Burnie Maybank hosted the Nexsen Pruet Newbie Seminar on December 1, 2011. The Newbie Seminar is designed for those new to the economic development field in South Carolina or those who would like some brushing up. Covered topics included basic property, sales and income taxes, as well as Bonds, the utility tax credit and FOIA. This presentation contains the public finance portion of the seminar presented by Nexsen Pruet economic development/ public finance attorney April Lucas.

1. Public Finance 101
Presented December 1, 2011
Nexsen Pruet, LLC Economic Development Seminar
By
April C. Lucas, Esquire

2. Inventory of Principal Economic
Development Finance Tools
Local Level-SC Code
Infrastructure Financing:
 Special Source Revenue Bonds - e.g. § §4-1-175 and 4-29-68
 Special Source Credits - e.g. § §4-1-175 and 4-29-68
 Tax Increment Financing - e.g. Title 31, Chapters 6 and 12
 Assessment Bonds - Title 5, Chapter 37
 Revenue Bonds , such as water & sewer & parking facilities - e.g.
Title 6, Chapter 21
 General Obligation Bonds- e.g. Title 11, Chapters 15, 27 and 41
 Utility tax credit grants- §12-20-105 and other grants

3. Inventory of Principal Economic
Development Tools
State Level-SC Code
Industrial Development Bonds-below market financing for project costs - e.g.
Title 41, Chapter 43
Grant Programs:
State Rural Infrastructure Fund
DOC Closing Fund
Community Development Block Grant Program (non-entitlement areas only)
State Infrastructure Bank - e.g. roads, rail, highway interchanges

4. Inventory of Principal Economic
Development Tools
State Level-SC Code
Section 108 Program (non-entitlement areas only)
Highway Set-Aside Program for Economic Development
readySC and Workforce Investment Act for Job Training
South Carolina Research Authority
Venture Capital Programs (Palmetto Seed Capital, InvestSC, SC
Launch)
Other sources for particular projects

5. Inventory of Principal Economic
Development Tools
Other
New Market Tax Credit financing for projects in poverty stricken
areas
Rural America Bonds for businesses in rural areas
Various federal grant and loan programs; e.g. Empowerment Zones,
B&I, SBA, etc.
University programs

6. Public Finance Considerations
S C Constitution, Article X, Sections 13 and 14
The State and its political subdivisions may incur debt in the
following ways and no other ;
(a) general obligation debt, which must be incurred for a public
purpose; and
(b) indebtedness payable from a revenue-producing project or
special source, which source does not include any tax or, in the
case of political subdivisions, any license

7. Public Finance Considerations
S C Constitution, Article X, Sections 11
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….

8. Public Finance Considerations
General Obligation Bonds may be used to finance publicly owned infrastructure
necessary to recruit industry
 Taxes/full faith & credit pledged to repay debt
 Local Government General Obligation Bonds limited to 8% of assessed
value of property within jurisdiction; State limited to percentage of general
revenue
 Usually reserved for pure government projects which do not generate
revenues, e.g. county courthouse, jails etc.
Revenue Bonds typically used for infrastructure such as water and sewer lines
and other revenue generating activities

9. Public Finance Considerations
Revenue Bonds also used to provide below market financing for
manufacturers and other businesses
 Conduit bond structure commonly used
 Governmental entity issues bonds and loans the proceeds to
private borrower
 Private borrower agrees to repay the governmental issuer
amounts sufficient to pay principal and interest on bonds
 Liability of governmental issuer limited to revenues under loan
agreement with private user

10. Public Finance Considerations
Most transactions driven by federal “tax exemption”
 Section 103 of the Internal Revenue Code of 1986, as amended, (the
“IRC”) excludes from gross income interest payable on bonds issued
by States and political subdivisions
 Bondholder willing to accept lower interest rate since it doesn’t pay federal
taxes
 Governmental entity passes through lower interest rate and liability in
conduit bond transaction
Sections 103 and 141-150 of IRC specify the circumstances under which the
federal government will recognize tax exemption
Private activity bonds subject to heavy restrictions. See IRC Section 141

11. Public Finance Considerations
IRC Sections 142 and 144(a)--Industrial Development
Bonds
Conduit financing used for manufacturing and certain exempt
facilities such as solid waste disposal
See Code of Laws of South Carolina, 1976, as amended, (“S.C.
Code”), §4-29-10 et seq. and §41-43-10 et seq.

