Where do the projects come from?
Lawyers never know when the next development project will show up and how it got to their doorstep. In this space, there is no traditional "client development" because you have no idea where your next clients are located. In fact, they are often international. Emails, calls and texts come in regularly from large construction companies that build massive industrial spaces globally, site selection consultants from all over the country, referrals from existing clients, referrals from other lawyer friends at different firms across the country, local counsel requests from firms in large cities such as New York, Chicago, Los Angeles, industrial brokers across the country, etc.
The best thing lawyers can do as a team is to do their very best work and then hope clients and those with whom they work regularly (brokers, site selection consultants, counties, states) will think of the team the next time they come across a company with a need for incentives counsel. The most relevant quote: "Bring Value. Bring Value. Bring Value. And then ask for work." One must try very hard to show up each day with a positive attitude, excited for what the day may bring, a hardworking mentality and a deep interest and devotion to clients and their business needs, good things will happen. Another favorite quote is, "Success doesn't come from what you do occasionally. It comes from what you do consistently." A very successful partner (now retired) that once said when asked how to "develop" clients, to keep one's head down and work hard, every single day, and remain grateful and cognizant of the trust clients place in us. He said that if a lawyer did that, good things would happen. There is an awful lot of wisdom there.
Who should lawyers expect to deal with at the company during an economic development project?
Typically, the company lead is the general counsel or president/ chief executive office but sometimes it is the chief finance office. When a company is planning a large expansion of an existing facility or picking the location of a project in a state (or in the United States) for the first time, that is a major decision. Those types of decisions are made at the very top. Also, many companies in this space are publicly traded companies which carries additional complexities regarding confidentiality and properly timed disclosures. These executives are deeply intelligent, extremely busy, and often need highly targeted, precise information, and because they don't have the benefit of time, they often need responses immediately. That makes the day of a development attorney fun. After all, great things never came from comfort zones.
Lawyers are always on standby for development clients, so this area of practice is not for everyone. If an attorney thrives on quick timelines and deeply intelligent and demanding clients, one can get a lot of energy from this area of practice. For others, that can be draining.
Development lawyers work seven days a week, and since the deals are often global, they work around the clock. There is a great deal of satisfaction in our team's days because there is a comforting rhythm to watching the daily work patterns travel the globe each day. When South Carolinians start our day, our European clients have already been working for many hours, so we begin our day with work waiting. The East Coast deals keep us busy soon thereafter, and our U.S. deals generally keep us busy during our traditional workday. As we are winding down our day, our California clients still have hours to go. Then the Asian projects start coming in later at night. . . so it's a steady cycle.
Which side of the deal do you represent?
Firms generally pick one side or the other, and the author's economic development team represents the company side of the deal. Corporate-side firms, however, have the great pleasure of working with their friends in the Bar that represent counties and the state.
How competitive is South Carolina with other states?
Highly competitive. "Team SC" does a really incredible job. The economic development community in South Carolina doesn't just deliver a product, it delivers an experience. Companies feel it. And they do so right away. We are a small state, and that means we all know each other well.
As a personal experience, my first job after graduating from college was at the Charleston Regional Development Alliance. I was 21 years old. They threw me a going away party when I moved to Texas to go to law school, and now . . . almost three decades later, I get to work with my friends in the economic development space that I worked with back then.
In sum, all the participants in South Carolina care, and that shines through. The counties, the regional economic development groups, the South Carolina Department of Commerce, the Port, the utility providers, the Class 1 rail carriers, etc. are a tight team. The South Carolina Department of Commerce is energetic, hugely responsive, highly professional and caring. The companies feel it and remark on it regularly. The state's regional economic development alliances make us look good every single day. They are very engaged, always professional and their love for South Carolina shines through in every meeting I've ever attended with my clients and with them.
The counties are also generally exceptional. The economic development directors and county attorneys work hard to win projects so that our communities will have a broader property tax base, better schools and that our families will have better jobs. Companies remark with regularity that they "feel" a difference here. A company from overseas recently said that the difference that they perceived in South Carolina is that in "South Carolina you can start from the base that people should be trusted." The company executives said that back home for them, that they start from the foundation that they do not trust others with whom they do business.
The excitement, support and interest that they perceive in South Carolina during the "courting" stage does not diminish once the company announces that they will locate and/or expand here. That dedication, that support, that commitment to the long-term success of the company begins with the company's decision to locate here. This is an important, and lasting, relationship. A marathon, and not a sprint.
