The current debate in the General Assembly over economic development incentives for data centers has South Carolina residents once again thinking about the overall value of using tax breaks to encourage job creation. While we should always look closely at any legislative measure that could impact state revenues, it has been proven that South Carolina’s incentives strategy creates jobs and ultimately generates a net gain in tax revenue.
South Carolina has a rich heritage in manufacturing and textiles and we need to continue to cultivate a business climate where our manufacturing companies can thrive. But in addition, the Palmetto State needs to build upon this base to create an environment that is attractive to technology-oriented businesses that support the knowledge economy.
Data centers require millions of dollars to build and operate, represent a significant capital investment in a community and create high-paying jobs. The incentives packages offered to manufacturers don’t necessarily translate to high-tech businesses. Data centers would gain more benefit from incentives tied to sales taxes on computer equipment, software and electricity.
When choosing to invest in a new location and create jobs, companies look at many factors — real estate, workforce, transportation infrastructure, utilities and more — but to think that incentives are not part of the mix would be naive. As businesses and their site consultants work through the complicated process of selecting a location, millions of their own dollars are on the line.
Having a competitive, up-to-date incentives package that helps present South Carolina as a location where business can thrive is crucial.
Our neighboring states are very aggressive when it comes to providing incentives. We need to be competitive. Some may fear that South Carolina will be drawn into an “arms race” in which businesses play states against each other to receive ever-larger tax breaks, but with so many other factors coming into play, the reality is that companies can’t make location decisions based on incentives alone.
Still, at a time when state and local budgets continue to be tight, can we really afford to offer new tax breaks? The answer is simple: economic development incentives that create jobs and attract corporate investment result in spending that brings in more tax dollars than are paid out. There is an increase in opportunities for local suppliers, vendors and service providers as those dollars circulate through the community — a rising tide that lifts the quality of life and creates opportunities for everyone.
For example, a cost-benefit analysis of the incentives package offered to online retailer Amazon.com determined that incentives would cost the state $25 million over 10 years but yield $1.7 billion in revenue over the same period.
The calls for fiscal austerity in all matters of government have been loud, but when confronted with that kind of data, many of the arguments against incentives seem penny wise and pound foolish.
The good news is that most of our state’s economic development incentives come in the form of tax credits that are directly tied to investment and job creation. For example, a payroll tax credit may not be triggered until a certain hiring threshold is met. If the business doesn’t create the jobs it promised, it simply won’t qualify for credits.
The good news is that most of our state’s economic development incentives come in the form of tax credits that are directly tied to investment and job creation. For example, a payroll tax credit may not be triggered until a certain hiring threshold is met. If the business doesn’t create the jobs it promised, it simply won’t qualify for credits.
Furthermore, economic development incentives are not solely designed to attract companies from outside our state. Incentives also reward existing businesses that invest and create jobs in South Carolina. A company such as Michelin, which has been in South Carolina since the 1970s, has continued to hire workers and build new facilities, helping to make our state No. 1 in the nation in tire production. Many “born in South Carolina” companies have received assistance from incentives packages that helped them grow here without having to look for friendlier environments elsewhere.
Just as the recruitment of BMW 20 years ago helped lead to a blossoming of automotive-related job creation in South Carolina, high-tech companies can help position our state in the knowledge-based economy for the next 20 years. They will attract like-minded companies that want to do business with each other and establish South Carolina as a place where high-tech firms can succeed. Modernizing our incentives program to fit the knowledge-based economy is an important step in that direction.
Brian Gallagher is director of marketing and Shane Bolding is Industrial Manufacturing SBU Leader for O’Neal, Inc., a Greenville-based integrated design and construction firm.
This article originally appeared in the
Greenville News on May 25, 2012.
Greenville News on May 25, 2012.
Written by
Brian Gallagher and Shane Bolding
Brian Gallagher and Shane Bolding
