Rural Economic Development

The following letter was presented to the Rural Ad Hoc Committee in the SC House of Representatives:

September 20, 2004

The Honorable Harry Ott, Co-Chair
The Honorable Jay Lucas, Co-Chair
Rural Caucus Ad Hoc Committee
SC House of Representatives
P.O. Box 11867
Columbia, SC 29211

Re: Rural Caucus Ad Hoc Committee

Dear Chairmen Ott and Lucas:

Thank you for the opportunity to contribute to the discussion of economic development in South Carolina’s most economically distressed counties. As an organization with over 10,000 small business members and representing the general interests of all the state’s small businesses, our view of economic development often takes a different path than the traditional course set by big business and generally followed by state government.

Much of the discussion at your last meeting on September 8th clearly reflected the old school of rural economic development that has failed and will probably continue to fail. Industry recruitment has been the silver bullet long sought after by rural areas to solve their problems. All our economic incentives have been focused on landing the “big one”. When we give tax credit incentives, they are designed primarily for big business. Only companies that create 10 or more new jobs in conjunction with new or expanded facilities are eligible. This clearly eliminates most existing small businesses since 72% of our state’s businesses have less than 10 employees.

We lowered the state income tax on C-corporations years ago to 5% as a business incentive and now talk about eliminating the corporate tax on these same big businesses entirely. Yet, most of the state’s businesses are not C-corporations and pay a state income tax of 7%. Specific efforts to simply lower this rate to 5%, as an economic incentive for small business, are met with concerns about budget shortfalls or are co-opted as a carrot in bigger tax reduction proposals.

It is clear that big business interests have dictated the economic policy of this state for years. Yet, especially in our rural areas, we fall further and further behind. Surely it is time to break the insanity of continuing to do the same thing over and over and expecting different results.

Yes, sometimes a rural area does land a big business and it does help the local economy. But most of us will grow very old waiting for a big business to land in every one of our distressed or least developed counties. We need to start thinking outside the box.

If creating new jobs in our rural counties is our goal, is it really important that all the jobs created be by only one or a few businesses that build new facilities? The answer certainly must be “no”. One hundred new jobs created by 75 small businesses surely are just as valuable as the same number of new jobs created by only one business. In fact, the cost to the taxpayer would probably be far less under the first scenario. There would be no need for counties to give away their tax base as incentives, infrastructure needs (water, sewer and roads) would not increase and environmental concerns would be non-existent. What’s more, the small businesses given incentives to hire one or more workers won’t close down or move out of the country when the incentives run out.

Had we focused our attention and resources on growing our small businesses over the past few decades, today instead of worrying about economically distressed and least developed counties we might be simply talking about how rural county needs are different that urban counties.

Attached are some suggestions for consideration at your next meeting on October 13th. While this discussion will be about rural counties, these points should be considered for the entire state.

Again, thank you for the opportunity for input on the subject of economic development for distressed and least developed counties.


Frank Knapp, Jr.

cc Rural Caucus Ad Hoc Committee

Economic Development for Distressed
and Least Developed Counties

Focus on Small Business

Economic Incentives

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