SCRA a costly proposition for SC

Retired South Carolina businessman Bill Masters issued a stinging indictment of the S.C. Research Authority, the state agency he chairs, with his resignation letter and accompanying report, sent to Gov. Nikki Haley earlier this month.

Masters delivered a withering assessment of SCRA in his missive, alleging, among other things, that the organization is run mostly for the benefit of top management, it manipulates government contracts and data to pass audits, and board trustees are allowed to have input into issues and decisions from which they benefit without having to disclosure their affiliations.

Details of the letter and report can be found here, in a story that appeared on The Nerve. (Full disclosure: I work for The Nerve.)

One of the key points Masters made in his report was that SCRA uses the unfair advantage of taxpayer subsidies from its state-derived funding to compete with private enterprise in the real estate sector.

SCRA officials like to boast that they don’t get state appropriations, but that’s not quite accurate.

In addition to being started in 1983 with $500,000 and 1,400 acres of land, and in addition to having received additional land grants since then, Research Authority-affiliate SC Launch gets funding from the state’s Investment Partners Fund.

The Industry Partners Fund was set up a few years ago up to provide working-capital seed grants to new technology companies.

Donations are good for a 100 percent, dollar-for-dollar credit against state taxes. The maximum overall amount that can go into the Industry Partners Fund is $6 million a year, a goal achieved for at least the past two years.

What that means is millions of dollars that would have gone into the state’s General Fund and could have been put toward education and other core services have instead been diverted to SC Launch.

Masters’ report points out a bigger problem, as well. SCRA was set up, partially, to promote the development of high tech industries and research facilities in South Carolina.

But given the advantages SCRA has in terms of funding and the fact that it has the state’s imprimatur, it’s likely hurting South Carolina. Not only has SCRA effectively made itself the 800-pound gorilla in terms of research and development in South Carolina, its existence has probably retarded the growth of any similar private organization.

A private company that tried to set itself up to do the same thing as SCRA would be at a disadvantage for several reasons. The most obvious is that it wouldn’t have the startup capital the Research Authority received from the General Assembly or the tax dollars that SC Launch gets.

But in addition, SCRA has a leg up because it’s state-backed. If it comes down to choosing between SCRA and a private entity, even if the two are almost identical on price, ability, etc., the choice is likely more often than not to go to the state-back operation. It’s the same mentality that created the cliché “no one ever got fired for hiring IBM.”

As a result, SCRA has likely squeezed out private companies that might have arisen in the state.

Also, because South Carolina isn’t Silicon Valley or the I-128 Corridor, talented high-tech folks are harder to come by. SCRA, with its state-backed advantages, is likely going to have an advantage in hiring, further hurting potential competitors.

SCRA is a state-backed monopoly, and as such, has fallen prey to the pitfalls that organizations operating without competition are wont to do, as Masters pointed out.

Without even analyzing the bigger question of whether the state of South Carolina should@be operating and subsidizing a technology-development company, it’s likely that SCRA is doing more to hurt the state’s business-development climate than help it.