Experts say S.C. made costly mistakes when it gave millions in incentives; for-profit projects in doubt.
By Ames Alexander and Tim Funk
charlotteobserver.com, Tuesday, May. 26, 2009
INDIAN LAND, S.C. Condos. Shops. Outdoor concerts. Internships to prepare students for careers in broadcasting.
All were to be part of the Inspiration Networks' 93-acre City of Light.
Or so S.C. and Lancaster County officials thought when they gave their blessing along with at least $5 million in incentives to the religious broadcaster.
But more than five years after unveiling its plans, Inspiration has delivered on few of its development promises, leaving Lancaster officials disappointed as they try to revive a county with 19 percent unemployment.
Today, the City of Light campus is home to two buildings both nonprofit projects that don't pay county property taxes.
The fast-growing network, with nearly $80 million in annual revenue, has yet to bring any of the for-profit ventures it promised. County officials now question whether those pieces will ever be built.
I know we're having some tough times. Everybody is, said county councilman Jack Estridge. But a deal's a deal.
Economic development experts, meanwhile, say that S.C. officials made costly mistakes when they agreed to provide incentives to lure the nonprofit network away from its home in Charlotte.
The organization moved its headquarters just 14 miles a change that experts say is unlikely to boost the local economy.
It's very dubious, said Ernie Goss, an economic development expert at Creighton University in Omaha. You'd be hard-pressed to find an economist to find a justification for this.
State and local governments rarely offer incentives to nonprofits. One reason: Those tax-exempt groups seldom generate much growth or state revenue.
A top S.C. official, Daniel Young, says the state agreed to help the group based largely on the assurance that it would bring for-profit development. But the state did not require that in its written agreements meaning that it has little recourse if the network fails to bring for-profit businesses.
As the Inspiration Networks lobbied for financial help from the state, CEO David Cerullo, 56, was quietly becoming one of the nation's best-paid nonprofit leaders. From 2002 to 2007, his total compensation more than tripled to nearly $1.6 million. More than 25 network employees, including Cerullo's wife, Barbara, and son Ben, collected more than $100,000 in 2007.
Network executives say Cerullo and his staff earn their pay and intend to honor their development promises.
But Don Weaver, president of the S.C. Association of Taxpayers, questions why the group is entitled to incentives and tax exemptions.
How is the county possibly coming out ahead on this? asked Weaver, whose research group encourages government to work more efficiently. ... Why can't these people put some money in the till if they have all this money for salaries?
Promising huge benefits
Inspiration's four networks bring religious programming to more than 100 countries.
For 17 years, they operated from a variety of buildings in Charlotte. About six years ago, network officials began to scout for a new, larger home.
The Lancaster County Economic Development Corp. found the network an affordable stretch of undeveloped property in Indian Land, along U.S. 521 five miles south of the Charlotte outerbelt.
In 2003, Inspiration applied for state relocation incentives. The broadcaster told the state it would bring several hundred employees to a campus that would combine its nonprofit enterprise with for-profit businesses and bring huge economic advantages.
The state agreed to give the network job-development credits rebates on payroll taxes that are projected to be worth between $3.6 million and $26.6 million over 15 years. State officials refused to estimate how much the network will receive, but predicted it would be far less than the maximum.
In 2006, the state agreed to kick in $1.2 million to improve road access to the campus. The network got $560,000 in additional help through a program that allows state utility fees to be used for infrastructure improvements.
County officials recall their excitement as Inspiration officials led them on tours of their Charlotte operations and laid out ambitious plans for the City of Light. It would be a place where the network would run its worldwide operations, produce religious programming and teach broadcasting skills to local students and missionaries from around the world.
Thousands would live and shop there. Neighbors would attend outdoor concerts. Special outreach centers would minister to children and teens.
Although the organization was a nonprofit, exempt from most taxes, its plans included moving a for-profit video production company to Lancaster, building a 550-unit condominium development, and launching other projects that would expand the tax base.
The county desperately needed jobs and tax revenue. About 14,000 textile jobs have disappeared since the mid-1990s. Lancaster, the county seat, now sits atop Forbes magazine's list of most vulnerable towns.
In November 2006, Inspiration broke ground on the site. S.C. Gov. Mark Sanford, who attended the ceremony, called the network's move a great win for our state.
Today, about 200 of Inspiration's 330 employees work at the site. The public can visit the bookstore there, attend a Wednesday chapel service, check out bronze statues and admire the stone and glass headquarters building beside the lake.
But much of the 93 acres remains undeveloped.
So far, the network has failed to deliver much of what it promised, county officials say.
