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NEWS: Legislators quiet about possible unintended state tax hike

By Lindsay Street, Statehouse correspondent | South Carolina lawmakers are mum about whether much-ballyhooed federal tax cuts will cause something they didn't expect: an unintended rise in state taxes. One way or another, experts predict they'll grapple with the issue soon because if nothing is done, taxes may go up - a scenario few politicians want in an election year.

The amount of any increases and how many could be affected are questions yet to be answered, but a state report expected next week will give clues. Experts say the changes could raise taxes on nearly every taxpayer in the state beginning in 2019 unless there is legislative action. With state income tax cuts being a major part of Gov. Henry McMaster's executive budget for the coming year, the issue will likely be tackled in a state shy of doing anything that looks a tax hike.

As in other states, South Carolina income taxpayers calculate the amount in taxes they pay on adjusted income derived from federal income tax computations. But because the federal and state systems are tied together, any changes to the federal tax code may have a big impact on the way state taxes are computed, according to Ken Newhouse, chair the governmental affairs committee for the South Carolina Association of Certified Public Accountants.

Every year, as federal tax rules change, the state passes conformity legislation to keep step. This means a simpler tax-filing process - once you're done with the federal form, it's easy to file the state form. Newhouse called it "piggybacking off the fed." But now with the new major federal tax overhaul that will begin affecting tax bills in 2019, state legislators need to decide soon on how to react to potential cuts in state revenue because of federal reform.

"Regardless of a major overhaul or if just one law changes, every year there's a push for conformity and that's based on how our state tax laws are structured," Newhouse told Statehouse Report. "We want it to be easier for people to compute their taxes … It not only helps taxpayers but it also helps the (state) Department of Revenue."

With deductions and other tax breaks removed in the recent overhaul, that means federal taxable income will rise. To account for the rise in taxable income, Congress adjusted tax brackets to keep taxes from rising, too. That means if South Carolina conforms to the new federal taxable income, the legislature would have to adjust the state's tax brackets to avoid a tax increase on many of its citizens.

"Since the state taxable income number goes up, the starting point for the state has gone up and there's not the same tax bracket and income shift on the state level yet," Newhouse said. "The state is wrestling with the state taxpayers not having an additional burden … That's what this major overhaul means to South Carolina right now."

The decision to conform is playing out across the country as legislatures get to work on budgets. In New York, individuals could see an $840 million overall tax increase, according to an article by The Wall Street Journal. In Maryland, the potential tax sticker shock is similar.

In South Carolina, the state's Revenue and Fiscal Affairs Office (RFA) is wrapping up a report on how the federal tax overhaul will affect the state and how conformity will affect its taxpayers. Agency Executive Director Frank Rainwater said his staff has worked over the last month to compute how the overhaul will playout.

"This is a big deal year," he said. "It's very complicated and they made substantial changes," Rainwater said. "The only thing we can do is to, is what our office is doing, is understand how those changes affect the current tax rates … (The legislature) will have to determine what kind of rate adjustments there will be. As always the devil is in the details and that's what we're struggling with."

But the very people who will decide South Carolina's income tax future appear skittish to talk about conformity and the state's plan moving forward without the RFA's report. Requests for comment from the House Speaker Jay Lucas, House Ways and Means Chair Brian White, R-Florence, and several Senate Finance Committee members were either ignored or declined this week. A Department of Revenue spokesman referred all comments to RFA, and Rainwater said he hopes the information will be finalized and released next week.

Newhouse said there is a chance the legislature may only tackle some of the federal tax changes this year - especially those related to disaster relief -- and wait until next session to address the rest.

"They've talked about not conforming this year and spending more time to figure it out," he said. "Then you have some extra time to deal with this major overhaul to see how you want to conform."


1/25: Taxes, education, change are themes for state’s state

By Lindsay Street, Statehouse correspondent | Taxes took center stage in Gov. Henry McMaster’s first State of the State speech, a Wednesday night talk in the House chamber that echoed similar sentiments from his predecessors, Govs. Nikki Haley and Mark Sanford. Meanwhile, McMaster’s political rivals took strides to counterpunch on television, through a Webcast and on Twitter.


