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BEST
WORST
&
of 2010
Te S.C. Geera
Asseb
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Sot Caroia PoicCoci Edcatio
Fodatio
Thomas A. Roe +
Founding ChairmanRichard M. Quinn, Jr.
Chairman of the Board
E. Ashley LandessPresident
Rick BrundrettInvestigative Reporter
Jamie CordovaExternal Affairs Assistant
Kevin DietrichInvestigative Reporter
Lindsay ElliottProject Manager
Rebecca GaetzDirector of Development
Emily GouldDevelopment Assistant
Lauren LeachMarketing Manager
Chip OglesbyCommunications Assistant
Jamie Shuster
Director of External AffairsDr. Jameson Taylor
Director of Research
Eric WardInvestigative Reporter
Simon WongPolicy Analyst
Winky ZeberleinDirections of Operations
Nothing in this publication should be
construed as an attempt to aid or hinderpassage of any legislation.
2010 South Carolina PolicyCouncil Education Foundation
1323 Pendleton StreetColumbia, SC 29201 (803) 779-5022
www.scpolicycouncil.com
Ackowedgeets:This report was written by Dr. Jameson Taylor,
with Geoff Pallay and Simon Wong. JamieCordova and the southcarolinavotes.org team, as
well as the rest of the SCPC staff, provided in-valuable assistance with research and editing.
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Te S.C. Geera Asseb: Best & Worst of 2010
I. Bdget & Spedig
II. Taxes
III. Restrctrig
IV. Ecooic Deveopet
V. Edcatio
VI. heat Care
VII. Propert Rigts
VIII. Eviroet
IX. Coo Sese & Persoa libert
X. Trasparec
XI. Idepedet/Sa Bsiess
ThE S.C. GEnERAl ASSEmBly:
BEST&WORST
OF 20104
12
17
25
34
40
47
54
61
66
74
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InTRODuCTIOn
1
This report is our second in an annual seriesdedicated to reviewing the best andworst legislation of the session. As youll see, this year was arguably worse than
last. Among the worst of the worst passed in 2010:
The largest budget in state history (H 4657)
A 50-cent cigarette tax increase (H 3584)
An omnibus economic development law, filled with special interest tax
breaks (H 4478)
A joint resolution capitulating to new federal standards regulating carbon
dioxide emissions (H 4888)
While you can read more inside regarding specific legislation, we want to use
this introduction to explain our methodology that is the standards we use in
determining what bills are good or bad.
To begin with, we are not so much focused on specific pieces of legislation, as
we are on the ideas behind this legislation. That said, we limit our commentary to
bills introduced in the 2010 session. For example, we believe school choice is a
critical education reform, but we do not address it because the Legislature did not
introduce a bill related to tax credits or scholarships this year. Similarly, there are a
number of bad policy proposals being considered in other states or other venues,
but we didnt look at these either. Our consideration of what is good and bad is
limited to what happened in the General Assembly in 2010 what bills were
actually introduced and passed.
We distinguish a good bill from a bad one on the basis of one essential
question: Does this bill make South Carolina more free? Does this bill promote or
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2Te S.C. Geera Asseb: Best & Worst of 2010
protect freedom? Does it further economic freedom or personal liberty? Does it
guarantee fundamental rights in some fashion? If it does, its a good idea. If not,
its a bad idea.
So, why freedom? It is not necessary to justify here why we think freedom is
a basic good. In short, human beings were created to be free. This freedom is not
absolute. Rather, it is guided by reason and truth. It is what the Founders refer to
as liberty, freedom exercised with responsibility, as opposed to license. Understood
in this way, freedom is essential to being human. In turn, slavery, in all its forms, is
dehumanizing because it limits the very faculties reason, conscience, the will
that make human beings what they are.
Granted, freedom can mean a great many things. But based on the definition
above, we believe freedom requires limited government, equality of opportunity
(very different from equality of results) and a respect for fundamental rights, such
as the rights to life, liberty and property.
Lets look at a few concrete examples to determine how this commitment to
freedom informs our analysis of specific bills. S 168 is a law encouraging physicians
to volunteer their services without fear of being sued. This law is a good idea because it widens the scope of human action specifically, charitable action,
people helping other people. This is not to say well intentioned health care profes-
sionals should be immune from lawsuits. Rather, they should be immune from ir-
rational lawsuits lawsuits not based on gross negligence or willful misconduct.
At bottom, the idea here is that fear limits freedom. If a law can mitigate the fear
of irrational lawsuits so as to encourage charity (and reduce health care costs, to
boot), its a good law.
An example of a bad policy idea is H 4241, which would use taxpayer funds
to benefit alternative energy providers and also develop renewable energy
standards for government-run utilities. First, this bill violates private property
rights because it takes property (via taxes) from certain taxpayers and redistributes
it to others. By contrast, we believe a just tax code treats all taxpayers equally, with
no one group being forced to subsidize the economic activities of another. Second,
this bill hinders economic freedom, which is at the nexus of the right to property
Best/Worst ca be sed as a qick referece gide for
grassroots activists, te edia, ad awakers iterested
i qick reviewig poic deveopets i specific areas.
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and the right to liberty. Economic freedom allows the unrestricted flow of labor
and resources to entrepreneurial activities. This bill would give a preference to
certain resources (alternative energy) over others (traditional energy sources). In
doing so, it distorts the efficient allocation of these resources and subjects
entrepreneurs and consumers to government intervention that will likely lead to
negative unintended consequences: for instance and we dont joke raising
the price of corn, which means higher food prices for families. Less freedom,
higher taxes, higher prices more than enough to make this bill a bad idea.
Having explained our methodology, we also want to say a word about how to
best use this report. Best/Worst can be used as a quick reference guide for grassroots
activists, the media, and lawmakers interested in a concise review of policy devel-
opments in specific areas, such as the state budget or small business. The guide is
not meant to be comprehensive and some changes new to this year s Best/Worst
sacrifice breadth for readability. But it does provide a snapshot of what lawmakersare thinking, and for that reason also serves as an indicator of what bills might be
introduced in 2011 and beyond.
What Best/Worst does not do is provide real-time coverage of legislative
actions or in depth analysis of specific legislation or potential reforms. For the
first, we recommend readers visit our new website, southcarolinavotes.org. For the
second, we direct you to one of the many reports on our main website,
scpolicycouncil.com. Even better, we encourage you to visit our website to learn
more about cutting edge reforms legislators are not talking about, but should be.
In the end, South Carolinas future cant be limited to what lawmakers are
thinking or what the government is planning. After all, the best counter to biggovernment is limited government government limited by the initiative,
creativity and freedom of the people it represents.
3
like wat ore readig?Your support will allow us to continue to champion the principles of limited government, individual liberty, andfree enterprise for all citizens of our state. Make a tax-deductible contribution online atwww.scpolicycouncil.comor send a check to SCPC: 1323 Pendleton Street, Columbia SC 29201. Thank you fo
your support!
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Te S.C. Geera Asseb: Best & Worst of 2010 4
Despite all the rhetoric about budget cuts and employee furloughs, South CarolinasFY10-2011 budget was the largest in state history. The total state budget was
$21.149 billion. This includes: $8.268 billion in Federal Funds; $7.766 billion in
Other Funds; and $5.115 billion in General Funds. Thats an increase of $500
million or 2.19 percent over last year. The increase comes mostly from increased
fine and fee revenue and one-time federal stimulus dollars.
This years budget increases are not an isolated phenomenon. Over the past
10 years:
The total state budget increased by 44.49 percent (FY2002 to FY2011).
The budget increased by 4.14 percent annually.
The budget increased every year, except one (FY2010).
In the five-year period (FY2003-FY2008) prior to the beginning of the
current recession, the total budget increased 34.56 percent, going up by
more than $5 billion.
BuDGET&SPEnDInG
At the start of the next egisative session, poicy-akers wi begin debating a bdget that wi es-sentiay be $1 biion short as stis fnds froWashington dry p. We sipy cannot rey on back-door tax increases to cover bdget shortfas.
Governor mark Sanford
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According to the Mercatus Center, South Carolinas state and local government
spending relative to personal income is 26 percent 5th highest in the country. In
other words, state and local government spends 26 cents of every dollar earned by
South Carolinas people. Similarly, government spending accounts for 23 cents of
every dollar of Gross State Product (GSP) 4th highest in the country.
