John Locke Update / Research Brief

Just Keep Compoundin’: Questioning the Economic Impact of a New Carolina Panthers headquarters in S.C.

posted on in Economic Growth & Development, Law & Regulation, Spending & Taxes
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Now and then you’ll encounter a public servant actually questioning the bad numbers propping up a bad policy proposal, and it’s as refreshing as, well, any scene from a lite beer commercial. Remember when the Maryland county executive held back on imposing a $15 per hour minimum wage until he got an economic study of it, which found it would disemploy tens of thousands in the community and cost hundreds of millions of dollars in total income?

The Carolina Panthers have been pushing the state of South Carolina to build them a new headquarters and practice facility in Rock Hill, SC, just over the border but still considered within Charlotte metro area. Gov. Henry McMaster (R) supports the idea, and the state House already passed a $115 million tax incentives package for it.

South Carolina’s Commerce Department says it’ll have a monster economic impact. All 150 players, coaches, staff members, and owners will move into South Carolina. It’ll create 5,715 new jobs. All told, it’ll have an economic impact over 15 years of $3.8 billion.

Wow. The Panthers just strolled south of the border and offered South Carolina policymakers a way to turn $115 million into a staggering $3.8 billion! How magnanimous!

Here at the John Locke Foundation, we’ve been warning about ridiculous economic-impact numbers for years. It’s precisely about such a thing that I wrote a research brief called “Nonsense with big numbers: How to get legislators to support your industry.”

Fortunately for South Carolina, a state senator wasn’t dazzled by the big numbers. He wondered about the assumptions behind them. As reported by The State, Sen. Dick Harpootlian (D-Richland) put the Panthers’ incentives package on hold to have an economist look at the benefits and costs of the idea. Harpootlian personally “hired Rebecca Gunnlaugsson, the S.C. Department of Commerce’s former chief economist and now an analyst with a conservative think tank [Palmetto Promise Institute].”

As Senior Economist and Resident Scholar at the Locke Foundation Roy Cordato could tell you, once you acknowledge costs, the “impact” game comes to a halt. Economic impact studies are geared specifically to ignore opportunity costs. See his report on “Economic Impact Studies: The missing ingredient is economics” for the difference between them and sound economic analysis.

The State reported:

In her analysis, Gunnlaugsson estimates the Commerce Department’s projected economic impact is overstated by nearly $2.7 billion, relying on assumptions all 150 Panthers players, coaches, staff and owners will move to South Carolina. Gunnlaugsson said the move actually will create only 208 jobs, instead of the 5,715 promised.

Gunnlaugsson said the Commerce Department estimated that for every one job the Panthers bring to South Carolina, 39.1 more will be created through economic development sparked by the deal — a multiplier she described as “unfathomably high.”

The typical jobs multiplier for “arts, entertainment, and recreation” projects is actually 3.785, Gunnlaugsson wrote.

She added she expects only about 75 Panthers employees to move to South Carolina permanently, half of what the Commerce Department expects.

Panthers football players, coaches, and the team’s mascot are visiting the state House to lobby for the incentives. I suspect a glitzy corporate welfare pep rally will play well with the press. I’ve noticed media tend to oppose tax breaks for business in general, but favor them in particular.

Bad choices by South Carolina shouldn’t justify bad choices here, but they did

Meanwhile, let’s remember that South Carolina’s focus on tax incentives was recently praised and held up as a model to North Carolina to justify beefing up our corporate tax incentives. As Dan Way reported for Carolina Journal on the debate over Senate Bill 820 last November, the rationale behind it was “an attempt to catch up to South Carolina, which has similar programs, and is beating North Carolina to the draw in landing corporate headquarters.”

I asked about the implications of South Carolina out-corporate-welfaring North Carolina — beating us in this made-up game of economic development instead of economic growth. I looked into it, and here’s what I found:

Well, Forbes just published today a list today given the headline of “The Best States for Business 2018: North Carolina Leads the Way.” Yes, we’re no. 1. South Carolina is 25th. Smack-dab in the middle of the pack

We are beating South Carolina soundly in overall business tax climate — we’re 12th, they’re 35th, according to the Tax Foundation. And in corporate tax rates, we’re ranked third and they’re 19th.

We’re beating South Carolina in economic freedom, too, according to the Fraser Institute — we’re 17th and they’re 33rd.

Oh, and we’re even beating South Carolina in overall freedom, according to Cato’s Freedom in the 50 States — we’re 18th and they’re 29th.

I did notice that South Carolina is well ahead of North Carolina in the regulatory freedom component of the Freedom in the 50 States ranking; they’re 9th, we are 21st. I suggested that if we’re suddenly taking cues from South Carolina, how about that, starting with occupational licensing?

But they can have the foolish notion that tax incentives for 150 members of a professional sports franchise will create close to 6,000 new jobs and nearly $4 billion in economic impact. As a staff member of the Kansas City Chiefs might say, “Great googly-moogly.”

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. Serving as Senior Fellow of Regulatory Studies and also Research Editor at the John Locke Foundation, Jon gets in the weeds of all… ...

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