McMaster

McMaster pushed big tax cuts, workforce development, school choice (especially public charter schools) and education reform, including the consolidation of school districts to cut administrative costs and investments in teacher support programs. The governor, now in full campaign mode, called for placing trained officers in schools, implementing further ethics reform, cutting administrative costs and furthering state pension reform. And not to be left out, he noted he state’s prosperity is threatened by contraband cell phones in prisons, the opioid epidemic, abortion and offshore drilling.

Whew.

McMaster also addressed a financial crisis grippin the Statehouse related to the $9 billion failure of the construction of nuclear plants in Fairfield County. He said the “only feasible solution” to protect Santee Cooper customers from paying for the unfinished reactors is privatization in a deal in which the buyer would assume the billions in bonded debt. He also asked the General Assembly to send him a bill that would reform the Base Load Review Act, which allows utilities to raise customers’ rates for projects under construction. He said the reform should cancel SCANA’s ability to continue to collect from ratepayers for the V.C. Summer project — something the company said would bankrupt it, a claim counted by a state audit.

Democratic gubernatorial candidate and S.C. Rep. James Smith of Columbia gave the party’s response.

Smith opened his speech with a cannon shot, listing the state’s poor standings in education and health care.

“I am tired of seeing South Carolina on the bottom of every list we want to be on the top of,” he said.

His speech called for ethics reform, a response to the V.C. Summer canceled project including creation of a ratepayer advocacy agency, support for teachers, bringing high-speed internet access to all of South Carolina, an equal pay law for women and having the General Assembly speak as one voice to oppose offshore drilling.

On taxes, Smith took aim at the governor again.

“If the governor was serious about tax relief, he would tackle real comprehensive tax reform and pursue changes in our system that over-burden our businesses and families. So why then did he veto the tax relief that allowed low-income families to keep more of their hard-earned dollars?”

In a rebuttal to Smith and McMaster, Democratic gubernatorial candidate Phil Noble live-streamed his message complaining about ethics, Statehouse coziness and the need to overhaul public education.


More than 140 bills introduced in past week

Staff reports | State senators introduced more than 40 bills, including measures to raise judicial pay, make it tougher for people to get food stamps and reform beachfront management laws. House members introduced almost 100 bills from Tuesday through Thursday. Among them are calls to reform the S.C. Conservation Bank but not get rid of it, move away from Eastern Standard Time, continue the TERI retirement program and enact a teen dating violence law. Key new bills introduce were:

IN THE SENATE

Nuclear plant. S. 909 (Davis) seeks to make the owners of a failed nuclear plant in Fairfield County to be responsible for preserving the site, with several provisions.

Judicial salaries. S. 910 (Malloy) seeks a mechanism for pay increases for judges, solicitors and other judicially-related officials., with several provisions.

SNAP. S. 920, S. 921 and S. 922 (Turner) seek to change how people are determined to be eligible to receive food stamps, with several provisions, including some provisions on work requirements.

Beachfront management. S. 927 (Campsen) seeks to reform the state's beachfront management law, with several provisions related to baselines and setbacks.

Solar credits. S. 935 (Talley) and H. 4699 (Cobb-Hunter) seeks an income tax credit for individuals or businesses that build, buy or lease properties with solar energy, with other provisions.

IN THE HOUSE

Solid waste. H. 4644 (Dillard) seeks to establish a Solid Waste Emergency Fund for several purposes related to waste management.

Insurance security. H. 4655 (Sandifer) seeks to enact the S.C. Insurance Data Security Act to provide minimum requirements by insurers to secure data with several provisions.

Prison work. H. 4670 (Chumley) seeks to establish a state work program in the state Department of Corrections.

Children's Services. H. 4674 (G.M. Smith) seeks to establish a state Department of Children's Services through a bill that's similar to one introduced last week in the state Senate.

STEM education. H. 4680 (S. Rivers) seeks to create a STEM pathway resource network for education throughout the state, with several provisions.

Beachfront management. H. 4683 (Hewitt) seeks to reform state beachfront management laws related to appeals of contested cases involving baselines or setback lines, with many provisions..

