Chip Taylor

Corporate welfare and "economic development"

The most critical view of economic development incentives is that they are merely corporate welfare -- subsidies to businesses in return for doing what they planned to do anyway. Here is a blatant example that has been under consideration in Greenville County.

Small business owners say a 23-year, $800,000 tax break that the Greenville County Council could offer the Upstate's dominant natural gas provider is emblematic of a common aggravation.

As the economy grows, they say, the cost of business goes up, with the resulting aid going to the biggest corporations. The small guy is the last to get relief, paying more for fuel or plywood or office paper to do the same amount of work.

The county's tax break for Piedmont Natural Gas would offset $25 million the company said it plans to spend within five years to build new pipelines and extend natural gas service to thousands of residents in the Travelers Rest area and western Greenville County.

Council members including Finance Committee Chair Judy Gilstrap say they've struggled over the ordinance, uncertain whether it's an incentive necessary to attract new investment or a government subsidy of a $1.6 billion corporation that has aided the county in past economic development efforts and likely would have expanded here anyway.

I'll set aside the small business owners' perceptive comments on the uneven effects of local economic growth for another day. As for the committee's struggle over "whether it's an incentive necessary to attract new investment or a government subsidy of a $1.6 billion corporation," I can stop their struggle. It's a government subsidy of a $1.6 billion corporation.

There are reasons that most economic development practice focuses on manufacturing firms. They are relatively footloose -- they can locate anywhere that has adequate labor, transportation access, and access to other inputs. They sell their product outside the local area, bringing money into the local area and increasing total local income.

Those same reasons illustrate why you don't give incentives to utilities. Utilities aren't footloose like manufacturers are; they are bound to the area they serve. In other words, if Piedmont Natural Gas wants to serve the western Greenville County area, it must invest there. And that money it collects from local residents? Most of it goes back to headquarters. Other than a little bit of labor, utilities buy very few local inputs that help the local economy. My goodness, of the businesses you especially don't want to give incentives, utilities have to be at the top of the list!

Don't believe me? Read more:

Several council members said Piedmont officials have told them that its various divisions in South Carolina, North Carolina and Tennessee compete for the expansion money available within the company, much like a global manufacturer might debate adding new facilities in Greenville or in Mexico, but not both. A tax break, they say, would help ensure that the Piedmont expansion will happen locally.

However, both Trusty [that's the local Piedmont spokeserson] and Howard [that's the local economic development director] said the utility would have likely expanded here anyway because of rampant local growth.

"It's not like there's cutthroat competition for these dollars, but it's a fact that there are limited dollars," Trusty said. "The Upstate of South Carolina competes very effectively with our other service areas as being a growth area."

Ultimately, the County makes the correct decision:

Greenville County Council backed away from an $800,000 tax break for Piedmont Natural Gas on Tuesday because of concerns that the measure may not be necessary to attract the company's expansion and the local jobs it would bring.

Although it probably isn't quite over:

Committee Chairman Judy Gilstrap told the council that Piedmont had requested another chance to present its tax-break request to the committee.