FILOTs Crucial to County Economic Development, Retention
Greg Wilson/Anderson Observer
FILOT may sound like a specialty dish at a local restaurant, but the program is creating some confusion and indigestion among voters and candidates during this election season.
The FILOT, or Fee In Lieu of Tax structure, which allows counties in South Carolina to offer tax incentives to potential manufacturing concerns, has played a pivotal role in Anderson County in the past three decades, and continues to be a central part of retaining many companies.
Attracting manufacturing to the state was very low on the priority list of a state legislature primarily made up of farmers who wanted to protect their labor force in the late 1800s.
In 1897, these representatives established an assessment ratio for manufacturing properties of 10.5 percent, which remains on the books today despite a series of other options aimed at blunting this tax.
The Options
In 1975, the state legislature passed a yearly property tax relief bill allowing manufacturers who invest more than $50,000 or more and create 75 jobs to receive an abatement from county operating taxes for each year they continue the same amounts of new investments and jobs.
The downside to the abatement is that the county sees zero dollars from companies in this option.
South Carolina has been phasing in a valuation discount for manufacturers since 2017 to effectively reduce the assessment ratio to 9 percent.
In 2022, the legislature passed Act No. 228, the “Comprehensive Tax Cut Act of 2022”, aimed at among other things, providing cuts to those who for smaller manufacturers or older manufacturers that have not been able to enjoy a FILOT. The Act, among other changes, effectively reduces the manufacturing property tax assessment ratio by providing a valuation discount, so long as funding exists to provide such reduction. It essentially creates an assessment ratio of 6 percent for the 2022 tax year, as long as the funding is available.
Currently the state has set aside $170 million to reimburse lost revenue to counties and schools from this Act, but if the funding falls short, the assessments can be raised to 6.4 percent to cover the shortfall.
Counties can benefit from this situation, though the money is slower to come in.
FILOT is the third option for counties recruiting manufacturing concerns. Anderson County began using the tool with the recruitment of Plastic Omnium in 1995, but has used it consistently since to retain such companies as Michelin, BOSCH, Electrolux and other international and domestic companies.
But it is the retention element that is often overlooked in counties employment of FILOT.
“Companies that are large, especially international companies, won’t hesitate to turn the lights off and move somewhere else if they don’t feel they are being appreciated and being taken care when it comes to their bottom line,” said Anderson County Economic Development Director Burriss Nelson, who has been recruiting industry to the county for more than three decades.
He said Anderson had been successful in recruitment even of some companies which were sending jobs south of the border, such as the Swedish company Electrolux, which moved some of their plants to Mexico but expanded operations in Anderson.
“If they don’t feel they are being taken care of here, it’s not unthinkable they would move their Anderson plant to Mexico or South America,” said Nelson.
Former Michelin president Pete Selleck said that without the FILOT tax incentives, it would be difficult to justify facilities in South Carolina.
“Without FILOT we would pay more property tax on a manufacturing facility than we would any other place on the planet,” said Selleck. FILOT agreements have not only helped the county retain Michelin, but to expand their operations and plants.
Perhaps the most notable example of the benefit of FILOT is the recruitment of First Quality Tissue.
In late 2008, with the recession at full gale and Anderson County’s unemployment rate near 14 percent, the company contacted the county with the promise of a $1 billion investment and at least 1,000 jobs.
County officials, including Administrator Rusty Burns, Nelson, and all members of county council decided to pull out all the stops to ensure First Quality chose Anderson.
The company was even willing to buy an old brownfield site at the abandoned BASF, which the county helped facilitate.
When it was announced in May 2009, it “turned the whole world around (for Anderson County),” said Nelson. “Without FILOT we would not have First Quality.”
The $1 billion investment and 1,000 jobs led to Anderson County being one of the top counties in the nation in recovery from the recession.
Companies that bring in substantial numbers of jobs that pay more than the current county average of $23.85 per hour, are also eligible for special source revenue credits, which is an additional discount.
“They bring not only great capital investment, they bring great people to our community with more buying power,” said Nelson.
Anderson County uses pay scale as a top measure when offering tax incentives to prospective businesses, giving preference and offering incentives for companies that bring in skilled, higher paying jobs.
The county would also find it difficult to compete with Georgia, Florida, North Carolina and Tennessee, which all offer lower base rates and other incentives (Georgia offers county the option to give zero percent to companies on the S.C. border) for industry with the FILOT,
According to the S.C.Department of Revenue, for the 2022 tax year there are more than 2,000 active FILOTs across the state’s 46 counties representing a gross investment of $85 billion.
There are 114 of those in Anderson County, with some companies having multiple FILOT agreements due to expansion opportunities.
It can also be beneficial to have a FILOT Agreement to remain exempt from rollback taxes. Rollback taxes occur when a property changes from agricultural use to commercial or residential use. Fee Agreements can operate to eliminate rollback taxes which can result in significant savings for companies that are changing the use of the property from agricultural to commercial.
FILOT agreements can also be used to bring development to underdeveloped areas as well as encourage current businesses to expand operations in the same county.