Public Money, Corporate Welfare

Where Was the Due Diligence on the Myrtle Beach EDC Project Blue?

By Paul Gable

The revelations Monday of a tax fraud conviction and jail sentence for one of the company officials associated with the Myrtle Beach Regional Economic Development Corporation’s Project Blue leads to a conclusion of an apparent shocking lack of due diligence by a number of entities charged with fiscal responsibility for the expenditure of public money.

In many state and local jurisdictions throughout the U.S., conviction of a felony by a corporate officer, especially one associated with tax fraud, would automatically exempt a company from consideration for public money economic development incentives. Such does not appear to be the case in Horry County or South Carolina.

The EDC has put together a deal that would involve approximately $24 million in local and state incentives to Covation, a startup company with no demonstrated performance records.

According to information we have received, these incentives include:

–          $1.8 million in cash closing funds ($1.25 million from Horry County and $550,000 from Santee Cooper).

–          Renovation and use of approximately 20,000 sq. ft. of training space at Horry Georgetown Technical College valued at over $250,000 of in-kind donations.

–          Technical assistance and two years of free service for the phone lines needed for the proposed Covation call center, approximately $500,000 in value.

–          Additional tax breaks of approximately $285,000 by Horry County as well as a purchase guarantee to the developers of the call center building should Covation fail to lease the building for a total of 10 years. The guarantee would be funded by an $8 million county general obligation bond.

–          $750,000 in cash from the state as well as an estimated $14 million in state tax breaks.

When questioned by reporters from myhorrynews.com, which broke the story, EDC CEO Brad Lofton and Horry County Council chairman Tom Rice both plead ignorance of Covation COO David Rocker’s criminal record. This is a shocking revelation by the head of the economic development entity trying to put together the deal and the council chairman anticipating issuing public debt as part of the incentive package.

But it doesn’t stop there. Santee Cooper is a federal government created public agency, part of the Tennessee Valley Authority. HGTC is one of the schools included in the state technical college system. State government entities Department of Commerce and the Governor’s Coordinating Council on Economic Development dealt with state incentives from Columbia.

None of these public agencies apparently picked up Rocker’s criminal record in whatever due diligence, if any, they completed for the deal.

HTC is the largest telephone cooperative in the country and is a private entity owned by its shareholders.

The information on Rocker’s criminal record was easily accessible on the internet through the federal prison database and various stories written about him.

A total of $24 million in public dollar incentives is a lot for a small company that holds the prospect of providing 1,000 jobs in Horry County for only a two year initial guarantee. It appears to be even more when the fact that Covation is a startup company is taken into account.

However, Covation has yet to conclude a signed contract with AT&T for which the call center would be providing services. It is estimated another nearly 60 days will pass until Covation learns if it even will get the contract.

It would have been a lot better for all concerned if the EDC had not attempted to lobby and pressure county council to approve its part of the deal. Instead, the EDC should have concluded thorough due diligence on Covation.

Additionally, economic development incentives should be offered, if at all, on the basis of the investment the company receiving them is willing to make in the county. In addition the pay scale, benefits and longevity potential for the jobs being created, as well as demonstrated company background and past performance should be seriously reviewed.

Instead, the EDC apparently became involved in a bidding war with a location in Georgia to see who could offer the most money to a startup company with no history and at least one official with a clouded past.

This is not an example of due diligence and fiscal responsibility we expect and should receive from those officials charged with authorizing the expense of public money.

Paul Gable is a veteran investigative reporter residing in Horry County, South Carolina and is the current editor of Grand Strand Daily and S.C. Hotline, online magazines featuring all things local and political.