Debt is another serious problem. South Carolina government is carrying $40
billion in debt, including state, local, and school district debt, as well as unfunded
liabilities on public employee pensions and post-retirement health benefits. State
and local governmental outstanding debt accounts for 22 percent of GSP again,
4th highest in the nation.
So we have high spending and high debt relative to income and GSP. What
does that get us?
An unemployment rate of 11 percent 6th highest in the nation (as of
September 2010) and a median household income of $42,442, which is 42nd lowestin the nation (as of 2009).
It goes without saying that South Carolina is suffering from a budget and
spending crisis. But the crisis is not new. It comes from years of fiscal mismanagement
and poor budgetary practices. None of these problems were addressed during the
2010 session. And ideas that would have helped capping spending and zero-
based budgeting died in committee.
All in all, one thing is clear: high government spending is not making South
Carolina prosperous.
BEST IDEAS OF 2010
BudgetingresponsiblyH 4232: General Fund Budget Cap
Status: Referred to Ways & Means Committee
This bill, the South Carolina Taxpayer Protection Act, proposes limiting GeneralFund appropriations to the total amount of General Fund revenue estimated as of
February 15th for FY10-2011, increased annually and cumulatively by a formula
tied to population, plus inflation. The bill would refund surplus revenue to
taxpayers by means of temporary tax cuts. The measure would also institute zero-
based budgeting. (Also see S 2, which provides for a much weaker spending cap
Bdget & Spedig5 Bdget &
Spedig
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with an optional taxpayer refund.)
An effective spending cap must do two things: cap spending;
and cap the source of such spending that is, taxes and fines and fees. Toward
that end, we like this bill because it requires a mandatory temporary tax cut when-
ever there is surplus revenue. This serves as a de facto tax cap. This bill could be
made better, though, by including Other Funds revenue. In turn, fines and fees
should be reduced whenever such revenue exceeds a predetermined cap.
S 898: Zero-Based Budgeting
Status: Referred to Finance Committee
This bill would implement a zero-based budgeting system that builds the budget
from the ground up each year, rather than simply adding to the previous years total.While this measure did not pass, a budget proviso (cf. 90.19) commissioned The Office
of State Treasurer to make recommendations regarding zero-based budgeting.
Its a long overdue idea, but this bill is short on specifics on
how this reform would be implemented. In other states where zero-based budgeting
has been tried, lawmakers found it necessary to mandate that specific performance
measures be used to justify each program and spending item. Nationally, 17 states
report using zero-based budgeting in some form, but its unclear whether any of
them have taken full advantage of the concept. Another reform to consider in this
context is expanding executive oversight over agency budgets.
Eliminating ineffectiveagencies and programsH 4864: Office of Program Policy Analysis & Government Accountability
Status: Referred to Ways & Means Committee
This bill would create the Office of Program Policy Analysis & Government Ac-
countability as a division of the Legislative Audit Council (LAC). The office
would conduct program reviews aimed at measuring the effectiveness of state
agencies. In effect, H 4864 would add more compliance requirements for state
agencies in providing data for LAC audits.
6Te S.C. Geera Asseb: Best & Worst of 2010
Our take:
Our take:
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H 3192: Sunset Review Commission
Status: Passed House (without a recorded vote); referred to Judiciary Commit-
tee in the Senate
This bill would establish a legislative Sunset Commission, as well as a Sunset
Review Division of the LAC, to evaluate state programs with the aim of determining
whether they should be modified or eliminated. H 3192 would require every state
agency be reauthorized every 12 years or less. Among other things, the bill would
also create a review division to assess if agency regulations can be implemented in
a less restrictive manner.
These two bills go hand-to-hand. Currently, the LAC is limited
to conducting performance audits, program evaluations, and policy analysis stud-
ies. But a review of best practices by the National Conference of State Legislaturesindicates the LAC should also be performing sunset reviews, providing financial
analysis of the state budget, drafting bills, and producing best practices advisories
to state agencies and school districts. Likewise, the LAC should be promoting
transparency policies aimed at keeping citizens informed about governmental
activities. Even more basic, the LAC should be as independent as possible from
legislative influence. Finally, as we pointed out in the 2009 Best/Worst , sunset
commissions are difficult to implement in practice. One possible solution may be
to implement a two-year budget cycle, with the first year devoted to drafting a
budget using zero-based and strategic budgeting practices; and the second year
devoted to evaluating sunset/privatization recommendations aimed at stream-lining the next biennial budget.
S 242: Eliminate Teacher and Employee Retention Incentive (TERI)
Status: Referred to Finance Committee; majority report favorable, minority re-
port unfavorable
This bill would close the TERI program to new participants. Similarly, a proviso
(89.41) in the House budget bill would have closed the program, effective July 1,
2010. The Senate deleted the proviso, the House added it back, and then the
budget conference committee deleted it again.
TERI allows state workers to retire five years before they
actually stop working and then collect a salary even as they accumulate retirement
benefits in a tax-deferred account. The fact that state employees can enroll in
Bdget & Spedig7 Bdget &
Spedig
Our take:
Our take:
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TERI at a relatively young age (conceivably prior to turning 50) makes this early
retirement benefit very generous. Its time to end this program and the fact
that lawmakers failed to do so emphasizes even more why we need fundamental
reforms aimed at forcing lawmakers to make targeted budget cuts.
S 984: Council on Efficient Government
Status: Referred to Finance Committee
This bill would establish a Council on Efficient Government to conduct an
ongoing review of whether goods or services provided by state agencies should
be privatized. The bill would also allow state agencies to implement private
sector accounting practices to identify actual costs related to activities conducted
by the commercial sector (namely, contractors and subcontractors) in agency
financial statements. Also see S 897 (discussed in Restructuring Chapter)
Privatization has proven especially effective in the transporta-
tion sector. Twenty-six states and numerous countries, for instance, have used
public-private partnerships (H 4033) to save money in building roads. Likewise,
some states Maryland and Alabama, among others are considering a pub-
lic-private model for seaports. Such a council could also prove a good complement
to the sunset review efforts (H 3192) discussed above.
Increasingrainy day savingsH 3396: Increase Reserve Fund
Status: Passed General Assembly; approved by voters; awaits ratification by
General Assembly
This proposed constitutional amendment would increase the percentage amount
deposited from the General Fund into the General Reserve Fund from 3 percent
to 5 percent. The proposal also directs Capitol Reserve Funds to fulfill any short-
age in the General Reserve Fund for years that the General Reserve Fund does
not meet the percentage requirement. The positive impact of these two reforms,
however, is partially mitigated by lengthening the timeframe for replenishing the
fund from three years to five.
As we observed in the 2009 Best/Worst , a robust Rainy Day
8Te S.C. Geera Asseb: Best & Worst of 2010
Our take:
Our take:
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Fund can be a useful means of postponing calls for tax increases when revenue
collections decline during economic downturns. But such funds are also a tempting
target for legislators looking for extra revenue, in both good times and bad. Several
reforms would be necessary to create an effective Rainy Day Fund: 1) a much
larger reserve balance even 5 percent is too little to get the state through a re-
cession; 2) strict deposit and withdrawal rules, including a supermajority vote to
withdraw funds. Finally, Rainy Day Funds work best as a counterpart to strict
spending limit requirements (cf. H 4232).
WORST IDEAS OF 2010
Maintaining high spendingand increasing debt
H 4657: Agency Use of Restricted/Earmarked Funds
Status: Passed General Assembly; proviso not subject to line-item veto
This budget proviso (89.87) authorizes agencies to use earmarked/restricted
accounts (i.e., Other Funds) funded with fine and fee revenue to absorb General
Fund cuts.
General Fund revenue declined by $600 million from FY09-
2010 to FY10-2011. This proviso insures, however, that agencies maintain spending
at FY08-2009 levels (i.e., $6.736 billion). Thus, in theory, the proviso permits agen-
cies to increase spending by $1.621 billion. This is one reason an effective spending
cap must include Other Funds revenue. If it does not, lawmakers will raid Other
Funds to supplement General Fund revenue cuts.