What "matters" to companies?
Many things matter, but the list across development lawyers is usually pretty much the same. Projects are dirt deals first. If the site does not work, there is little a community or state can do to overcome that issue. The site selection process always leads, and it should. If a company says it will locate in any state as long as the incentives are aggressive enough, then that is a project no one should want to work. A good incentive package does not make a bad deal good. That is very true.
Next is timing, and in this economy timing is huge. Companies are moving quickly and are working to keep up with customer demand, which has risen sharply with the pandemic. Deals previously had an 18 to 24-month timeframe which the company needed to be up and running. In the last two years, we've seen a tighter timeframe – often 12 to 18 months. This may seem like a long time, but it is not. For this reason, existing buildings are in very high demand. Buildings that have not even come out of the ground are often fully leased. Equally important, especially right now, is workforce. This is not unique to South Carolina. Companies nationwide are struggling right now to find workers. As you can see – while incentives are important – issues such as real estate, timeframe and workforce availability are critically important right now.
At what point do companies engage counsel to help on incentive matters?
Hopefully early, and the earlier the better. If a company calls after they have announced that they are coming to a state or a community, there is not a lot anyone can do as far as incentives go. At this stage of the project, the team can help with ongoing real estate, corporate, tax, employment, construction, and other issues, but not incentives. Incentives are intended to encourage, to incentivize, a company to locate in a community or in a state. Development lawyers talk regularly of the "but for" test. If the company was coming to a community or a state anyway, it fails the "but for" test. Companies go through their own very careful and extremely detailed and important due diligence. Lawyers often help executive teams prepare to present various locations and multiple states to their boards of directors. Each state is different, and the costs of doing business in a state vary. Also, sites are different. One site may check most of the boxes in a state but lacks a rail spur or some other real estate specific item that puts that state behind a site in a different state. Incentives can become really important here, as they can level the playing field by supporting certain infrastructure improvements to make a state competitive once again. South Carolina has shown it can be highly competitive when the deal makes sense.
Is it just incentives? Does an economic development team help in other matters too?
A development team must take a holistic approach to the deal. It should have team members that provide support in real estate, corporate, environmental, tax, immigration, and construction matters, as well as incentive matters. That is the "phase one" team. After the project breaks ground, and certainly after the facility is up and running, the "phase two" team moves to the forefront, which includes corporate, tax, real estate, employment, litigation, patent/IP, and ongoing incentive support for the project.
What incentives does South Carolina have to offer?
The state and counties in South Carolina hear two different numbers. The state is very focused on job numbers, including wages and benefits, and the counties are very focused on capital investment. That is because the tools in their toolboxes are focused on those specific numbers. Note here that this addresses discretionary incentives, since that is the area where the author works. There are other statutory incentives, and a company's accountant (for example) can help with those. Discretionary incentives at the state level include grants and job development credits. Both are focused on jobs and investment. A company must have "eligible expenses" to get either. There is a project profile sheet, which all companies complete at the beginning of the incentive process. It is a two-page document that asks for a five-year projection of jobs and capital investment. Five years is about as long as any company can reasonably project for a possible economic development project.
South Carolina is not unique here. Most states take the same five-year snapshot approach, and all states ask for the same information (jobs and capital investment). In the state's toolbox are job development credits (JDCs) and grants. Both are discretionary. There is not some formula that results in a JDC and/or a grant. A project that results in a lot of jobs that are high paying jobs with good benefits is going to be more likely to receive a grant and/or JDC than a project with a smaller number of low-wage jobs. Different types of industry result in different jobs. A warehousing/distribution center project is probably going to have lower paying jobs than a manufacturing facility. A corporate headquarters project is probably going to have high wages.
One can think of it like this – warehousing and distribution typically do not pay a lot. Corporate headquarters and manufacturing typically do. JDCs are refunds of a portion of a company's withholding tax liability and usually run for 10 years (if awarded to a project). They can run for 15 years for extraordinarily large projects. Companies receive this incentive once they meet the job creation and capital investment targets. If the company fails to perform, they never get this incentive. Grants (the other main tool in the state's toolbox) work as a reimbursement for certain improvements at the project. Companies should think of this as a reimbursement for money spent on items at the project site that cannot be packed up and taken out of the state. These are monies that are improvements to the project site, so these improvements, these benefits, remain in South Carolina even if years later the company is no longer here. Grants have certain requirements that must be met, or the company must repay some or all the grant dollars.
