Best Worst 2010

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BEST

WORST

&

of 2010

Te S.C. Geera

Asseb

best&worst2010:Layout 1 11/22/10 2:11 PM Page 1

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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

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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


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.


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


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


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


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


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


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


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.


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.


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


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


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


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.


Our take:

Our take:

Our take:


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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

Our take:

Our take:


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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.


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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

Taxes19 Restrctrig

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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


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


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


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


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


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


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.


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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

Ecooic

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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


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


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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


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

Taxes27 Ecooic

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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.


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

Ecooic Deveopet29 Ecooic

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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


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?


Deveopet

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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.


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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-


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reies o pareta coice & private iitiative tebidig bocks of sccess trogot orsociety.

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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


This bill would have allocated education dollars according to specific student

needs, thus resulting in a fairer and more streamlined mechanism for funding

schools.

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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.


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)

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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


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


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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.

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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.


hEAlTh CARETe aterative approac is for goverors ad

state egisators to defie te ters ad codi-tios of eat care refor witi te borders ofteir states ad force te federa officias ipe-etig Cogresss isgided, poory desiged,ad bady writte eat egisatio to respodto ew facts o te grod.

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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.

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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

Best Worst 2010

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