New audit says SC Department of Commerce’s incentive program lacks transparency and oversight

New audit says SC Department of Commerce’s incentive program lacks transparency and oversight

COLUMBIA, S.C. (WIS) - Some state lawmakers are calling for the resignation of a state cabinet agency head after a new audit looked into how the state is handling corporate incentives and grants.

A new report from the Legislative Audit Council (LAC) claimed the South Carolina Department of Commerce’s incentives program lacks transparency and oversight.

In a Zoom interview Thursday, Senator Dick Harpootlian (D-Richland) called the report “damning.”

According to Sen. Harpootlian, he and Senator Wes Climer (R-York) are asking for the resignation of S.C. Department of Commerce Secretary Bobby Hitt.

“We have wasted tens of millions of dollars because no one was minding the store,” Harpootlian said.

According to the LAC, the scope of their audit spanned from January 2009 through September 2019. They discovered incentives were approved for 676 different companies, according to the audit.

A bipartisan group of senators called for this audit last year after the General Assembly passed the “Professional Sports Team Investment Act,” also known as the Panthers Bill. That legislation helped land the Carolina Panthers’ new headquarters in the Palmetto State.

The LAC report found the cost-benefit analysis model used by the state agency is outdated and because of that is inflating projections. They said the model hasn’t changed much since it was implemented in the mid-1990s.

“On the front end, the Department of Commerce lacks the ability to do an adequate cost-benefit analysis of a potential project," Sen. Climer said. "On the back end, it lacks sufficient auditing function to ensure taxpayers are protected in that process. So from start to finish, the process is broken.”

Some lawmakers expressed concerns over giving the team millions of dollars in tax breaks and incentives. Most of these incentives are given on the promise of these businesses creating new jobs and making investments.

The report said the LAC discovered the Department of Commerce does not verify that the figures grant recipients submit to them are accurate other than by using the recipient’s own documents.

According to the audit, a Department of Commerce official said they rely on the “honor system” regarding the number of jobs and investment that a company claims it has created or made on quarterly status reports. The Legislative Audit Council said this is concerning because companies could claim more tax credits than they are entitled to without proper verification of jobs created and investment made.

In a letter to the Legislative Audit Council, Secretary Hitt said the recommendations laid out by the LAC will result in more bureaucracy and more cost, with minimal benefit.

"If Commerce cannot sell South Carolina as business-friendly, our incentive programs never come into play,” he wrote. “Commerce is the face of our state to the global business world, so compelling your chief recruiter to be more bureaucratic may undermine Commerce’s effectiveness. There has to be a balance with public accountability, which is extremely important, and not creating unnecessary burden that is inconsistent with our message that “South Carolina is Just Right for Business.”

Brian Symmes, a spokesperson for Governor McMaster, sent us this statement in response to the report:

“Periodic transparency and accountability check-ups are always a good thing – whether it’s for a government agency or for the General Assembly. But the evidence here stands on its own. Secretary Hitt has been in his role since 2011 and has served under two governors. Since then, the Department of Commerce has announced over 116,000 new jobs and over $31.5 billion of capital investment, and South Carolina’s unemployment rate reached its lowest point in history before the COVID-19 pandemic. It’s also important to point out that this report was conducted by the legislature’s auditors, who are routinely called upon to deliver a political result. The Department of Commerce has been delivering wins for South Carolinians season after season. The governor believes our time and energy is best spent on winning more games by recruiting more employers like Samsung, BMW, Volvo, and Continental Tires - not fewer.”

According to a spokeswoman with the Department of Commerce, they are investigating with a third-party with specialized skills to assist with updating their cost-benefit analysis model.

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