Daylight Savings Time. H. 4684 (Chumley) seeks to make Eastern Daylight Time become standard time in the state, with some provisions.

Bullying. H. 4701 and H. 4702 (S. Rivers) seek to add new language to bullying laws at schools, with many provisions.

Net neutrality H. 4706 (J.E. Smith) seeks to provide net neutrality protections to state law to keep the Internet open, with several provisions.

Teen dating violence H. 4714 (Norrell) seeks to adopt a teen dating violence prevention law with penalties for breaking the law.

Nursing mothers. H. 4717 (Henderson-Myers) seeks a state law to require government and school buildings to have a private place to accommodate nursing mothers, with other provisions.

Spoofed calls. H. 4724 (Putnam) seeks to make it illegal for telemarketers to spoof telephone numbers when making calls.

TERI. H. 4725 (Brown) seeks to extend the TERI (Teacher and Employee Retention Incentive) Program until June 30, 2021.

Conservation Bank. H. 4727 (White) would provide several structural changes to the S.C. Conservation Bank, but would repeal a requirement for it to be reauthorized periodically, with several provisions.


Life expectancy, dysfunction, taxes, vaccines and workers

By Lindsay Street, Statehouse correspondent | Our weekly Top Five feature offers big stories or views from the past week or so with policy and legislative implications that you need to read because of how they could impact South Carolina. If you have stories to suggest to our readers, send to: feedback@statehousereport.com.

1. South Carolinians likely to die sooner than many other states' residents, Greenville News, Jan. 22, 2018.

The South and South Carolina are fairly unhealthy places to be, leading to a lower life expectancy among residents, according to research by the Population Reference Bureau, a private nonprofit think tank in Washington, D.C. The reason for the disparity? The usual suspects: poverty, higher rates of cancer and other diseases, smoking rates, obesity, and lack of insurance. From one of the researchers:

"One way to interpret differences in life expectancy is to look at how long it has taken for U.S. life expectancy to increase by a certain amount … So we can think of this sort of as South Carolina is 15 years behind the U.S. average because it took 15 years for U.S. life expectancy to increase from 77 to 79.1."

2. South Carolina state government no longer among most dysfunctional, Governing, Jan. 18, 2018.

In 2009, South Carolina was listed among six states as the most dysfunctional in the United States. That was in large part for its then-Gov. Mark Sanford going missing briefly for his infamous "Appalachian Trail" tryst. But today, it's a different story. An excerpt:

"South Carolina offers a good example. State revenues fell between 2006-2007 and 2009-2010, but since then they've risen in each of the last seven years -- and the amount collected was 43 percent higher in 2016-2017 than it was in 2009-2010. That's a big boost. Jack Bass, an emeritus professor at the College of Charleston, credits the growth largely to manufacturers. '[They're] expanding, with a new Volvo plant nearing completion and Boeing expanding.'"

3. South Carolina doesn't collect taxes on billions of dollars worth of commercial properties, The Post and Courier, Jan. 20, 2018.

Two South Carolina laws in the 11 years have taken billions of dollars worth of commercial property off the tax rolls. An excerpt:

"Act 388 and a subsequent law passed in 2011 also greased the wheels for commercial property deals. Together, the laws keep many properties from being taxed on what they are actually worth, and have exempted 8 percent of the value of all commercial property in Charleston County from the tax rolls. In nearby Berkeley County, more than 7 percent of commercial real estate was exempt from taxation last year, compared to less than 1 percent of residential real estate."

4. South Carolina child vaccine rates outpace the nation, The Post and Courier, Jan. 18, 2018.

Nearly 78 percent of South Carolinians insured by BlueCross BlueShield received their recommended vaccines for measles, mumps, hepatitis B and other infectious diseases between 2010 and 2016. The national rate is at 73.5 percent. An excerpt:

"In this state, only 1.2 percent of insurance claims between 2010 and 2016 show that parents refused to vaccinate their children in accordance with the schedule set by the Centers for Disease Control and Prevention. That's considerably lower than the national average - 3.3 percent."

