Budget Watch – Part I: The I-95 Corridor Authority

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The Senate voted today not to concur with the amended House budget – meaning the state budget will head to conference committee. As part of our ongoing budget coverage, we’ll be highlighting issues that currently divide the two chambers – and/or may also be subject to gubernatorial veto.

In Part I of this series, we’ll look at the I-95 Corridor Authority.

Following the publication of a taxpayer-funded Human Needs Assessment report in December 2009, support for the I-95 Corridor Authority has been growing. Legislation creating the agency enjoys bipartisan support in the Senate, but hasn’t emerged from the Ways & Means Committee in the House. The Authority would be empowered to “carry out economic development and educational improvement activities” aimed at improving the economy of any county within 30 miles of I-95.

The Senate passed a bill (S 1323) establishing the agency and then provided funding via budget proviso (89.143) using $3 million in nonrecurring dollars from the Healthcare Tobacco Settlement Trust Fund. The House removed this proviso from its final amended budget.

While we agree many counties adjacent to I-95 are in need of free market economic initiatives, the Authority represents the worst of recent legislative economic development schemes. Here are three reasons why:

Not focused. This new state agency would be charged with implementing recommendations from the I-95 needs assessment mentioned above. The assessment is wide ranging, recommending reforms in the areas of education, infrastructure, taxation and health care. In other words, the agency is essentially being given the impossible task of “making everything better.” Moreover, the counties along I-95 are very diverse. (For instance, Beaufort County’s median income of $49,638 is 89 percent higher than Bamberg’s $26,299). Creating one agency to address the different needs of all 17 counties is bound to fail.

Not transparent. Government-driven economic development plans are rarely transparent. But, at least, legislative handouts might be subject to public debate and a recorded vote. That would not be the case with funds distributed by the I-95 Corridor Authority. The Authority would instead make annual progress reports to the General Assembly. Moreover, the authority would be administered by legislative appointees, with virtually no executive oversight.

Not going to work. South Carolina has spent more than $1.5 billion on economic development incentives over the past 15 years. Yet, the state still ranks near the bottom in terms of employment and per capita income. As demonstrated by Unleashing Capitalism, such incentives are “costly, inefficient and distortionary.” This is especially the case as regards the “cluster theory” model that animates the I-95 needs assessment.

To these objections we might add that the I-95 Corridor Human Needs Assessment is meant to be the “blueprint” for the initiatives pursued by the Authority (as dictated by §11-54-10 of S 1323). This study was commissioned by Francis Marion University and S.C. State University and, accordingly, recommends that the two public universities act as “regional economic development leaders.” This role would allow the universities to become conduits for all manner of economic development funding and could even become a distraction from their prescribed educational mission.

While the I-95 needs assessment contains few practical ideas that will bring long-term prosperity to South Carolina’s poorest counties, the report calls upon the I-95 counties to “work proactively toward solving the region’s challenges.” In this same vein, we would challenge local leaders to look beyond the usual solutions proposed by state politicians and begin to listen to what their citizens, parents and local businesses really want.

Here are three reforms that would bring hope, prosperity and jobs to the communities along the I-95 corridor:

School choice. As the I-95 needs assessment observes, many of the schools along the corridor are “substandard,” and could be improved by “making a concerted effort to support an entrepreneurial economy with a pipeline of entrepreneurial education beginning with K-12.” But instead of rehashing stale ideas (in particular, additional funding for early childhood education) that won’t work, lawmakers should encourage truly entrepreneurial education models.  These include: school choice, weighted student funding and charter schools.

Tax reform. The I-95 assessment indicates that “due to state regulation, a limited taxable property base, and a lack of local initiative, the 17-county region as a whole has a limited ability to finance their own public investments.” Instead of publicly financing such investments, the purpose of genuine tax reform would be to attract private investment by lowering taxes and deregulating businesses. Eliminating any local option sales taxes would be a good start. Another local reform would entail eliminating diverse business licensing requirements/fees so that businesses can operate in more than one county without obtaining multiple licenses. State-based tax cuts to the manufacturing property tax and the personal income tax would also be highly beneficial.

Privatization. The best strategy for meeting the infrastructure needs of the I-95 counties would be to encourage private entities to invest in new roads, utilities and ports. Instead of the “we’ll build it, they’ll come” mentality that has failed in the past, private investors would use objective cost-benefit studies to determine how new infrastructure projects can best serve existing and new customers. 

Addressing the systemic economic and educational problems in counties along the I-95 corridor will not be easy. But more government intervention will only make things worse, driving out independent businesses and propping up failed educational strategies. Instead of using $3 million to launch another economic development project, lawmakers should look for innovative ways – funding school choice scholarships and charter schools and cutting business taxes – to unleash creativity and prosperity along the I-95 corridor.

Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation.

Copyright © 2010 South Carolina Policy Council.