It is often said economic development is a team sport. In order to recruit meaningful investment and job opportunities to a community, it takes the various stakeholders all pulling in the same direction aligned toward a shared goal. That might include the county economic development staff, county council, utility providers, the Department of Commerce, the technical college system and other local, regional, and state allies.
Everyone has a part to play, and often, to win a project, you must win the small battles along the way. The process can take months, even years, depending on the complexity and scale of the proposed operation.
It’s a team sport, but it’s also an extremely competitive one. Often, Colleton County competes against other counties, other states and other countries for jobs and investment opportunities. Every one of them is prepared to offer concessions to lure that prospective company to land with them.
Some companies opt to manage that process on their own. In many cases, professional site consultants are engaged to handle site selection for the company. One of their primary services they perform: negotiate the best deal possible.
Enter incentives.
Now, incentives can take many forms and appear on several levels of the site selection process. Some popular ones might include reduced property taxes, rebates for state income tax withholdings, discounted land or buildings or a grant to improve a site or related infrastructure.
I don’t like incentives. I do not relish offering them and personally, wish we did not have to give them. But that is not world we live in.
We’ll use college football as an analogy. I’m sure quite a few members of the South Carolina or Clemson football team hate to get up early to lift weights and run, but I’m also sure their competition in the SEC and ACC aren’t going to stop their conditioning programs. Even if they all got together and agreed that players could stop working out, there are many who would immediately violate such a covenant to gain a competitive advantage.
From a Colleton County perspective, if we don’t offer incentives, our competition still will.
A prevalent incentive at the county level is a Fee-in-lieu of tax agreement, often referred to as a FILOT. State statute allows counties to levy property taxes, hence the law also empowers those counties to offer FILOT agreements to prospective companies as an incentive. A FILOT agreement is a contract between the county and company and the mechanism by which property taxes can be reduced or leveled out over an agreed upon period, often 20 or 30 years. It provides those prospective companies with certainty on a major fixed cost (taxes) as they evaluate their location decision.
If a company is offered a FILOT, does that mean the county gives up potential revenue? Kind of.
If Colleton County offers such an agreement to a prospect, there will be a forecast of tax revenue given up to lure the investment. So why would we do it? Why would we give up potential funding for schools and county services? The answer is that the revenue would be zero had the county not offered such an agreement, because the company would’ve opted to locate somewhere else.
Let’s say you’re hungry. Would you accept 75 percent of a loaf of bread or hold out in hopes that you will one day receive the full loaf? Of course not.
Incentive decisions are not made in a vacuum. Every project eligible for a FILOT agreement is subject to extensive study, including a detailed cost-benefit analysis. That number can escalate as high as 100s of dollars of benefit for every dollar the county might give up in an FILOT agreement.
If the opportunity is not determined to be a net benefit to the county, incentives are not offered.
The agreement must be approved by county council by ordinance (three readings and a public hearing) in open session. Once executed by both parties, the agreement becomes an available public document.
There is also built-in protection for the entity offering the incentive in the form of a claw-back clause. If company X does not perform (jobs and investment) by the terms of their agreement, they might be subject to pay back a portion of the taxes that were reduced or lose their agreement entirely.
Incentives are often misunderstood and may not always be popular. But they are a necessary competitive tool, one that Colleton County will continue to deploy as we try to improve economic opportunities and quality of life for our citizens.
(Brantley Strickland is the Executive Director of the Colleton County Economic Alliance. He was the Managing Editor of The Press & Standard from 2011-2014. Reach him at bstrickland@cceainc.com.)