12. Commonly Used Programs
Special Source Revenue Bonds (“SSRB’s”)-SC
Counties are authorized under §4-1-175 and §4-129-68 of the S.C. Code (and
under certain other statutes) to issue bonds payable solely from fee in lieu of
tax revenues collected under negotiated fee in lieu of tax arrangements or
under Multi-County Park arrangements
Bond proceeds may be used to finance land and qualified improvements, i.e.,
infrastructure and improved and unimproved real estate used in the operation
of manufacturing and commercial enterprises, personal property and aircraft

13. Commonly Used Programs
SSRB’s-SC
May be used for single project or for group of projects
For single projects, the primary benefit to the company is the
reduction of up-front costs associated with the project
For a group of projects, county can obtain financing or build funds
to provide needed infrastructure, spec buildings or land for a new
industrial park

14. Commonly Used Programs
SSRB’s-SC
Bonds may be put out for bid or sold to company
 If put out to bid, county and company must assure bond purchaser
that FILOT revenues will be sufficient to pay debt service on bonds
 Unrelated bond purchaser may insist on mortgage or company
guarantee, thereby raising credit concerns with the company and
its lender
 Company may want debt off its balance sheet

15. Commonly Used Programs
SC SSRB’s: Credit Issues
If company purchases bond, can negotiate forgiveness of
any debt service not timely made or cut off interest on
specified date
If company buys the bond, it claims a credit against its
FILOT payment equal to the debt service on the bonds
with the net result of reducing the company’s tax burden

16. Commonly Used Programs
SC SSRB’s: Credit Issues
Incentive Agreement must clearly state whether all or a
portion of FILOT revenues pledged to secure SSRB’s
Amortization schedule can be structured with fixed payment
terms similar to commercial loan or by applying specified
percentage of FILOT revenues to debt service
Must allocate principal to qualified costs

17. Commonly Used Programs
Special Source Credits (“SSRC’s”)-SC
In lieu of issuing SSRB’s, a county may use a portion of its FILOT
revenues for the same purposes for which the proceeds of SSRB’s
could be used without having to issue the bonds. See §4-12-
30(K)(3),§4-29-67(K)(3) and §12-44-70 of the S.C. Code
Company claims the credit against its FILOT payments
Credits much simpler to administer

18. Constitutional Constraints
Elliot v. McNair, 250 SC 75, 156 SE2d 42 (1967).
Economic Development is a valid public purpose.
Byrd v. County of Florence, 281 S.C. 402, 315 S.E.2d 804 (1984).
South Carolina Supreme Court held that ordinance authorizing general
obligation bonds for acquisition and development of an industrial park was
unconstitutional
General obligation debt may be incurred only for valid public and corporate
purpose

19. Constitutional Constraints: Byrd
Court set forth a four part test:
1) Court should determine ultimate goal or benefit to the public
intended by the project
2) Court should determine whether public or private parties will be
primary beneficiaries
3) Court should consider speculative nature of project
4) Court should evaluate the probability that the public interest will
ultimately be served and to what degree

20. Constitutional Constraints: Nichols
Nichols v. South Carolina Research Authority, 290 S.C. 415, 351
S.E.2d 155 (1986)
Supreme Court upheld the statute creating the South Carolina Research
Authority
Court overruled Byrd to the extent that it held that industrial development is not a
public purpose for which public revenues may be appropriated or extended
Retained four-part test from Byrd and posited the concept that public purpose is
fluid and will change over time with the changing needs of society

21. Constitutional Constraints
See also:
Hucks v. Riley, 292 S.C. 492, 357 S.E.2d 458 (1987), upholding the constitutionality of industrial revenue
bonds issued to finance the acquisition of public lodging and restaurant facilities providing service in
connection with tourism, sports and recreational facilities.
Quirk v. Campbell, 302 S.C. 148, 394 S.E.2d 320 (1990), upholding the constitutionality of negotiated
fee in lieu of tax program for property leased by counties to businesses based upon exemption for
publicly owned property despite fact that property not used exclusively for public purposes.
Horry County School District v. Horry County and the City of Myrtle Beach, 346 S.C. 621, 552
S.E.2d 737 (2001), upholding the constitutionality of multi-county park/special source revenue bond
legislation.