H 3395: Across-the-Board Budget Cuts
Status: Governors veto overridden
This law increased General Reserve Fund requirements from 3 percent of prioryear revenue to 5 percent, stipulating that withdrawals must be paid back within
5 years. The law also requires the Director of the Office of State Budget to make
across-the-board cuts when such cuts are not made in a timely manner (seven
days) by the Budget & Control Board. Also see S 1085, H 4325
Bdget & Spedig9 Bdget &
Spedig
Our take:
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As the governors veto ob-
served, if this law had stopped at increasing
Rainy Day Fund requirements (cf. H 3396
above), it would have been a good idea. But
the law also cedes power to an unelected state
employee to make across-the-board budget
cuts. This is a bad idea for two reasons: 1) tar-
geted cuts make a great deal more economic
sense than across-the-board cuts; 2) legislators
should take responsibility for making budget
cuts, rather than handing this power over to a
state employee unaccountable to voters. At the
end of the day, across-the-board cuts will al-
ways lead to across-the-board increases oncerevenue estimates go up again. Targeted cuts,
on the other hand, raise the prospect of elimi-
nating inefficient agencies and programs.
Failing to reform the OtherFunds budget and lower finesand feesS 1388: Other Funds Oversight Committee
Status: Referred to Finance Committee
This bill would have created the joint Other
Funds Oversight Committee to examine the
source of Other Funds and recommend the ap-
propriate policy for the receipt, appropriation, expenditure, and reporting of
such funds. The committee would be controlled by the legislative leadership.
This bill is remarkable in that it acknowledges that: 1) Other
Funds revenue is steadily increasing; 2) state agencies are increasingly using Other
Funds for general operating purposes; and 3) other funds are very pervasive and
require thorough review. But the bill is also remarkable because it seems to imply
that the existing budget process in particular, the Ways & Means Committee in
the House and the Finance Committee in the Senate seems unable to account
Sot Caroia hashigest Fies/Feesi te Cotr
Sot Caroia raks 1st i te
atio i ters of state ad ocarevee fro fies ad fees, as a
percetage of corrected GSP.
Sot Caroias state ad oca
fies ad fees accot for 4.9 per-
cet of corrected GSP (as of 2006,
atest data avaiabe).
Secod igest is Idiaa (4.8percet), foowed b mississippi
(4.3 percet), Aabaa (4.1 per-
cet) ad Iowa (3.7 percet). new
york is 2.2 percet. Texas is 2.1
percet.
Previos (as of 2004), te Pa-
etto State raked 3rd i ters
of fies ad fees, wit revee
totaig 4.1 percet of GSP.Sorce: mercats Ceter at
George maso uiversit
10Te S.C. Geera Asseb: Best & Worst of 2010
Our take:
Our take:
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for the Other Funds budget. As discussed
in our 2010 report, Reform the Budget &
Cut Spending: Start with Fine and Fee Rev-
enue, we recommend: 1) imposing a mora-
torium on all fine and fee increases; 2) elim-
inating unnecessary funds and refunding
excess fine and fee revenue; and 3) adopting
uniform reporting requirements for both
General Fund and Other Funds dollars.
Most important, budget writers should treat
fine and fee revenue in the same manner as
general tax revenue. Finally, we should
point out that the review contemplated by
S 1388 would be conducted by the same leg-islative leadership that keeps raising fines
and fees and using Other Funds dollars to
supplement General Fund spending.
Bdget & Spedig11 Bdget &
Spedig
Bis Itrodced, Passedad Vetoed Drig te
118t Geera Asseb
2010 (Second Regular Session)1,052 bills and joint resolutions introduced219 passed46 vetoes (not including budget vetoes)36 vetoes overridden
2009 (First Regular Session)1,402 bills and joint resolutions introduced205 passed
16 vetoes (not including budget vetoes)16 vetoes overridden
The South Carolina Legislature passed about onebill a year/per legislator during the 118th GeneralAssembly. Likewise, as a body, seven bills annuallywere introduced per legislator. This failure to intro-duce new legislation could indicate that lawmakerssimply dont have many good ideas; and/or thatmany of them feel stifled by a legislative leadershipthat exercises tight control over what bills arepassed and passed over.
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Are taxes too high in South Carolina? According to the Tax Foundation, the stateranks 37th in the nation in terms of overall tax burden. South Carolina also ranks
24th in terms of business tax climate. Look deeper, though, and youll find some
disturbing trends:
South Carolina ranks worst in the nation for state and local revenue from
fees and fines relative to economic output, according to data from the
Mercatus Center at George Mason University.
We have the 2nd highest level of state and local alcohol tax revenue
relative to personal income.
In terms of sales taxes and property taxes relative to economic output, we
rank 18th and 21st, respectively.
Is the tax burden lower in South Carolina than in Massachusetts (#23) or Cal-
ifornia (#6) or New York (#2)? Sure. But per capita income is much lower too.
The question, then, becomes whether we are living within our means. With
state spending at an all-time high, its clear we are not. The solution is simple: im-
plement a spending cap, cut taxes, and get back to the core functions of governing.
12Te S.C. Geera Asseb: Best & Worst of 2010
TAXESIf yo increase taxes now at any eve, its
going to ake it harder to create jobs. Were at 9.6percent nepoyent [nationwide]. So I dontthink we tax too itte, I think we spend too ch.
u.S. Senator lindsey Graha
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BEST IDEAS OF 2010
Lowering compliance costs andstreamlining the tax codeS 902/S 942: Fair Tax
Status: Both referred to Finance Committee
This revenue-neutral proposal neither bill specifies a specific rate would
eliminate state income taxes (personal, corporate, banking), estate taxes, and
sales/use taxes and replace them with a single-rate personal consumption (or
sales) tax. The bills provide for various exemptions i.e., the purchase of tangible
personal property, services for business purposes, and purchases by nonprofits.
Without getting into the details of either of these bills, a Fair
Tax would simplify the tax code, reduce enforcement costs and make it easier for
taxpayers to see what they are actually paying. The tax could be made less
regressive by providing an exemption on the first $15,000 of consumption
spending. One caveat: taxes are already too high so a revenue neutral Fair
Tax reform is not enough. Moreover, exemptions must be kept at a minimum. At
the end of the day, the mechanism for bringing about tax reform is less important
than the fact that such reform must result in less spending and lower taxes. All in
all, this is why we prefer a spending cap with a mandatory tax refund trigger (see
Budget & Spending Chapter).
WORST IDEAS OF 2010
Raising excise andad valorem taxesH 3584: Cigarette Tax
Status: Governors veto overridden
This law increased the cigarette tax from 7 cents to 57 cents a pack: a 700 percent
tax hike. While $125 million of the new revenue will go to Medicaid, additional
funds are also being funneled to the Medical University of South Carolina
Hollings Cancer Center for research ($5 million); the Smoking Prevention and
Taxes13 Taxes
Our take:
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Cessation Trust Fund ($5 million); and agri-
cultural marketing ($1 million). Also see H
4962 and House budget proviso 90.14
A cigarette tax increase is
not only unnecessary; its a job killer in the
current or, for that matter, any economy.
Small retailers and border counties will suffer
most from this tax increase, as will low-income
smokers.
H 4831: Sweetened Beverage Tax
Status: Referred to Ways & Means Committee
This bill would tax sweetened beverage manu-
facturers 1 cent for every 13.5 grams of sugar
placed into a beverage. The tax is prorated for
amounts less than 13.5 grams.
The myth behind sin taxes is that they only impact a small
number of businesses and consumers. But the negative effects of such taxes
ripple throughout the economy. This tax increase, for instance, would hurt small
retailers and cost jobs, as consumers purchase fewer sweetened drinks. Moreover,
sin taxes typically shift people from one sin to the next. Tax chocolate, andpeople will eat ice cream. Tax ice cream, and people will eat donuts. Tax bottled
sweet tea, and people will drink fresh brewed.
Creating morehidden taxesH 4832: Repeal Discount for Early Payment
Status: Referred to Ways & Means Committee
This bill would repeal the discount for timely full payment of sales and use taxes
paid by business owners. Specifically, it repeals a 3 percent discount on timely tax
payment of less than $100,000 and a 2 percent discount on timely tax payment of
$100,000 or more.
Time is money and money is time. If business owners pay
more Taxes, Aoe?