Under target dates laid out in a February 2007 development agreement with the county, Inspiration was supposed to complete seven of its projects and begin construction on two others by January, 2009. But only two pieces the 118,000-square-foot headquarters building and 465-seat prayer center are finished. Construction has yet to begin on any other buildings.
Some of the for-profit projects awaited by local officials are now in doubt.
In its 2003 application for state incentives, the network's chief financial officer said plans for the S.C. site included a 100,000-square-foot building that would house MediaComm, a for-profit video production company. But Inspiration spokesman John Roos now says he's aware of no plans to move MediaComm from Charlotte.
Construction on the condos, meanwhile, was supposed to begin in July 2008. Today, Roos says the condo plans are long into the future.
It's not like it's on the blueprint, Roos said. It's one of those things that would be nice if it works out, but there are no firm plans.
Roos said the network has tried as hard as we can to keep our word, and has done what it promised in its formal public announcements.
He added that the network has at times faced delays beyond its control such as those caused by worldwide steel shortages.
But not all the network's promises required bricks and mortar.
The 2007 development agreement also states that the network would produce and broadcast promotional videos to help Lancaster County attract businesses and residents. That has yet to be done, said Keith Tunnell, president of the county economic development corporation. Roos said the network still plans to help the county with its promotional material.
Inspiration also agreed to work with the Lancaster County schools to help train students for careers in broadcasting. INSP has arranged to hire one intern so far, officials say.
It appears that INSP has not fulfilled its commitment to the county , Lancaster planning director Chris Karres wrote in a letter to the network this month.
Roos said the network plans to hire more student interns in the future, when it builds a television production facility in Lancaster.
We're 100 percent committed to doing all those projects, Roos said. If there are delays, we'll work through them. We'll keep our promises.
But some county officials are losing hope.
We were told a lot of things would happen that haven't happened, said Rudy Carter, vice chair of the county council. They've not followed through. I hope that everything works out. But right now, it doesn't look like it.
South Carolina has drawn criticism for extending incentives to the nonprofit.
Economic development officials say they chose to help a project that promised to bring jobs and investment. Their impact analysis predicted the benefits would far outweigh the public costs.
The S.C. Coordinating Council for Economic Development, the board that decides whether to approve incentives, agreed to help the Inspiration Networks based largely on the assumption that it would bring for-profit businesses, according to Daniel Young, the council's executive director.
But five experts interviewed by the Observer pointed to a variety of reasons why they believe the state wasted taxpayer dollars.
The broadcaster's move likely did little to prime the local economy, they say, because most workers didn't change their spending habits when they began commuting to a new building just 14 miles away from the old one.
I don't think anyone's going to be moving as a result of this, said Goss, the Creighton University economist.
Some speculate that Inspiration probably would have moved to South Carolina even without incentives. Records show that the network was deep into the process of buying land for the project in the fall of 2003, even before the state agreed to help.
Experts also question why state officials would grant incentives to an organization that's tax-exempt and therefore unlikely to contribute much to state and local coffers.
Inspiration's new site is in the fastest growing part of Lancaster County, near large housing and commercial developments. If a $75 million for-profit development had been built on the City of Light tract, it would produce about $1 million each year in property tax revenue.
Under an agreement with the network, the state can require Inspiration to repay incentive money if it fails to invest $65 million and bring a total of 300 employees over the next 18 months. But the state never formally required the network to build what government officials wanted most: for-profit buildings that would generate taxes.
Nonprofits rarely receive incentives like the ones Inspiration got from South Carolina, several experts said.
This is the first I've heard of it, said Joseph Henchman, director of state projects for the Tax Foundation, a nonpartisan research group that focuses on state and local policy. If your goal is to increase tax revenue, this is a very dumb way to do it.
N.C. Department of Commerce officials say they're aware of just one nonprofit that has received state incentives to move to North Carolina: the American Institute of Certified Public Accountants, which moved from New Jersey to Durham in 2006.
Even when for-profit companies are looking to move, relocation incentives rarely boost the economy, studies have shown. Gregory Ingram, president of the Lincoln Institute of Land Policy, says such programs don't create jobs.
It just moves jobs around, he said. ... This is not something making the region any better off. In fact, it's making it less well off because you're spending money that could be used on elementary schools. It's not a very efficient use of resources.
Over the long run, the network's move will likely cost North Carolina millions in lost income tax revenue.
But will South Carolina recover its investment?
Said Henchman, the tax foundation expert: I don't think so.
Staff writer Tim Funk and researcher Marion Paynter contributed.