S.C. Statehouse Report
Dec. 14, 2003
VIEW: http://www.statehousereport.com/columns/03.1214.topissues.htm

HOT ISSUE
Budget, restructuring are coming legislature's targets
By Andy Brack
SC Statehouse Report

DEC. 14, 2003 - - If you thought the last couple of budget years were bad, the legislative wrangling over money and policy in the coming session of the General Assembly will be one you'll never forget.

The big reason is the state's big-ticket needs for millions of dollars in rising Medicare costs, school improvements, prisons and lots of other areas won't be funded simply with economic growth. Indicators show the state's economy is starting to perk up, but the heady days of growth of the late 1990s aren't yet on the horizon.

"It's not growing fast enough to get through this next budget year," said House Majority Leader Rick Quinn, R-Columbia.

Because the state isn't going to grow out of its problems, it will have to look to other opportunities:

• In the coming year, it's a good bet the state won't get a last-minute infusion of hundreds of millions of dollars like earlier this year, which allowed lawmakers to fund Medicaid increases and bypass some decisions.
  
  
• In an election year and with a Republican legislature, politicians aren't likely going to raise new money with new taxes.
  
  
• So for lawmakers to wiggle out of another tight budget year, they're going to be faced with even more tough decisions to cut, reshape or reform programs and services to generate enough money to fuel the state's needs.

The coming session's major legislative battles will come in two linked areas: dealing with the budget and how government should be restructured, which could create savings and make it easier to deal with the budget.

At the heart of the budget debate will be a focus on how the state should be taxing its citizenry. Look for bloodletting in the House and Senate as leaders compete to woo support for their pet plans. There are plans to increase sales taxes to cut property taxes. Another calls for income tax cuts fueled by cigarette tax increases. Others include cutting some sales tax exemptions to help boost state coffers.

Regardless which plan or plans win, the way South Carolinians are taxed likely will be reshaped by members of the coming legislature.

"Something involving the tax code will probably happen - - probably something involving the property tax," said S.C. Rep. Jim Merrill, R-Daniel Island.

Affecting budget decisions is the restructuring agenda being pushed by Gov. Mark Sanford. More than likely, restructuring will go far beyond making some constitutional officers, such as agriculture commissioner and secretary of state, into to non-elected, gubernatorial appointments.

Restructuring of state agencies, practices and programs to reduce duplication of services, create efficiencies and consolidate programs could generate enormous savings, proponents say. And while restructuring is a "hot" topic that seems to be set to happen in some manner, others observe the state has gone through several years of budget cuts - - including a handful of painful mid-year cuts. Due to those slashes, they say there's not a whole lot of fat left, which means there may not be a lot of low-hanging fruit for restructuring without significant pain.

Other key issues for the coming legislature:

• Medicare changes. Republicans and Democrats seem to agree in general that they'll have to make cost-cutting, screening and other measures to counteract the huge projected rises in costs to provide Medicare to seniors.
  
  
• Tort reform. Business groups are pushing feverishly to change rules on lawsuits and damages. While some reforms, such as changes to rules to make it harder for lawyers to "shop" for friendly jurisdictions, may pass, look for a showdown between the business/medical community and the legal community over sweeping changes.
  
  
• Higher education. It looks like the General Assembly will consider ways for colleges and universities to borrow to build infrastructure for research, which can help attract jobs over the long term. There also may be a real move to reshape the way government oversees higher education, such as an idea floated by Sanford to allow some public institutions to become private.

The bottom line for the coming legislative year is it's going to be another tight budget year and that will drive everything else. But compared to the previous two tight years, the battles will be bigger and bloodier over the way the state will do business and provide services.

Next week: "Sleeper" issues on next session's legislative agenda.

• 12/7: Look behind the rhetoric of tax reform
• 11/30: State needs to plan better for future
• 11/23: Technical colleges can be key to future
• 11/16: Sanford may be using Legislature as campaign tool
• 11/9: Ten ways to be a better citizen
• 11/2: Changing state superintendent doesn't make sense
• 10/26: Don't forget middle-class manufacturing jobs
• Have a comment? feedback@statehousereport.com

McLEMORE'S WORLD
Santa gets all kinds of requests

This week's cartoon by our Bill McLemore:

• To send a message to cartoonist Bill McLemore, write info@statehousereport.com
  

FEEDBACK
12/8: Good tax article

To the editor:

I thought your editorial (Dec. 7) about the fairness of SC's current tax system was good and well thought out. There is another point that I have not seen mentioned in anywhere, even though it should be an important consideration.

That is the role of federal taxes in the make-up. If we start with the assumption that the people of the state pay the taxes (yes, I know that tourists pay some portion, but by and large, taxes are paid by the residents of SC), then it makes sense to structure the tax system where whenever possible, the state taxes are deductible items when computing federal taxes.

I think the only state taxes that are deductible for federal purposes are income and property taxes. For every $100 in taxes the state needs, if the residents pay in the form of sales tax or some other form of use tax, then the after-tax cost to the resident is $100. If the state collects the same $100 in income tax, then the resident gets a benefit of $100 x the marginal federal tax rate. Many people have marginal federal rates in excess of 25%, so the after tax cost in my example is under $75. This means that far more capital stays in South Carolina.

With income or property taxes, the federal government is essentially contributing 15-35%, depending on the payer's tax bracket. Under a system where the state relies on sales tax, the federal government contributes nothing. This is one more reason why it is not smart to replace part of the income tax with sales or other use taxes.

-- David Pardue, Hilton Head Island, S.C.

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