S 968 would have allowed taxpayersto make voluntary contributions tothe states General Fund when filingannual income taxes. At least 41states, including South Carolina,allow taxpayers to make voluntarycontributions via their taxes to selectcauses (children, the elderly, veter-ans, etc.). A handful of states also
allow taxpayers to voluntarily pay ata higher tax rate.
14Te S.C. Geera Asseb: Best & Worst of 2010
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their taxes before the due date, they should be compensated with the time-value
loss of their money. Failing to compensate value lost is just another hidden tax.
H 4657: Reduce Tax Refunds
Status: Passed by General Assembly; not subject to line-item budget veto by
governor
Budget provisos 72.17 and 89.142 reduce interest payments on eligible taxpayer
refunds by a combined 3 percent. (The previous rate was 4 percent, and so is now
1 percent.)
All in all, a $3 million hidden tax increase.
Encouraging localtax increasesH 4344: Local Option Tax Increase
Status: Passed House; referred to Finance
Committee in Senate
This bill would allow select municipalities
those in Beaufort County seem to be the only
ones that qualify to impose a local option
tourism development fee of 1 cent for notmore than 10 years. Revenue from the fee
shall be used to promote tourism and may
be used to reduce municipal property taxes. Also see H 4229, H 4170
The worst thing about this bill is its attempt to cloak a sales
tax increase as a tourism development fee. Two things: 1) this is a local option
sales tax increase; and 2) imposed not just on tourists, but on every local resident.
Expect more local option tax increases owing to cuts in the FY10-2011 budget to
localities (specifically, Aid to Subdivisions). Its also worth noting that local
budgets and local government hiring did not slow at all during the current
economic downturn. Between December 2007 and May 2010, local government
employment increased by almost 10 percent.
Possibe Tax Icreasesfor 2011
Local option tax increases
Payroll tax increase
New grocery tax
Gas tax increase
New Internet/Amazon tax
Taxes15 Taxes
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Taxatio CoissioCas for Tax Icreases
Since September 2009, the Taxation Realignment Commission has been conducting a comprehensivereview of the states tax system and offering recommendations regarding sales/use tax exemptions,state/local taxes, and fees/fines all with the aim of making South Carolina more economicallycompetitive.
The 11-member temporary commission includes 8 legislative appointees and 2 gubernatorialappointees, with the director of the Department of Revenue serving in an ex officio capacity. Rec-ommendations from TRAC are forwarded to the chairman of the Senate Finance Committee and the
chairman of the House Ways & Means Committee for consideration, with a final report due onNovember 15, 2010. It is likely several TRAC proposals will be introduced as legislation in 2011.TRAC recommendations must be passed by the General Assembly to be enacted into law.
Thus far, TRAC has been a disappointment to citizens waiting on fundamental tax reform. Instead,it seems as if the commission is more focused on finding ways to increase taxes.
Here are some of the tax increases recommended so far:
A 2.5 percent sales tax increase on groceries, prescription drugs (excluding purchases madeby Medicaid and Medicare recipients), water and electric/gas bills.
A $25-$75 filing fee on the 800,000-plus taxpayers who file a return but pay no taxes. Capping standard deduction and personal exemption amounts at Tax Year 2009 levels. Raising the sales tax cap on motor vehicles from $300 to $1,200 and dropping the cap
entirely after 2014. Taxing out-of-state Internet purchases.
TRAC has also approved a plan to lower the states overall sales tax rate from 6 percent to 4.96percent: a reduction of 1.04 percent. At nearly 5 percent, the reduced rate would still be higherthan neighboring Georgias (4 percent) and potentially North Carolinas (5.75 percent, scheduledto fall back to 4.75 percent as of July 1, 2011). The sales tax increases mentioned above, however,
would more than offset the reduction in the overall rate.
SCPC supports the elimination of all targeted tax exemptions, with the understanding thateliminating exemptions should facilitate an overall tax cut for everyone. But TRAC wants to have itboth ways eliminating exemptions and increasing taxes.
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In last years Best/Worst, we reminded readers that the only sure way torestructure government is to amend the constitution and that the only way of
achieving this goal is to empower a grassroots movement focused on restructuring.
By restructuring, we mean a more balanced distribution of power between the
legislative, executive and judicial branches of government. This year we wish to
emphasize that the goal of fundamental reform is one that must be achieved one
step at a time through a combination of statutory and constitutional means, as
well as through educating the public that many of South Carolinas ills stem from
the monopoly of power held by the Legislature.
With this end in mind, the Policy Council recently released a series of special
reports that address the need for restructuring by calling for implementation of
the following reforms:
Taxes17
RESTRuCTuRInGTe tyray of te Sot Caroia legisatre is
te core probe tat propted e to r for of-fice. I y two years as a seator, I ave seepowerf egisators figt attepts to retrpower to te peope. Oe seator sits o te boardtat rs tis state oy becase e as bee ite Seate oger ta ayoe ese. Tat akeso sese, ad its tie to cage te res ad i-peet accotabiity.
Seator To Davis (R-Beafort)
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Eliminating the Budget & Control Board
Limiting session length to 45 legislative days
Requiring a recorded vote on every bill and joint resolution
Reforming the Senate committee selection and chairman appointmentprocess
Reviewing all boards and commissions and increasing gubernatorial
appointments to various agencies
Given the relative weakness of the executive and judicial branches in South
Carolina, the best chance for reform must come from within the Legislature itself.
In practice, this means reform-minded legislators being held accountable by the
people they represent. In other words, the best chance for reform in South
Carolina lies with the people of South Carolina themselves.
BEST IDEAS OF 2010
Shortening thelegislative sessionS 1003: Biennial Session
Status: Referred to Judiciary Committee
This joint resolution proposed amending the constitution so as to institute a six-
month (January to June) biennial, or every-other-year, session. Last year, legislators
also introduced a handful of bills that would have shortened the annual session
to three months.
Any way you measure it, South Carolina has one of the
longest legislative sessions in the country. Legislators meet five months every
year. This translates into 21 weeks a year or 143 calendar days or 63 legislative
days. In terms of months, South Carolina has the longest session in the Southeast
(tied for 1st with Tennessee) and the 6th longest in the country (tied with seven
other states). Here in the Southeast, the average legislature met for 94 days
during the 2009 and 2010 sessions: translating into 47 actual days per year.
Capping South Carolinas legislative session at 45 days should give legislators
more than enough time to complete their duties.
18Te S.C. Geera Asseb: Best & Worst of 2010
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Streamlining agenciesand reducing duplicationH 3442: Department of Workforce
Status: Passed General Assembly (recorded vote in House; no recorded vote in
Senate); signed by governor
This law creates an executive-level agency, the Department of Workforce, to take
over the functions of the Employment Security Commission (ESC). Previously,
the ESC operated under the oversight of three former legislators elected to the
commission by the General Assembly. (The law passed the Senate without a roll
call vote.)
If this proposal had passed when originally put forward by
the governor and other reformers, it might have saved taxpayers millions.
According to a January 2010 report by the Legislative Audit Council, the ESC per-
sistently mismanaged the state Unemployment Insurance Trust Fund, such that
the fund currently has an $886.7 million liability. All told, bailing out the fund is
going to cost taxpayers more than $2 billion. Placing the ESC under the governors
direction provides for more accountability and transparency qualities lacking
when the commission was under the thumb of the General Assembly.
S 897: Commission on Streamlining GovernmentStatus: Passed Senate; passed House with amendments; recommitted to Judici-
ary Committee in Senate
This joint resolution would have created a commission to review all executive
branch agencies and functions (excluding higher-ed) with the aim of eliminating,
consolidating and privatizing such activities. Specific functions are not mentioned,
but privatizing various Budget & Control Board services would be a good place
to start.
If combined with a concrete spending cap (see Budget &
Spending Chapter), this reform could have been a useful tool for recommending
targeted budget cuts. The House essentially killed this legislation by adding
language from another bill (H 3147) that had already died in the Senate. The
additions would have: 1) created a Department of Administration; and 2) provided
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20Te S.C. Geera Asseb: Best & Worst of 2010
for legislative oversight of executive departments. The first idea is a good
one; the second, less so. The amended bill died once it returned to the
Senate.