5. IT worker shortage hitting businesses in South Carolina, GSA Business Report, Jan. 19, 2018.

South Carolina's economy has another worker shortage. This time, it's the skilled IT worker that is in short supply but high demand. The state's technology sector is growing 9 percent annually, but IT companies are struggling to hire workers with the needed experience or skills to fill open positions, according to a study. An excerpt:

"IT companies in South Carolina had more than 6,400 openings in the fourth quarter of 2016, the report said. Computer programmers, software developers and software quality assurance engineers topped the list for most openings in 2017, the report said."


What really needs to happen with General Assembly's nuclear mess

By Andy Brack, editor and publisher | Until state legislators go through the five stages of grief over the $9 billion failure of building two nuclear reactors, they might just screw up things worse.

It's easy to see where they are, so far, six months after the announcement by Santee Cooper and SCANA that the project in Fairfield County wouldn't get off the ground, despite ratepayers paying more for power over the last 10 years.

First is the denial stage - that it couldn't happen here. Evidence of this is the prodigious finger-pointing as everybody and his brother look for scapegoats.

Next comes anger. There's still a lot of anger bubbling inside the capitol and among voters who are irritated by the waste of what's happened. Anger comes in many forms, but often is seen in unrealistic calls to make everything better and send lots of people to jail. And politicians, scared for their hides, are shamelessly exploiting anger on a daily basis.

The third stage is bargaining, in which some lawmakers are rushing pell-mell to pass bills that try to fix problems in an attempt to negotiate away the pain caused by the failure. Slow down.

Fourth is depression. Often when one reaches this part of the grieving process, it reflects how a problem seems overwhelming and hard to cope with. But it also may start the process of trying to deal with a loss realistically, instead of development of quick responses fueled by anger.

Finally, there's acceptance. It involves learning to live with what happened and being smart about dealing with it.

Folks, the state legislature isn't there yet. Why? Because it hasn't accepted responsibility that it is complicit in the chain of events that created a $9 billion eyesore that likely will become an enduring monument to failure and futility.

What the legislature needs to do now, more than rushing to pass legislation to fix what's happened, is to apologize and take responsibility for the whole mess. Had legislators not passed the Base Load Review Act a decade ago, utilities wouldn't have been able to charge ratepayers in advance to pay for the nuclear project.

This is not to let SCANA and Santee Cooper off the hook for cost overruns and apparent all-around mismanagement of the V.C. Summer construction project, but it's to emphasize that the General Assembly needs to clean up its own house on the nuclear mess before resorting to solutions that could actually make things even worse.

The nuclear debacle is yet another South Carolina example of how the legislature sometimes creates a mess thanks to the Law of Unintended Consequences. This holds that if elected officials don't do their homework and rush in with solutions, bad things may happen just as easily as the rosy scenarios they paint when patting themselves on the back.

For example, just look at the Teacher and Employee Retention Incentive passed about 20 years ago. It was a response to try to keep experienced teachers in the classroom to deal with a shortage. Unfortunately, the courts said it was not fair to offer the program to only teachers. Participation exploded, meaning state employees technically retired with retirement pay put into a special account. But they also draw regular pay. Unfortunately, the legislature didn't fully fund the program and that, along with the Great Recession and investment blunders, led to a $20 billion hole in the state pension system from which South Carolina is still recovering.

Second example: Act 388, the Great Property Tax Swindle. About a decade ago, the smart guys in Columbia wanted to reduce the cost of property taxes on homeowners. They decided to cut property taxes and replace the revenue with a sales tax increase. But that strategy cut flexibility for funding schools at the local level and it didn't cut taxes on commercial and rental properties. Inequities grew. The property tax, which was a stable funding source for government, grew more volatile.

Now we're at a policy crossroads with the unintended fallout of a failed project thanks to something lawmakers did 10 years ago. Before we move forward too quickly, lawmakers need to accept responsibility, slow down, develop realistic ideas stemming from expert analysis and figure out reasonable, informed solutions. To keep politicking about it isn't in anyone's best long-term interest.