On the county side, counties have at their discretion the ability to offer a property tax abatement on real and/or personal property, called a fee in lieu of tax agreement (FILOT). This can significantly lower property taxes for 20 or more years. The larger the capital investment, the more substantive this incentive can become. This is important because without this incentive, South Carolina's property taxes are quite tough and noncompetitive when compared with other states' property taxes. When companies are comparing South Carolina to site options in other states, South Carolina needs this incentive in order to be competitive. Also, a county can offer a special source revenue credit (SSRC) in addition to a FILOT if it so chooses and certain requirements are met. This item in the county's toolbox is a dollar-for-dollar reduction in property taxes for a specified amount of time or until a certain dollar value is met. This further helps South Carolina be competitive to win important projects by lowering property taxes on real and/or personal property.
When South Carolina lose a deal to another state, what is typically the reason?
The site is the most critical factor. When deals are diverted from South Carolina, it was because the site wasn't ideal compared to a site in another state. Development teams regularly represent companies in economic development matters when the company is evaluating more than one state. Incentives are very important, but it's typically the site that wins or loses the day. Most states have such a similar incentive structure that the final incentive packages in more than one state are usually not that far apart by the decision point. The site and workforce usually drive the final decision, with site being more dominating lately (since workforce is a challenge everywhere right now).
Is anyone really watching? What if a company does not hit the targets set out in the incentive contracts?
Someone is always watching. Incentives – whether county or state level incentives – have certain targets that must be met. These are contractual obligations. Local communities and the state do a very good job watching these deadlines and confirming whether a company has complied. Things happen (for example, a global pandemic) that may result in some extensions or modifications, and that is inherent in any contractual situation. If contractual obligations are not met, there are consequences such as clawbacks and/or terminations.
What one type of project is South Carolina really good at recruiting?
Success doesn't come from what South Carolinians do occasionally. It comes from what we do consistently. South Carolina consistently is a formidable competitor in the Southeastern United States when it comes to recruiting manufacturing projects, especially those related to the automotive industry. The state has an amazing track record, and we are known to compete mightily in this space. Manufacturing jobs have high wages, and those types of jobs are supported by our current South Carolina incentive structure. That having been said, South Carolina is good at recruiting any project that creates a good number of jobs, with high wages and benefits and with strong capital investment. We can easily and quickly spot a strong economic development project, and we do an excellent job winning those projects.
What could South Carolina do better?
South Carolina would benefit from more statutory flexibility in some of our job focused incentives. For example, with the JDC incentive (which is a state incentive) many companies have more than one entity that handles payroll. Our current statutes have not quite kept up with complex corporate organizational and formation structures, and more give and take when it comes to capital investment and job creation requirements would also be beneficial. As times change, we see more remote workers and more automation (and as a result of both, fewer workers at the site), and we see an increase in capital investment in projects. That means that many companies are spending far more money in South Carolina (which increases our property tax base) than perhaps the company originally anticipated, though their job numbers may have shifted downward. It would also help if state statutes evolved to be more in line with how companies operate today. Other states are more aggressive here.
Companies, too, like to work with and see people who look like them, and who are diverse. They feel, at times, that perhaps the diversity of their company may not be reflected, or respected, here. That may be hard to read, but it is true. And it is important. That is a very real concern, and it comes up constantly at the highest levels of a company. We need to look around us and make sure that our leadership in our state reflects and embraces diversity. We must ensure that voices are heard, respected, championed, and valued. We are better by learning from viewpoints that are not our own.
Powerful leaders, thoughtful leaders, realize that celebrating others, lifting up others, and doing so with conviction and joy is life changing. I think we need more of that in our state. Everyone has struggles, and everyone is different. I love the saying that behind every strong person is a story that gave them no choice. South Carolina is full of strong people, some of whom have not found their voice quite yet. South Carolina was not made to be small. It was made to be big. Some think that, at times in this state, we are a bit comfortable with the way things have always been, when perhaps we should realize that great things never came from comfort zones. There are incredible, amazing people in this state, and development lawyers should emphasize that diversity when talking to clients and prospective clients.
Originally published by South Carolina Lawyer.
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