Reducing the number ofconstitutionally elected officersH 3231: Joint Election of Governor and Lt. Governor
Status: Passed House in 2009; favorably reported out of Judiciary Com-
mittee in Senate
This joint resolution proposes amending the state constitution to permit
the joint election of the governor and lt. governor beginning in 2014. Also
see S 899
In spite of a favorable report from the Senate Judiciary
Committee this resolution failed to receive a floor vote. This may have
more to do with general opposition to the current governor than with op-
position to the idea itself. At least 26 states jointly elect their governor and
lt. governor, and 8 others have a joint nomination process.
H 4475: Governor Appoints Sec. of State
Status: Passed House; referred to Judiciary Committee in Senate
This joint resolution proposed amending the state constitution to permit
the governor to appoint the Secretary of State. Also see H 3279
H 3280: Governor Appoints Superintendent of Education
Status: Received a 72 to 36 vote in House, 10 votes shy of the two-thirds
majority necessary for a proposed constitutional amendment
This joint resolution proposed amending the state constitution so as to
permit the governor to appoint the Superintendent of Education.
As we wrote last year, Currently, these positions are
elected, which means each officeholder essentially functions as an
independent agent and may choose to further the governors agenda or
not. The result is that gubernatorial authority is weakened even as people
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expect the governor to effectively manage these areas of state government. In the
end, the result is a loss of transparency and accountability.
Making the judiciarymore independent
S 1186: 20-Year Waiting Period for Judicial Appointments
Status: Referred to Judiciary Committee
This bill would have extended from 1 year to 20 years the waiting period
necessary before a former legislator is eligible to be elected to judicial office.
The Legislature exercises significant control over the judicial
branch through its exclusive control over upper-level judiciary appointments. Infact, South Carolina is the only state in the country that gives its legislature such
power. (Virginias General Assembly also appoints judges, but the governor may
fill unexpired terms.) In practice, this means the judiciary is subordinate to the
Legislature. The states current Supreme Court chief justice is a former legislator,
as are a handful of retired and current Supreme Court judges. Expanding the
waiting period to 20 years would help break the close ties that currently exist
between the General Assembly and the Judicial Branch.
Giving votersmore powerS 1002: Initiative Petitions
Status: Referred to Judiciary Committee
This joint resolution would allow initiative petitions signed by at least 15 per-
cent of registered voters to be used to propose and enact laws.
Citizen initiative petitions could serve as a potent check to a
legislature that enjoys a virtual monopoly of power in our state. Another benefit
is that there seems to be a correlation between lower spending and the initiative/ref-
erendum process in the 24 states that currently allow citizen petitions. Governments
in initiative jurisdictions produce services cheaper, spend less overall, and
substitute user fees for broad-based taxes, observes Cal State University economist
Robert Krol. With constraints on government spending, the private sector is
Taxes21 Restrctrig
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more productive.
WORST IDEAS OF 2010
Co-opting executiveappointments and agenciesS 783: Patriots Point Development Authority
Status: Governors veto overridden
This law expands the Patriots Point Development Authority by three positions
one appointed by the President Pro Tempore of the Senate, one by the Speak-
er of the House, and one by the State Adjutant General.
As reported by The Nerve , the commission was expanded
with the intention of appointing members friendly to the idea of creating a
monument at Patriots Point commemorating the signing of the 1860 S.C. Ordinance
of Secession. The current commission is deadlocked (tied 3 to 3) on the proposal.
H 4210: Director of Dept. of Insurance
Status: Referred to Judiciary Committee
The governor currently appoints the director of the Department of Insurance.
This bill would have changed that position to an elected post and also eliminat-
ed the field qualifications requirement for the position.
H 4657: Office of Small and Minority Business Assistance
Status: Budget proviso deleted by Senate
22Te S.C. Geera Asseb: Best & Worst of 2010
Another bill (S 995) introduced in the Senate would have allowed citizens to initiate recalls of public
officials in the executive and legislative branches, as well as officials in local government. Let usknow what you think of this bill, or any other, by calling SCPC at 803-779-5022 or visiting us onthe web atwww.scpolicycouncil.com
What do you think?
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This proviso (89.108), which appeared in the original House budget, would have
moved the Office of Small and Minority Business Assistance from under the gov-
ernors office to the Budget & Control Board.
In 2009, it was the Ports Authority, the Aeronautics Commission,
and the S.C. Research Authority. In 2010, the Legislature set its sights on the
Department of Insurance and the Office of Small and Minority Business Assistance.
Such encroachments of legislative power over executive branch functions are going
to continue until statutory and constitutional reforms bring about a more reasonable
balance of power between South Carolinas legislative and executive branches.
Restricting executiveindependenceS 900: Governor Cannot Decline Police Protection
Status: Passed Senate on second reading (no recorded vote), but didnt receive
third reading
S 900 required that the S.C. Law Enforcement Division have exclusive authority
to provide security and protection to the governor and lt. governor, and that
such security cannot be declined.
S 901: Succession Plan for Lt. Governor
Status: Passed House (recorded vote) and Senate (no recorded vote), but Housedid not agree to conference committee report
This bill would have required that if the governor is temporarily absent for more
than 12 hours the lt. governor would be granted full authority to act in broadly
defined emergencies.
Both of these bills are arguably impulsive reactions to the
governors temporary absence in June 2009. S 900 is problematic because it does
not define what must not be declined means. It also threatens the governors
and lt. governors right to privacy. Moreover, are the governors and lt. governors
lives in such danger that they need a full-time security detail? Likewise, S 901
would have imposed a very narrow window on the governors actions, requiring
him to check in with his staff or the S.C. Law Enforcement Division twice a day.
The final version of the bill also required the governor to notify the lt. governor
Taxes23 Restrctrig
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whenever the former leaves the state. This idea met with little enthusiasm in the House,
which rejected the conference committees amendments to the bill.
Expandinglegislative power
H 3876: Extend House Terms to Four Years
Status: Referred to Judiciary Committee
This joint resolution sought to amend the state constitution to change the length of a
House members term from two years to four.
House members are elected every two years a check on their
power that helps keep them accountable to the public. This accountability may explainwhy, for instance, the House sustained a gubernatorial veto of $24 million in new court
fees proposed by the Senate. Likewise, the House sustained other gubernatorial vetoes
on controversial items (such as funding for hydrogen research, nanotechnology research,
and the Southeastern Wildlife Exposition) lawmakers may not have wanted to defend to
a public concerned about overspending.
24Te S.C. Geera Asseb: Best & Worst of 2010
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The idea that the government ought to drive the economy would have beencompletely foreign to the framers of the Constitution. In fact, the thinking behind
such economic planning turns the Founding on its head. American government
was specifically designed to secure and protect the natural rights of individuals
to pursue prosperity and happiness not to create, or guarantee the result of,
such rights. It is impossible for any true advocate of freedom and limited
government to also be a supporter of government-driven economic development.
The two ideas cannot coexist, and if we take each idea to its end, we find one
leads to freedom and the other to socialism.
More concretely, most taxpayers would not voluntarily choose to allow a
handful of politicians to determine their economic future, particularly when
much of the investment strategy is devised in secret and seems only to benefit a
select few investors. A clear grasp of how the free market works makes it clear
that government-driven economic development is a mirage. If a business idea
such as a low-cost airline or a mall is profitable, there is no reason to subsidize
Taxes25
ECOnOmICDEVElOPmEnT
Sot Caroia as a saes tax of 6 percet bt
eros exeptios ave bee writte ito teaw over te years, refectig te wis of stateawakers. Te sese is tat te crretByzatie syste of exeptios aots to a taxo te poiticay poweress.
Ji Geragty of natioa Review Oie
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it with taxpayer dollars. Private investors will be attracted to a low-risk plan if
there is a high likelihood of profit. Conversely, it is imprudent to invest taxpayer
dollars on a high-risk endeavor incapable of attracting private investment. All
this begs the question why offer tax breaks and incentives at all?
The answer to this question eventually boils down to the acknowledgement
that taxes are too high. This is also to admit that high taxes are a barrier to job
creation and investment. If that is so and again, our elected officials tacitly
concede that it is why not lower taxes for everyone?
