The Palmetto Insider

The blog of the South Carolina Policy Council

Governor-elect launches website to address budget crisis

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In January, Nikki Haley will be sworn in as the new South Carolina governor. Like nearly every other governor across the nation, she is inheriting a budget crisis.

One of Haley’s first actions was to establish a task force with the goal of addressing budget challenges. (Disclaimer: South Carolina Policy Council president Ashley Landess is one of five appointees to this task force.) The task force will, “assist Haley in identifying the most pressing fiscal challenges facing the state.”

Additionally, Haley’s team launched a website – http://www.scbudgetcrisis.org – that will solicit suggestions from taxpayers about ways to balance the budget. Individuals can submit ideas – anonymously if preferred – the task force can consider in working toward streamlining government.

This evokes images of the movie Dave, where an average Joe becomes president for a short time and in one scene, spends an afternoon with his friend trimming $650 million in fat from the federal budget, in order to save a homeless shelter. As the fake president and his friend (an accountant) look through the budget, the accountant quips:
“I’ve been over and over this stuff. It doesn’t add up. Who does these books? If I ran my office this way, I’d be out of business.”

Sums it up exactly.

Hopefully, the budget task force and website will bring that common sense approach to budgeting next year.

To that end, here are three easy fixes to get the ball rolling:

1) Cut agricultural marketing funding. The General Fund provides $562,000 for Marketing & Promotions to the Department of Agriculture. Yet the Clemson PSA receives $62 million already for these and other purposes. Let alone the fact that government does not need to be marketing farms, there is already substantial funding for these activities. And without profit motives, you get things like Palmettovore.

2) Cut state-funded tourism. Proviso 39.12 of the FY10-2011 budget 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 Commerce; $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. Tourism marketers and private chambers should have to pay their own way, instead of forcing other taxpayers to subsidize their marketing and advertising.

3) Close the Statehouse Gift Shop. For some reason, each year legislators protect the Statehouse Gift Shop from budget cuts. This is absurd. Why continue to subsidize a business that keeps losing money? Stop this ongoing bailout for the gift shop and let private sector vendors fill the void. That’s how you create a stable job base. Moreover, anyone ever heard of priorities?

These ideas are just a start. And you can find plenty more on our website – for instance, here and here. But we encourage you to submit your own ideas to www.scbudgetcrisis.org.

Written by Geoff Pallay

November 18, 2010 at 1:26 pm

General Assembly Reaches Bottom of Slippery Slope

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If you’ve been keeping up with our new research on legislative control in South Carolina, you are well aware the General Assembly is attempting to direct the state’s economy by means of numerous boards and regulations, as well as by distributing billions of dollars in economic incentives and tax breaks to special interests. Consider:

  • The Legislature exercises extensive control over the state’s government and economy by means of 250-plus boards and commissions that regulate nearly every activity in the state.
  • The Legislature makes more than 420 appointments to executive branch boards and commissions – more than half as many as the governor makes.
  • The Speaker of the House and the Senate President Pro Tempore, combined, make more than 120 appointments to executive branch boards and commissions – 15 percent as many as the governor himself.

Two bills introduced in 2010 give a glimpse of how the legislative leadership controls and regulates the state’s economy by means of various licensing boards.

H 4235 would license and regulate talent agencies and create the South Carolina Board of Talent Agencies and Talent Agents to enforce these regulations. The new board would be made up of five members: two appointed by the Speaker of the House; two by the President Pro Tempore of the Senate; and one by the governor.

H 4624 would require musical therapists to be licensed and subject to oversight by the South Carolina Board of Music Therapy. The new board would be composed of five members: two appointed by the Speaker of the House; two by the President Pro Tempore of the Senate; and one by the governor.

First question: Do we really need the state to regulate talent agencies or musical therapists? This is not to marginalize these activities or to suggest that dishonest talent agents, for instance, can’t do a lot of harm. But is the state the best one to regulate these activities – and collect fees on them in the process? Or should instances of harm and abuse be addressed through tort law? And, if so, can the General Assembly instead do anything to facilitate the handling of such claims?

Second question: Do you think the General Assembly’s power is out of check? I mean, really … legislators don’t trust the governor to appoint boards related to talent agents and musical therapists?

Even if legislators stopped at wanting to control half of the appointments on every board and commission, we could speak of an imbalance of power between the legislative and executive branches. But to seek control over virtually all appointments to even such minor boards as these vividly illustrates that the Legislature really does think it is solely responsible for running South Carolina.

We could speak of a slippery slope … but clearly we’re already at the bottom.

Written by Jameson Taylor

November 17, 2010 at 2:29 pm

Posted in Economic Development

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BEA Should Think Like Economists, Not Accountants

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We’ve made no secret of the fact that we think the state’s Board of Economic Advisors (BEA) could improve upon its analysis of legislation proposed in the General Assembly. As we recommended in our recent report on economic incentives transparency, Three Steps Toward Transparency:

“In addition to any data provided by the BEA, legislators should also be provided (prior to second reading) with a dynamic cost-benefit report demonstrating the pros and cons of the proposed investment strategy, including the impact on existing taxpayers and businesses. This supplemental analysis should be conducted by an independent economist who is not a publicly paid employee, unless that economist is an employee of a public four-year university.”

Our motive in calling for independent analysis, on top of what the BEA does, is that the BEA’s static revenue impact statements rarely capture the true fiscal consequences of a proposed tax increase, cut, exemption, subsidy, or what have you.

Currently, per S.C. Code of Law sections 2-7-71, 2-7-72, 2-7-76 and 2-7-78, the Board of Economic Advisors, a division of the Budget and Control Board (BCB), is required to submit a statement of estimated revenue impact or estimated expenditure impact on revenue (tax) and expenditure (spending) bills, both at the state and local level.

