Statehouse Leaders Continue Hydrogen Push Despite Shortfalls

Kevin Dietrich
July 10, 2009

Recently, House Speaker Bobby Harrell issued a press release titled "Hydrogen: Proving to be a Great Investment for SC" in which he sang the praises of state-backed hydrogen research, implicitly blamed political foes for an "economic development strategy of inaction" and alleged that the state's hydrogen research industry "is being driven by the private sector."

Those claims are as flawed as the legislature's overall approach to economic development. They offer clear proof why South Carolina has repeatedly come up short in terms of growing business and creating jobs. Consider the following claims made in the release:

Claim: "The public/private investment in hydrogen has created 229 jobs in South Carolina. With 65 percent of those jobs being created in the past five years, this is proving to be a growing industry."

Reality: That works out to fewer than 30 hydrogen-related jobs a year on average over the past half decade - hardly a boom. Even the Obama administration has indicated it will not support future funding of such research involving fuel cells for vehicles.

It's also unclear what jobs are discussed. If the tens of millions in tax dollars that have gone toward hydrogen research have been used by state agencies and publicly funded universities to hire lobbyists and consultants, that's very different than private companies actually bringing aboard researchers and workers.

Claim: Through direct state appropriations and support of the endowed chairs program, South Carolina has invested nearly $12.3 million in hydrogen over the past five years. "And by conservative estimates, this has spurred well over $115 million in non-state investments. That means our state is leveraging its hydrogen investment dollars at a rate of more than 10 to 1."

Reality: What isn't disclosed is that most of these "non-state investments" have largely come from local, county and federal tax dollars, rather than true private investment. So the assertion that South Carolina "is leveraging its hydrogen investment dollars at a rate of more than 10 to 1," likely means the state has gotten other elected officials to put taxpayer money into the hydrogen boondoggle - not private business.

Claim: South Carolina's current economic development strategy of inaction needs to end.

Reality: Given that the state's legislative branch exercises near-total control over the state's economic development policy, it would appear that if there is blame to be assigned for a strategy of inaction, it rests with the General Assembly. But the real problem, in fact, is that between fiscal year 2003-04 and 2008-09 state spending rose a whopping 36 percent, from $4.95 billion to $6.74 billion. As noted economist Arthur Laffer has pointed out, mushrooming government spending crowds out private investment, and that's never been more evident than the government consumption that's taken place in South Carolina in recent years.

Claim: "We must actively pursue new economic opportunities. Hydrogen has the potential to create the high-paying jobs of tomorrow by becoming the next economic engine driving our state's knowledge-based economy."

Reality: At least $40 million in state and local tax dollars, if not considerably more, have been spent over the past five years in the Midlands to establish a USC research base in hydrogen fuel cells and create a cottage fuel-cell industry for the Columbia area. That figure doesn't include additional millions in tax dollars spent in Aiken, Clemson and Orangeburg.

All that for a purported 229 jobs. While apparently legislative leaders consider this a solid return on the state's investment, they also believe we need to redirect still more money into a technology with questionable viability.

For several years, South Carolina lawmakers have opted to pursue economic development by trying to pick winners through directing tax incentives to businesses and industries, rather than implementing broad-based reforms that could benefit all businesses and make South Carolina more competitive nationally and internationally.

In the most recent session, for example, the General Assembly allocated another $775,601 toward hydrogen research, while simultaneously voicing concerns about South Carolina's ability to keep teachers in the classroom and criminals behind bars.

This obvious lack of prioritization clearly shows legislative leaders continue to put pet projects before the fiscal interests of South Carolina, which is of major concern as state revenue collections continue to decline and current spending levels become unsustainable.

Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2009. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201.