In 2010, South Carolina took a step back on the road to freedom. The
backdrop for the 2010 session was the October 2009 passage (in special session) of
an economic incentive package for Boeing estimated to be at least a half-billion
dollars. The introduction of an omnibus economic planning bill (H 4478) also set
the tone for the session, indicating that the General Assembly was not going to
pursue fundamental tax reform, but targeted tax cuts instead. As if the floodgates had been opened, another high-profile bill (S 1054) sought to give a mall de-
veloper more than $100 million in sales tax incentives. This latter bill was
defeated, but H 4478 became law, as did a score of other government-driven
economic development proposals detailed below.
BEST IDEAS OF 2010Requiring transparency for economic development deals
S 1229: Economic Incentive Transparency
Status: Referred to Finance Committee
This bill would have required targeted tax incentives/subsidies to be introduced
as separate legislation subject to a recorded vote. The measure also provided for
additional protections including independent review, as well as public notice
and hearings on all taxpayer subsidized economic development deals.
Last years Best/Worst could find no good ideas when it cameto government-driven economic development. We still maintain that a govern-
ment-planned economy (in all its forms and nuances) is antithetical to the free
market and, thus, freedom. If we are going to have it, though, it ought to be trans-
parent, informed by a clear articulation of job and investment targets and backed
by substantive research and objective analysis. Such requirements would likely
26Te S.C. Geera Asseb: Best & Worst of 2010
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demonstrate that economic development deals are never a good investment for
all taxpayers and, at best, benefit a select few.
H 4804: Recipients of Targeted Tax Cuts
Status: Referred to Ways & Means Committee
This bill would require all legislation extending a tax credit, or any type of tax
relief, to 15 or fewer taxpayers to be accompanied by a statement specifying
which taxpayers will benefit from the cut, as well as details regarding specific
communications with these persons or their representatives.
This bill might further transparency regarding targeted tax
incentives. But it also raises some questions. First of all, why limit such reporting
to measures that affect 15 or fewer taxpayers? Second, why not also require theBoard of Economic Advisors (or, even better, an objective economist, per S 1229
above) to stipulate how much each of these taxpayers stands to save? Finally,
why not require annual reporting from the Department of Commerce and the De-
partment of Revenue regarding job creation and investment generated by each
recipient of the targeted credit?
WORST IDEAS OF 2010
Increasing government controlover the economyH 4478: Expand Economic Development Policies
Status: Passed General Assembly (no recorded vote in Senate); signed by governor
This law provides an array of targeted tax credits and subsidies to special
interests. Of particular note are amendments to the tax code regarding job tax
credits for Tier I, II, III, IV counties, as well as changes to the Enterprise Zone Act
of 1995 and the Economic Impact Zone Community Development Act of 1995. An
early version of the law would have eliminated the corporate income tax, but this
reform was rejected by the Senate. Also see H 4936, S 690
Essentially, this legislation has its genesis in a run-of-the-mill
pork/tax incentives bill (H 3722), otherwise known as the BAT bill, which failed
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to get through conference committee last year (see Best/Worst 2009). After the
passage of the Boeing incentives deal, the idea of special-interest tax credits took
on a quasi-moral connotation, with lawmakers claiming they were duty bound to
hand out more special exemptions in the name of job creation. The result was this
legislation, which expands and institutionalizes many of the policies in the states
economic development arsenal. The fate of the manufacturing property tax is il-
lustrative. Instead of cutting the states highest-in-the-nation manufacturing
property tax rate, lawmakers opted for a broad exemption. The message is clear:
instead of tax cuts for everyone, the states official policy is targeted cuts for
special interests.
28Te S.C. Geera Asseb: Best & Worst of 2010
Boeig: A Risk, litte Reward
$360 million in bonds (including interest). As much as $75 million in job tax credits. Between $10
million and $34 million in job training benefits. $5 million for site preparation.
And thats just the beginning of what South Carolina taxpayers are paying to entice airline
manufacturer Boeing to build a second assembly plant in Charleston. FILOT agreements,infrastructure improvements, free office space, and other tax breaks are also part of the deal.
We should have learned by now that theres no such thing as a sure thing in business. Witness
the fate of Lehman Brothers, Circuit City and, if not for a government bailout, AIG all rocksolid companies that went bankrupt during the Great Recession.
Even overlooking the lack of transparency regarding the Boeing deal, the lack of recourse (also
known as clawback protections) if job and investment targets are not met, and the stronglikelihood that Boeing would have expanded in Charleston without a half-billion dollar incentive
package, there is good reason to believe the Boeing deal is a bad investment for taxpayers, mostof whom will never see any tangible benefits for their money.
The government cant plan the economy because it can
t predict the success or failure of any onecompany. Likewise, politicians cant guarantee Boeing wont go bankrupt, or move to another
state that offers a larger incentive package. Such risks are inherent to private investments, but so
too are the rewards. For the vast majority of S.C. taxpayers, the Boeing deal is nothing more thanredistribution of wealth, no matter what the outcome.
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S 1323: I-95 Corridor Authority
Status: Passed Senate (no recorded vote); referred to Ways & Means Committee
in House
This bill would have created an I-95 Corridor Authority empowered to carry
out economic development and educational improvement activities aimed at
improving the economy of any county within 30 miles of I-95. Also see S 1339
Last years Best/Worst alerted readers to a bill (H 3777) that
would have designated legislators as economic development ambassadors em-
powered to perform all manner of activities aimed at creating jobs. S 1323
reminds us of that bill. After all, why stop at I-95? Why not an I-85 Corridor
Authority (cf. S 1339)? Or an I-20 Authority? Or an I-26 Authority? More
specifically, S 1323 is among the worst bills introduced all session: the authoritylacks focus; would not be transparent; and would not be effective at creating jobs.
Nevertheless, the Senate provided funding for the I-95 Corridor Authority via a
budget proviso (89.143) using $3 million in nonrecurring dollars from the
Healthcare Tobacco Settlement Trust Fund. The final version of this proviso
directs the money to the S.C. Research Authority to promote health-related
issues along the I-95 Corridor.
H 4511: Rural Infrastructure Act
Status: Passed General Assembly (no recorded vote in Senate); governors veto
overridden
This law creates the S.C. Rural Infrastructure Authority to distribute grants and
loans to subsidize infrastructure projects in rural areas with the aim of promoting
economic development. Also see S 135, H 4152
The governor vetoed this bill because the Rural Infrastructure
Authority duplicates work being done by the Department of Commerce. The governor
appoints the Secretary of Commerce while the legislative leadership controls this
newly created authority. For our part, we believe the Rural Infrastructure Authority
is just another way for the legislative leadership to dole out special favors. The aim of
this law is to address the problem that traditional infrastructure financing methods
in South Carolina cannot generate the resources necessary to fund the cost of rural in-
frastructure which are required for economic development. Why not instead allow
the free market to address these needs using public-private partnerships? Or, is the
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problem that from a free-market perspective, these projects dont make sense?
Targeted tax breaksfor special interestsS 1054: Incentives for a Mall Developer
Status: Passed Senate (no recorded vote); amended version passed House; Sen-
ate returned bill to House with additional amendments
As originally conceived, this bill would have extended approximately $100
million in sales tax breaks to a developer seeking to build a retail mall at Okatie
Crossings in Jasper County.
H 4200: Incentives for Big Box Re-tailers
Status: Failed on second reading
in the House; recommitted to
Ways & Means Committee
This bill would have allowed des-
tination retailers to use the extraor-
dinary retail provision in state law
to apply for tourism-related tax
breaks that small retailers are ineli-gible for. In other words, a tax break
for a proposed Bass Pro Shops in
Greenville.
While other
economic incentive deals talk
about multipliers and job creation
numbers that rarely seem to mate-
rialize, nearly everyone agrees re-
tail incentives dont create new
jobs. In fact, even the states Board
of Economic Advisors concluded S
1054 widely known to be for The Sembler Company would not have created
new jobs, but merely shifted jobs from other retail sites (likely Tanger Outlets in
30Te S.C. Geera Asseb: Best & Worst of 2010
Here are two more industries that won the economic in-
centives game in 2010:
Developers S 728: This law adds insurance premiumtaxes to the list of tax credits for rehabilitating a textile
mill site (signed by governor).
