, forest and waters in the acquisition, development or other use of land, forests and waters, the use of which secures the livelihood of a Person”;

*Never “attributed to Indigenous Peoples as an essential part of their identity”; and

*Never the subject of “handling, collection, storage and disposal of waste in a manner that is not environmentally sound,” based on regulations under provisions of the Stockholm Convention of May 23, 2001, on “Persistent Organic Pollutants.”

The state agreement requires that Richland County provide “such reports and diligence items currently in the County’s possession” to help Scout Motors comply with the German law.

The law applies “due diligence obligations” on companies that have their “central administration, principal place of business, administrative headquarters, statutory seat or branch office” in Germany to comply with “environmental and human rights standards in their supply chains,” according to an October 2022 IBM blog.

For example, in terms of “human rights risks,” the law bans, among other activities, employment and wage discrimination, the employment of children 15 years old and younger, and interference with “freedom of association and the right to collective bargaining,” the blog noted.

Effective January of this year, the law applies to German-based companies with more than 3,000 employees; starting next January, it will cover German-based firms with at least 1,000 workers, according to the blog. Depending on the severity of the violation, fines can range up to about $8.6 million in U.S. dollars.

The Volkswagen Group, headquartered in Wolfsburg, Germany, has 120 production plants worldwide with more than 660,000 employees, according to the company’s website.

An August 2021 article by the Jones Day law firm, which has offices in the U.S. and elsewhere in the world, described the German law and similar legislation in France as the “forerunners of a new trend to regulate ESG risks along supply chains.”

The Nerve last week asked Commerce if it would play any role in helping Scout Motors comply with the German law, and whether the law also applied to BMW, another German-based automaker that announced last year it would be making a $1.7 billion capital investment to manufacture all-electric vehicles at its Spartanburg County plant.

“Regardless of whether agreements require compliance with applicable law (including German laws that may be applicable to German companies and their subsidiaries), companies must comply with all applicable local, state, federal and international laws,” Commerce spokeswoman Coakley said in her written response. “Enforcement of applicable law is the responsibility of the local, state, federal or international authorities with appropriate jurisdiction.”

Coakley, however, didn’t provide direct answers to The Nerve’s specific questions about the German law.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or [email protected]. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

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