Riley Institute at Furman University

The public spiritedness of our underwriters allows us to bring Statehouse Report to you at no cost. This week's spotlighted underwriter is The Richard W. Riley Institute of Government, Politics, and Public Leadership, a multifaceted, nonpartisan institute affiliated with the Department of Political Science at Furman University. Named for former Governor of South Carolina and United States Secretary of Education, Richard Riley, the Institute is unique in the United States in the emphasis it places on engaging students in the various arenas of politics,
public policy, and public leadership.


What's the significance of this?

This object found in South Carolina has a particular importance. What is the object and why is it important in South Carolina? Send your best guess - plus your name and hometown - to feedback@statehousereport.com. In the subject line, write: "Mystery Photo guess."

Last week's mystery

Contributing photographer Michael Kaynard of Charleston sent along a snapshot of a big gun that confounded some. It looked familiar to us and we whacked our forehead when he told us it was a gun at an entrance to Fort Moultrie on Sullivan's Island.

Congratulations to these sleuths who got it right: George Graf of Palmyra, Va.; Philip Cromer of Beaufort; Harvey Shackelford of Newberry; and Gary Crossley of Charleston.

Several versions of Fort Moultrie have existed, but perhaps the most famous - the one that has ties to the state's palmetto flag - is the original. According to the S.C. Encyclopedia, it "was the site of the June 28, 1776, American victory in the Revolutionary War. Fort Moultrie I, the Revolutionary War-era fort, was replaced in 1798 by Fort Moultrie II, which was followed in 1809 by Fort Moultrie III, which served as a military post until 1947." Learn more here.

  • Send us a mystery: If you have a photo that you believe will stump readers, send it along (but make sure to tell us what it is because it may stump us too!) Send to: feedback@statehousereport.com and mark it as a photo submission. Thanks.


Cape Romain National Wildlife Refuge

S.C. Encyclopedia | Cape Romain National Wildlife Refuge was established in 1932 as a wintering ground for migratory waterfowl. Located in Charleston County and stretching for twenty-two miles along the coast between Charleston and the Santee River delta, Cape Romain is a rich natural resource. In its shallow bays, tides combine the life-giving nourishment of the ocean with the nutrient-laden freshwaters of rivers to make one of the most productive environments on earth. Plants and animals from the land, rivers, and ocean are all present at Cape Romain, and all are dependent on the delicate balance of the marshlands.

In support of wildlife's battle for survival, refuge administrators have employed wildlife management techniques that include relocation of threatened loggerhead sea turtle eggs, a red wolf breeding program on Bulls Island, and management of artificial ponds for waterfowl, wading birds, and alligators. Cape Romain Refuge is host to 335 bird species, 12 types of amphibians, 24 reptile species, and 36 varieties of mammals.

The refuge is open sunrise to sunset, seven days a week, year-round. The only facilities accessible by automobile are the refuge office, Sewee Visitor Center, and Garris Landing. Bulls Island lies nearly three miles off the mainland and is reached by boat or private ferry. Public use opportunities include an observation/fishing pier at Garris Landing and Sewee Visitor Center on the mainland. On Bulls Island there are eighteen miles of trails and roads to hike, a seven mile stretch of beach, picnic tables, a weather shelter, and an observation platform. Saltwater fishing is permitted, and limited hunting is offered. Interpretive exhibits and literature can be found at the Sewee Visitor Center.

- Excerpted from an entry by Larry Davis. To read more about this or 2,000 other entries about South Carolina, check out The South Carolina Encyclopedia, published in 2006 by USC Press. (Information used by permission.)

EDITOR'S NOTE

Statehouse Report is continuing to experience database issues and our full offerings are not online now. This week's issue is brought to you in one long post -- like we used to!

ALSO IN THIS ISSUE

ISSUE 17.04 | Jan. 26, 2018

NEWS: Legislators quiet about possible unintended state tax hike

NEWS BRIEF: Taxes, education, change are themes for state’s state

TALLY SHEET: More than 140 bills introduced in past week

TOP FIVE: Life expectancy, dysfunction, taxes, vaccines and workers

BRACK: What really needs to happen with General Assembly's nuclear mess

SPOTLIGHT: Riley Institute at Furman University

MYSTERY PHOTO: What's the significance of this?

SC ENCYCLOPEDIA: Cape Romain National Wildlife Refuge

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