Research Organizations S 717: This law grants a salestax exemption on machinery, raw materials, and electricity
to a nonprofit organization in Chester County that invests
at least $20 million over three years on researching the
impact of natural hazards to include machinery, raw ma-
terials, and electricity as property tax exemptions
(governors veto overridden).
Targeted Tax Credits for 2010
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Hilton Head) to this one. (As an aside, Tanger seems to have done fine without
any incentives not that it also didnt try to obtain them.) Both bills S 1054
and H 4200 are also likely unconstitutional because they entail the use of public
funds for what is primarily a private benefit.
H 4343: Incentives for Airlines
Status: Passed House (no recorded vote); passed Senate on second reading (no
recorded vote), but didnt receive third reading
This bill would have appropriated $15 million to the South Carolina Air Service
Incentive and Development Fund to provide incentives to airlines. An accompanying
budget proviso (89.112) would have paid for the subsidies by taking the money
from the Insurance Reserve Fund.
We can dispense with this bill using four words: Air South
vs. Southwest. Air South received $17 million in taxpayer incentives and went
bankrupt in 1997. Southwest recently agreed to expand service to Charleston and
Greenville regardless of whether they receive incentives or not. The logic is
simple: any business model based on taxpayer subsidies is likely to fail because
there are not more compelling reasons, such as consumer demand, to sustain the
business. Two other reasons to dislike this bill: 1) no recorded vote; and 2) the
S.C. Aeronautics Commission that would have controlled the fund is itself
controlled by the Legislature.
S 1066: Incentives for Small Manufacturers
Status: Passed Senate (no recorded vote); House voted to carry the bill forward
to next session, ending debate
S 1066 would have granted a 100 percent income tax credit for donations made to
the Small Manufacturers Retention and Growth Fund, which would be used by
the S.C. Manufacturing Partnership Extension to subsidize manufacturers that
employ less than 250 persons. A 50 percent credit was included in H 4478 (above),
but was stripped out in conference committee.
Again, why not just lower the states 10.5 percent manufac-
turing property tax which according to Unleashing Capitalism is the highest in
the nation?
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32Te S.C. Geera Asseb: Best & Worst of 2010
Bdget Provisos Cotai Specia Iterest Goodies
Golf Tournaments and Airlines proviso 89.112: This proviso contained two special-interest subsi-dies: 1) $10 million for a PGA Tour golf tournament in Hilton Head; and 2) $15 million for the
airline industry (cf. H 4343). The proviso passed the House, but was removed by the Senate.
Wheelers and Dealers provisos 40.3 and 90.16: The first of these provisos (40.3) removes a $7million cap on transfers from the Coordinating Council for Economic Development to the Deal Closing
Fund, a slush fund used to sweeten economic incentive packages. Proviso 90.16 allocates $5 million
from enforced revenue collections (Maybank Money) to the Deal Closing Fund.
Tourism Promoters provisos 39.12 and 39.1: Last years budget designated $10 million for des-tination-specific tourism marketing. Proviso 39.12 funnels leftover tax dollars from the Motion Picture
Incentive Wage Rebate Fund into tourism marketing. Proviso 39.1 allocates $1.375 million for tourism
promotion, including money for private chambers: $105,000 for the Georgetown Chamber of Com-
merce; $50,000 for the Myrtle Beach Chamber of Commerce; and $20,000 for the Williamsburg
Chamber of Commerce. These funds are in addition to $10.05 million for tourism advertising already
allocated in the total state budget.
Hollywood Producers provisos 39.15, 39.8 and 39.7: Proviso 39.8 would have increased tax ex-emptions for Hollywood producers who film in South Carolina from 15 percent to 20 percent of ag-
gregate payroll costs; and from 15 percent to 30 percent of expenditures. This proviso was removed
by the Senate over procedural questions, but was added back as 39.15, which does the same thing.
Proviso 39.7 directs the Department of Parks, Recreation and Tourism to use taxpayer funds to
provide assistance and marketing to the film industry. Legislators overrode the governors veto of
proviso 39.15 after the cast of Army Wives lobbied the Senate.
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H 4514: Incentives for an S Corporation
Status: Passed General Assembly; became law without governors signature
This law would allocate one-half of income taxes paid by an S Corp. engaged
in manufacturing with a new $500 million capital investment at a single site
and 400 new employees, for a period of five years to a fund to be used by the
Coordinating Council for Economic Development to distribute for public infra-
structure improvements.
This law seems to have been written with a very specific S
Corp. in mind perhaps one located in Greenville. But we couldnt confirm
whether that is the case. Another unanswered question is whether the S Corp.
will be the direct beneficiary of the public infrastructure improvements anticipated
by this law. It would seem so. Laws such as these confirm why we need economicincentive transparency so that it is clear which companies are receiving incentives
and what jobs will be created as a result.
Ecooic Deveopet33 Ecooic
Deveopet
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In spite of funding cuts and furloughs in some districts, the total K-12 budget(federal, state and local revenue sources) increased over last year, hitting almost
$8 billion for FY10-2011. Overall, K-12 spending has increased by nearly 20percent since the beginning of the recession in 2007. Also of note is that
administrative expenses and facility construction costs have increased at a faster
pace than instructional spending over the past several years.
Yet education outcomes are still among the worst in the nation:
South Carolinas high school graduation rate is 54.9 percent 48th out of
50 states.
Low-income 4th and 8th graders who took the National Assessment of
Educational Progress (NAEP) test ranked 49th in the country in terms of
a combined measurement of both overall scores in math and reading and
improvement over the last six years.
South Carolina college-bound seniors have the lowest SAT scores in the
South and rank 49th in the nation.
Likewise, South Carolinas ACT scores are 44th in the nation. As meas-
34Te S.C. Geera Asseb: Best & Worst of 2010
EDuCATIOnEdcatio spedig wi be ost effective if it
reies o pareta coice & private iitiative tebidig bocks of sccess trogot orsociety.
mito Frieda
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ured by ACT performance, only 18 percent of South Carolina college-
bound seniors are ready for college-level coursework in English composi-
tion, algebra, social science and biology.
Fundamental education initiatives, such as school choice and weighted
student funding, made no progress in the General Assembly in 2010. A few
relatively good bills did pass, such as a law (H 4248) requiring criminal background
checks on all newly hired school district employees. In a modest gesture toward
streamlining education funding, budget writers also collapsed several of the
100+ separate revenue codes.
Lawmakers also introduced a handful of proposals aimed at reducing ad-
ministrative costs in particular, a bill (H 4618) regarding the consolidation of
school districts and another (H 4866) that would have capped administrative
expenses at 35 percent. Another bill worth mentioning is H 3095, which wouldhave increased teacher induction contracts from one year to five years.
All in all, though, 2010 represents another lost opportunity for education
reform reforms based on a parent-driven school choice model. These include:
student-centered (or weighted-student) funding; more public charter schools;
and school choice scholarships for low-income, disabled and other high-risk
students. These are reforms that have proven successful in other states and
localities most notably Florida, where statewide student achievement has
risen dramatically and race-correlated achievement gaps have shrunk. They are
reforms we will likely hear about in 2011. But, at the end of the day, the time for
talk is long past. South Carolinas children need real education reform now.
BEST IDEAS OF 2010
Empowering individual schoolsH 4247: Student-Centered Funding
Status: Referred to Ways & Means Committee
This bill would have allocated education dollars according to specific student
needs, thus resulting in a fairer and more streamlined mechanism for funding
schools.
Ecooic Deveopet35 Edcatio
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Student-centered, or weighted student, funding would revo-
lutionize public education in South Carolina. To begin with, student-centered
funding reduces administrative costs in some localities by as much as 40
percent. By eliminating categorical funding restrictions, student-centered funding
also allows schools to provide educational offerings tailored to specific student
needs and could help devolve decision making from district administrators to
local school personnel. Finally, this reform would help resolve resource disparities
between local public school districts as well as at schools within the same district.
And while funding reform does not address the core issues of instructional
quality and student assignment to schools, it does represent a significant step in
the right direction.
36Te S.C. Geera Asseb: Best & Worst of 2010
Overall spending for the states 10 public higher-educational institutions has increased 77 percentover the past 10 years. Tuition rates have also increased rapidly over the past 10 years, with a 133percent increase for in-state students and a 110 percent increase for out-of-state students.Administrative costs, in particular, have risen substantially, with a 60 percent increase from FY02-2003 to FY07-2008 (latest data available).
