Boeing Bonds Illegal in South Carolina?

S.C. Treasurer Curtis Loftis might have unwittingly opened a debate about whether the sale of $270 million in state bonds to help aerospace giant Boeing build an aircraft assembly plant in North Charleston violated the S.C. Constitution.

In an April 29 letter to Senate President Pro Tempore Glenn McConnell and House Speaker Bobby Harrell, both R-Charleston, Loftis said Article 10 of the state constitution “prohibits lending of the public credit for the benefit of any individual, company, association, corporation, or any religious or other private education institution.”

In contrast to Loftis’ letter, then-Commerce Secretary Joe Taylor in a Jan. 8, 2010, letter to the S.C. Budget and Control Board and the Joint Bond Review Committee asked the panels to approve the issuance of general obligation economic development bonds “for the benefit of The Boeing Company … for a project involving the aeronautics industry and previously identified, for confidentiality purposes, as Project Gemini.”

Both panels approved the request within five days of Taylor’s letter. The bonds were authorized under a state law that is based on Article 10 of the constitution, a review by The Nerve found.

Loftis’ letter was in opposition to a recent proposal by Gov. Nikki Haley to sell $180 million in state bonds to help pay nearly $1 billion in federal loans that provided unemployment benefits to the state’s jobless during the Great Recession.

Loftis’ letter did not mention the Boeing project. Contacted Thursday by The Nerve, Loftis pointed out that the Boeing bonds were issued under the administration of his predecessor, Converse Chellis.

Still, Loftis said he believes that the Boeing bond sale complied with the constitution.

“The Boeing bond issue is compliant in that the state owns the facility,” Loftis said in a written response. “With the UI (unemployment insurance) bonds, the state would hold no tangible asset.”

But when asked by The Nerve, Loftis could not point out in the constitution, state law or any court rulings how a state-owned building used exclusively by a private corporation – in this case, Boeing – complied with Article 10.

“I can only believe this point was thoroughly considered, but, as you know, a good bit of this information is the subject of confidentiality agreements entered into by the parties at that time,” Loftis said. “I have, however, consulted with those on my staff who were there at the time, and we do not have any of the legal determinations that led to the conclusion that the Boeing transaction did not constitute a lending of the public credit.”

State and Charleston County incentives agreements provided last year to The Nerve under the S.C. Freedom of Information Act did not specify who would own the Boeing building when completed.

The Nerve last week posed similar questions about the constitutionality of the Boeing bond sale, with a copy of Loftis’ April 29 letter, to Kara Borie, spokeswoman for the S.C. Department of Commerce; and Burnie Maybank, an attorney with the Columbia-based law firm of Nexsen Pruet, which on its website touts its “pivotal role” in bringing Boeing to South Carolina.

Neither Borie nor Maybank, a two-time former director of the S.C. Department of Revenue, responded.

Contacted Thursday by The Nerve, Edward “Ned” Sloan, a retired Greenville businessman who has developed a post-retirement career suing the state and local governments over what he perceives to be violations of the S.C. Constitution or state law, was skeptical of the Boeing bond deal.

“The violation is a passage of money from the state to an industry, regardless of where the money came from,” said Sloan, founder of a nonprofit government watchdog organization named the South Carolina Public Interest Foundation.

The first sentence of Article 10, Section 11, of the S.C. Constitution reads, “The credit of neither the State nor any of its political subdivisions shall be pledged or loaned for the benefit of any individual, company, association, corporation, or any religious or other private education institution except as permitted by Section 3, Article XI of this Constitution.”

(Article 11, Section 3, requires the General Assembly to “provide for the maintenance and support of a system of free public schools open to all children in the State,” and to “establish, organize and support such other public institutions of learning, as may be desirable.”)

Of the $270 million in bonds authorized for the Boeing project, $170 million initially was approved in a special legislative session in October 2009.

That amount, according to the legislation, was authorized under Section 13, Subsection 5, of Article 10, which allows lawmakers to disregard general obligation bond debt limits if approved by a two-thirds vote of each chamber. Lawmakers in both chambers unanimously approved the legislation.

But that subsection also limits the Legislature’s authority by referring to Section 13, Subsection 3, of Article 10, which states that general obligation debt “may not be incurred except for a public purpose.”

With interest, the Boeing bonds will cost S.C. taxpayers at least $360 million over a 15-year period, The Nerve reported last year. Under the state constitution, if there are not enough general fund revenues to cover the bond payments, the shortfall must be recouped through a statewide property tax.

The total taxpayer cost of the project, including the bonds, various corporate income and sales tax credits, and property tax breaks, is projected to be at least $500 million, an earlier investigation by The Nerve found.

Next to tax incentives given to BMW in the Upstate over the years, the Boeing project likely would be the most expensive taxpayer gift to a company in state history, according to Commerce documents.

Treasurer’s Office spokesman Brian DeRoy told The Nerve last week in a written response that as with the Boeing building under construction, the state owns the BMW plant building.

In a written response this month to a National Labor Relations Board complaint, Boeing cited “significant financial incentives from the state of South Carolina” as a factor in its decision to open a 787 Dreamliner assembly plant in North Charleston, rather than Washington state, though it didn’t provide specific figures.

State lawmakers and Commerce officials had been secretive for months in late 2009 and early 2010 about details of the taxpayer cost of the project, despite repeated written requests by The Nerve for information.

The General Assembly in a special session on Oct. 28, 2009, approved the first $170 million in bonds – a day after it was first discussed publicly in a Senate Finance Committee hearing. The committee chairman is Republican Hugh Leatherman of Florence, a key player in the Boeing deal.

To receive the bonds, Boeing promised to create at least 3,800 jobs and invest at least $750 million over a seven-year period, though there are plenty of loopholes in the company’s incentives agreement with the state, The Nerve found in an earlier investigation.

At a Jan. 12, 2010, special hearing – the first day of last year’s legislative session – the Joint Bond Review Committee, headed by Leatherman, approved, without prior public discussion, the sale of another $100 million in bonds for Boeing.

The next day, the S.C. Budget and Control Board, made up of then-Gov. Mark Sanford, the board chairman; Leatherman; House Ways and Means Committee Chairman Dan Cooper, R-Anderson; Treasurer Chellis; and Comptroller General Richard Eckstrom, quickly signed off on the entire $270 million bond sale.

Of the total amount, $50 million was authorized under the “Air Carrier Hub Terminal Facilities Act,” a state law that was amended in 2005 to allow bond sales for approved air carriers that have at least two “specially equipped” planes that are used for the “transportation of specialized cargo.”

Boeing added two large cargo planes that fly assembled 787 Dreamliner sections from its two existing plants at the North Charleston site to its main plant near Seattle.

The amendment was sponsored by House Speaker Bobby Harrell, R-Charleston, another key player in the Boeing deal. The air carrier law is based on Article 10 of the S.C. Constitution.

Besides the $270 million in bonds, the state Budget and Control Board last year also approved a $102.5 million “bridge” loan to Boeing. But a Treasurer’s Office spokesman later told The Nerve that the actual loan was $4.75 million and was reimbursed in April 2010.

Chicago-based Boeing isn’t hurting for money these days, reporting first-quarter net income of $586 million, a 13 percent increase over the same period last year, according to a company release.

Its first-quarter revenues came in at nearly $15 billion – almost three times the size of South Carolina’s ratified general fund budget for this fiscal year.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

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