S.C. pays dearly for added jobs

South Carolina's economy was supposed to improve, but taxes exploded while services crumbled.

October 12, 1999|By Jay Hancock | Jay Hancock,Sun Staff

CHARLESTON, S.C. -- Like most people in South Carolina, A. J. and Margaret DeStefano are paying the government more and getting less. That's what happens when public officials invite hundreds of corporations into your state and cut their taxes to a pittance.

Yearly tax on the DeStefanos' Charleston County home is set to rise by more than a fourth next year, but the crowded local schools can't keep floors dry when it rains, can't stop plaster crumbling from the walls and can't educate most children up to national standards.

Overwhelmed with new residents drawn by job growth, the county created a 1 percent retail sales tax in the early 1990s and recently added a 3 percent telephone tax. But the dangerous Grace Memorial Bridge near the DeStefanos' house has been obsolete for a decade and isn't scheduled to be replaced until 2007.

Charleston restaurant taxes doubled in 1997; the state just tripled the registration fee on the DeStefanos' boat; local water rates have jumped 30 percent since the couple moved in seven years ago; and South Carolina's vehicle property tax is so high it deters car sales.

But the visitors center at nearby Charles Towne Landing, the state's first European settlement, hasn't been fixed since it was mauled by Hurricane Hugo a decade ago. South Carolina state troopers make less money than those of almost any other state.

"If you buy a new car, you're talking about $60 to $70 to $80 a month in taxes. A month," said A. J. DeStefano, 68, a retired utility manager who drives a 1992 Cadillac bought used. "I mean, that's ridiculous. That's the reason I'm driving a '92. I'm just leery about buying a new car because of the taxes."

One set of South Carolina taxpayers, however, has been spared the pain of higher taxes: the new companies causing all the growth.

Business taxes aren't rising in South Carolina. They're falling, placing this impoverished and undereducated state in a fiscal vise.

To draw jobs and spur its economy, South Carolina has become perhaps the fiercest aggressor in the interstate jobs war that has swept the country. Its deep discounts on business taxes and its other handouts helped induce 1,395 businesses to locate or expand in the state last year, according to the state Commerce Department. The state has added 200,000 jobs, 300,000 people and 43,000 schoolchildren since 1990.

But now the state finds itself an object lesson in the jobs war's peril: Having hollowed its tax base to attract corporations, South Carolina is struggling to afford the resulting boom.

"If something isn't done, they're going to be beyond the point of recovery," said Darla Moore, a Wall Street financier and state native who donated $25 million to the University of South Carolina last year. "Nobody has put this together: What's happening with the businesses, what's happening with the schools."

South Carolina's corporate giveaways are "promiscuous," Moore said, its business-tax revenue "a footnote to the state's budget. ... South Carolina will give everything away not to lose a business to Georgia or Florida."

On its current course, South Carolina will deliver what incentives critics have been expecting somewhere in the country for years: a striking case of incentives trauma. As the jobs war escalated, critics figured, eventually some state would give away so much tax revenue in the name of luring companies that it would jeopardize its fiscal health.

South Carolina is that state.

It has slashed taxes for an elite class of movable businesses by $2.7 billion over the next dozen years, according to a study by Clemson University's Strom Thurmond Institute. Even after a recent flurry of tax increases on households, the study said, the state should expect budget deficits well into the next century, and tax trends "allow little leeway for improvements in the quality and variety of school district services."

As the number of South Carolina businesses has soared to an all-time high, the state's corporate income-tax revenue has fallen by 6 percent since 1994, a "quite unusual" result, said economist Bill Schweke of the Corporation for Enterprise Development, an economic development think tank.

Other business-tax collections are languishing, too. Across the state, local property tax revenue on business equipment plummeted 13 percent from 1993 to 1997, the most recent year for which statistics are available.

Crumbling schools

It's not as if South Carolina doesn't need the money.

As its job base and population soar, the state needs to spend $57 billion on schools, roads, sewers and other infrastructure by 2015, a legislative commission found -- even though the state can't deliver adequate services now.

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