The results leave much to be desired. The 4-year graduation rate at the states public highereducational institutions is 38.8 percent. The six-year rate is 60.5 percent. Seven schools had a 4-yeargraduation rate of less than 50 percent.
As things stand, the S.C. General Assembly is responsible for the states higher-educational system.The Legislature exercises a great deal of influence over South Carolinas public universities andcolleges, appointing 78 percent of higher-ed board trustees at the states public universities andcolleges. As such, South Carolina is one of only three states (along with Minnesota and NorthCarolina) in which the majority of public higher-educational board trustees are directly appointed bythe Legislature instead of the governor.
What South Carolina needs is a system that empowers the governor to identify important issues andchallenges and then give trustees a mandate to address them. Under such an arrangement, thegovernor would be clearly responsible for the problems high tuition, wasteful infrastructurespending and low graduation rates plaguing our states universities. Of course, that also meansthe governor would have the authority to fix these problems too.
Accotabiit needed for Stateshiger-Edcatioa Sste
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Reducing administrative costsH 4197: Eliminate Education Oversight Committee
Status: Referred to Education & Public Works Committee
This bill would have abolished the Education Oversight Committee, delegating
its responsibilities to the Department of Education and other entities. It also
would have required the reporting of graduation rates by race and ethnicity so as
to better measure the achievement gap in South Carolina.
This reform would promote transparency, as well as reduce
administrative costs, by transferring responsibilities for the Education OversightCommittee to the Department of Education. The move would reportedly save $2
million annually and possibly bring some accountability to the very procedures
(district report cards, statewide testing, etc.) aimed at holding schools accountable
themselves. The Oversight Committee was created to serve as a watchdog over
student achievement standards, but critics argue it has done the opposite by pro-
moting the use of subpar standardized tests and failing to report results in a
timely or transparent manner. Moreover, reporting graduation rates aggregated
by race would put South Carolina in line with the national norm and give
lawmakers and parents more information to make better policy decisions.
H 4866: Classroom Instructional Expenditures
Status: Referred to Education & Public Works Committee
This bill would mandate that at least 65 percent of school district operational ex-
penditures be used for instructional class expenditures.
This bill is a heavy-handed way of capping administrative
costs. A much better alternative would be student-centered funding, as discussed
above. That said, administrative costs in South Carolina are too high. As of FY07-
2008, 70 out of 100 of the largest school districts in the nation spent more than 65
percent of their budget on instruction and instructional support. The only South
Carolina district included in this list Greenville County School District
allocated only 63.7 percent of its total budget on instruction and instructional
support. If large districts, such as the New York City School District (76.5 percent)
Ecooic Deveopet37 Edcatio
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and the Los Angeles Unified School District (68.2 percent), can allocate more than
65 percent of their budget to instruction, there is no reason why all school
districts in South Carolina cant follow suit. Like other educational funding
issues, the devil is in the details, and any move toward capping administrative
costs should do more than make cosmetic adjustments to the spending codes em-
ployed by school budget writers.
WORST IDEAS OF 2010
Pay raises not directly tiedto student performanceS 1363: National Board Teaching Standards
Status: Governors veto overridden
This law grants a pay increase to teachers certified by the National Board of Pro-
fessional Teaching Standards prior to July 1, 2010. Currently, National BoardCertified Teachers (NBCT) receive a $7,500 annual incentive for 10 years that
is, $75,000. This bill would extend this payment for another 10 years. Other
budget provisos (1.89 and 1A.47) offered similar incentives to national board
certified special education teachers.
National Board certification is not a bad idea in itself. Except
numerous studies have shown that NBCTs do not outperform their peers, after
adjusting for other variables. In one such study, which looked at teachers in
Florida and North Carolina, researchers found no correlation between national
board certification and improved student outcomes. Moreover, as the governors
veto pointed out, extending National Board incentives at a cost of $60 million
for FY2010 seems imprudent given that some localities are cutting classroom
positions. Instead of correlating pay with credentials, the state should provide in-
centives for high-student achievement. Under a student-centered merit pay
have a stor tip forThe nerve?Email or call one of our investigative reporters atThe Nerve: [email protected] 803-254-4411. Or visitThe NerveTip Line atwww.thenerve.org
38Te S.C. Geera Asseb: Best & Worst of 2010
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system, it would soon become apparent whether National Board certification
actually makes for better teachers.
Using long-term debtto cover short-term expensesH 4923: General Obligation Bonds for Instructional Costs
Status: Governors veto overridden by local delegation
This law allows the Orangeburg County School District to issue general obligation
bonds to cover anticipated operating deficits arising from cuts in Education
Finance Act funding. Other districts throughout the state benefitted from similar
laws (cf. H 4728, H 4755 and S 1372). In every case, the governor vetoed the bills,
only to have a local delegation consisting of a handful of legislators override hisveto.
Californias state government has already gone down the
road of using long-term bond debt to fund short-term expenditures. The results
have been disastrous. Cutting administrative costs is a better option. Fundamental
reforms like student-centered funding and school choice would also help struggling
districts.
Edcatio39 Edcatio
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All eyes were on Washington, D.C., this past year as Congress passed legislation thatallows the government to dictate the sale and provision of health care in effect,
taking control over 1/6 of the U.S. economy. As a result, the prevailing mentality
among state lawmakers was largely a wait-and-see attitude that ignored anything
that might have been done at the state level to promote free market health care re-
form.
The one bright spot was the passage by the House of a comprehensive tort
reform bill (H 3489) that would have enacted a variety of caps on punitive and
noneconomic damages. The measure died in the Senate after reportedly being
blocked by the trial lawyers industry.
Another good idea that failed to pass was the Freedom of Choice in Health Care
Act, which would have guaranteed the right of South Carolinians to purchase health
care on the free market. Eight states have passed the measure into law or as a consti-
tutional amendment, among them Virginia, Georgia and Louisiana.
40Te S.C. Geera Asseb: Best & Worst of 2010
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Lawmakers also neglected to even seriously consider free market reforms that
would have allowed consumers to purchase health insurance across state lines. The
auto insurance market allows for such competition, and there is no reason the health
insurance market cant do the same. Likewise, legislation requiring a comprehensive
review of coverage mandates failed to emerge from committee. On the flip side, the
General Assembly approved an additional coverage mandate for the State Health
Plan and introduced a handful of others.
Even worse, the General Assembly increased certificate of need fees on health
care providers and also introduced two pieces of legislation S 1220 and S 937
that would dictate where and when doctors may purchase pharmaceuticals and also
dictate what patients doctors may see. Thus, while other state legislatures are looking
for ways to counter the federal takeover of health care, lawmakers in South Carolina
are pursuing policies aimed at increasing health care costs and regulating providers.
BEST IDEAS OF 2010
Lowering health care costs through free market reformS 986: Purchase Out-of-State Insurance
Status: Referred to Banking & Insurance Committee
This bill would have allowed consumers to purchase insurance from out-of-state
insurers authorized by the state Department of Insurance.
By opening the insurance market to companies across the
country, legislators could have ended the effective monopoly enjoyed by S.C.
providers. This reform could also lower insurance costs by as much as 30 percent
by indirectly eliminating coverage mandates.
S 988: Coverage Mandate Review
Status: Referred to Banking & Insurance Committee
This bill would have required an independent review of proposed insurance
coverage mandates in terms of medical efficacy and fiscal impact. The bill would
also have required ongoing review and reauthorization of existing mandates.
Edcatio41 heat Care
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Mandates are one of the primary reasons health insurance is
so expensive, especially in the individual market. (Firms that self-insure are
exempt from state mandates.) The more mandates, the higher the cost of insurance.
And, like nearly all government regulations, once a mandate is passed it rarely
goes away. This bill would have initiated a process by which unnecessary and ex-
pensive mandates could be eliminated.
S 987: Freedom of Choice in Health Care
Status: Referred to Judiciary Committee; majority report favorable, minority
report unfavorable
This bill would protect the right to purchase health care, countering any federal
or state health insurance mandates. It safeguards the right not to purchase health