Exclusive: SC Scamming Small Businesses

Millions of dollars worth of corporate tax credits intended for South Carolina entrepreneurs and small businesses have been diverted instead to the state’s research universities, according to e-mails and documents obtained by FITSNews.

In the latest example of government needs trumping those of legitimate businesses, the South Carolina Research Authority (SCRA) – which as you may recall is the government agency House Speaker Bobby Harrell wants to manage our state’s flagging economy – has reportedly also steered some of the money to a start-up company run by Harrell’s “big government Svengali,” S.C. entrepreneur Larry Wilson.

At the heart of the scandal is SC Launch, a fund established by SCRA with the intention of providing start-up capital in $200,000 increments to promising new businesses and entrepreneurs. This fund has solicited contributions in the form of dollar-for-dollar tax credits, which the legislature approved as a means of stimulating small business growth and entrepreneurship in a state sorely lacking both.

Under the leadership of its first director, private sector advocate Jim Stritzinger, the project was initially quite successful in raising money and then reinvesting it into South Carolina businesses. Stritzinger, however, was forced out (like former SCRA chairman Larry Druffel before him) because his vision for using the fund for its intended purpose of fostering private sector growth clashed with Harrell and Wilson, who wanted the money for the state’s research campuses.

Which is exactly where it’s now going …

In May of this year, SC Launch – whose board was “reorganized” by Harrell, Wilson and their research university allies – voted to give $8 million back from their entrepreneurial fund to SCRA to invest in South Carolina’s research campuses.

Specifically, sources say Harrell wrote board members threatening to have the money transferred legislatively if they did not go along with his and Wilson’s vision – which is to establish the Research Authority as its own separate “Department of Commerce.”

An e-mail obtained by FITS from former SC Launch board member Bill Masters (sent in February to his fellow board members) highlights the push from Harrell and Wilson to transfer the funds.

“As a small business owner I would never make a decision on $8,000,000 with just a phone call … so let’s meet in person before we make such a critical decision for the people of South Carolina,” Masters wrote to the SC Launch board on February 18, shortly after they had been pressured to approve the transfer via a conference call. “This money needs to be kept clean and not … be used for political and business favors.”

Masters also specifically describes the Harrell-Wilson takeover of the board when he says that they “will not simply steal the money, which would be political suicide,” but rather “replace us all each year with their new (board) policy.”

“It is my strong opinion that the original money was allocated for the entrepreneurs of South Carolina by the legislature and not just for the three universities and another self-appointed Department of Commerce back door funding group,” Masters writes, referring not only to the $8 million transfer but specifically to a $200,000 SC Launch grant which is alleged to have gone to Duck Creek Technologies, a firm whose board Chairman is none other than Larry Wilson.

This grant was initially award to Intel in an effort to get the company to locate within the University of South Carolina’s much-maligned Innovista project, but Intel never came to South Carolina.

Duck Creek, however, did announce that in March 2007 that it was locating at the Innovista campus, promising to create 200 jobs at $85,000 a pop beginning in March 2008 (see this press release where the company touts those figures).

S.C. Commerce Secretary Joe Taylor praised the Duck Creek announcement at the time, saying “as we diversify our economy in South Carolina, we continue to see the state’s strengths working to positively enhance those efforts. Today’s announcement is a great step forward in leading the way for this type of industry expansion.”

A year-and-a-half later, though, Duck Creek has failed to produce those jobs and Innovista itself is under fire for failing to land additional tenants.

Ironically, it is precisely the sort of government failure that Innovista represents which appears to have motivated Masters to reject the notion of siphoning small business start-up money to fund more government expansion. He specifically raises this point in contrasting his position with that of SCRA CEO Bill Mahoney, a Harrell-Wilson supporter who just this week wrote a letter to the Greenville News boasting about all the money SC Launch has given small businesses … yet conveniently neglected to mention the $8 million transfer.

This basic philosophical disagreement is laid bare in Masters’ e-mail.

“We all heard Mahoney say bricks and mortar (for higher ed), grants to universities and professors/ researchers to become entrepreneurs,” he writes, referring to a conversation between Mahoney and the board that has been independently confirmed by other members. “I certainly believe in applied research but the rubber meets the road through entrepreneurs and I don’t see many professors with the skills to make that leap. Remember a key strength of South Carolina’s people is they are independent and very entrepreneurial.”

In a nutshell, there you have the fundamental line of demarcation in a six-year dispute between Gov. Mark Sanford and conservative lawmakers (who want to invest in the economy) and allies of Speaker Harrell and Hugh Leatherman (who want to invest in additional government). Click here for more on that.

“PLEASE LET’S FIGHT TO KEEP AT LEAST SOME OF THIS MONEY FOR THE ENTREPRENEURS OF SOUTH CAROLINA (emphasis original),” Masters’ e-mail pleads. “I feel certain that if we vote without the due diligence we would give any other business decision of this magnitude, that this will reflect badly on each of us individually as well as put our Universities and State in bad light, as it could easily be read that SC Launch was a stalking horse to get the industries partners’ money approved and the citizens to invest in what they clearly thought was start up businesses.”

Masters could not be reached for comment for this story, but several sources – including two SC Launch board members and a SCRA employee – have confirmed receiving his e-mail as well as receiving communication from Speaker Harrell regarding his support for the transfer and willingness to effect it via legislative mandate, if necessary.

Stay tuned for more information as this story develops …

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