On the surface, this analysis should provide legislators with accurate and useful information they need to make informed decisions about spending and taxing. But that’s not always the case.

One problem is that the analysts at the BEA seem to approach their responsibilities more like accountants than economists.

The impact statement provided for S 999 provides a good example of this mindset. In essence, S 999 would mandate that an individual’s taxable gross income excludes unemployment benefits. The BEA estimated that the tax cut would have reduced General Fund revenue by about $33.010 million in FY10-2011.

This is how the BEA arrived at its calculations:

The state allocated $917.971 million in unemployment compensation benefits for FY2009.

The current tax rate for unemployment benefits is 5.8 percent.

62 percent of all South Carolina taxpayers have income tax liability.

$917.971 million times 5.8 percent times 62 percent equals …

$33.010 million in reduced tax revenue.

This is a fundamentally flawed analysis because it is:

  • Based on historical, instead of projected, or longitudinal, data. Instead, the BEA should have conducted an analysis based on future economic projections and possible alternatives forgone (opportunity costs).
  • Uses a one-year analysis. Instead, the BEA should have conducted a multi-year analysis. Since this exemption would be in effect indefinitely, analysis should be conducted for 5-year, 10-year, or even 20-year, timeframes.
  • Employs simplified assumptions and risk calculations. The BEA assumes that 62 percent of those receiving unemployment benefits have income tax liability. But this number is based on the number of taxpayers statewide. Wouldn’t unemployed persons, generally, have lower-incomes and so make up a greater percentage of those persons with no tax liability? Thus, wouldn’t the resulting reduction in revenue be less than assumed by the BEA?

If the BEA approached these issues with the mindset of an economist, it would have stated the real economic impact, both explicit and implicit, on every revenue stream, including the General Fund, Other Funds and Federal Funds.

As far as S 999 goes, an economic analysis would consider the following issues:

  1. Short-term employment effects and long-term economic growth: such as whether the unemployment rate is expected to increase or decrease.
  2. Economic efficiency: such as whether this bill is the best option for achieving its desired end, or whether resources could be used more efficiently to accomplish the same end.
  3. Cost/benefit analysis: using various scenarios with assigned probability based on different economic assumptions and factors. For instance, considering whether the exemption would increase earning power among low-income consumers. If so, what would the extent of the increase be and how likely is it to occur? Likewise, what impact might it have on job growth?

If the BEA began to conduct more rigorous economic analysis using real-life, on-the-ground assumptions and statistical models, legislators and the general public would gain a better understanding of the true costs, as well as benefits, of important pieces of legislation. Granted such analysis would take more time and use more resources, but the resulting transparency would be well worth it.

To read more about transparency initiatives in the 2010 General Assembly, see our latest Best/Worst.

Written by Simon Wong

November 16, 2010 at 2:26 pm

Posted in Transparency

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State Tax Working Group Looks at Election Results

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The State Tax Working Group had its first meeting since Election Day this Wednesday, November 10th. The majority of the group’s discussion, both in D.C. and via teleconference, centered on the election results. The first speaker was Geoff Pallay, editor for Ballotpedia, a collaborative political encyclopedia. (Geoff is also an associate analyst with SCPC.) Pallay gave a brief breakdown of the election results and anticipated that Republican wins could translate into real progress for tax reform efforts.

John Stevenson of the National Taxpayer’s Union (NTU) continued the discussion by looking at the impact of midterm election results. As Stevenson explained, voters nationwide considered state and local ballot measures with profound impacts on tax and fiscal policy. Overall, there were 93 statewide measures on the ballot with the potential to limit taxes or the size of government. Of those, 71 percent passed – including two in South Carolina (cf. H 3396).

Next, Joe Moser, a policy analyst with the NTU, broke down what the election results mean for American taxpayers in different states. Here are some highlights:

  • A Missouri ballot measure targeting the state earnings tax was repealed;
  • In Colorado, voters turned down, by a two-to-one margin, three sweeping measures that would have had positive impacts on taxpayers;
  • Georgia voters rejected a measure that would have imposed a registration fee on vehicles.

A representative of an Ohio-based tax organization next spoke on what the election results meant for Ohio. As Republicans flipped the 99-member House (and retained control of the Senate), Ohioans can expect a new Speaker of the House, William Batchelder. The speaker explained that Batchelder is a tax pledge signer and has called for major Medicaid cuts. Additionally, the speaker mentioned a study released this year by the Buckeye Institute that predicts a $2.3 billion savings for Ohio if public-sector and private-sector salaries are brought into alignment.

Finally, Joseph Henchman of the Tax Foundation concluded the meeting by calling attention to tax reform efforts in both Georgia and South Carolina (i.e., the Taxation Realignment Commission: see here and here). The next State Tax Working Group meeting will be held December 8th, along with their annual D.C. conference held December 1st through 3rd.

Written by SCPC

November 12, 2010 at 2:43 pm

More Bills Passed This Year, Than Last

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If you haven’t had a chance yet to check out this year’s Best/Worst, take a look over at SCPC. One thing you’ll see is that this year’s Best/Worst is longer than last year’s. In fact, it came as a surprise to us that the Legislature passed more bills in 2010 than 2009. At the same time, 2010 was a bit disappointing when it came to thinking creatively about free market health care reform, environmental reform and education reform. Not much fundamental budgetary or tax reform either.

Anyway, here are the numbers:

Bills Introduced, Passed and Vetoed During the 118th General Assembly

2010 (Second Regular Session)

1,052 bills and joint resolutions introduced

219 passed

46 vetoes (not including budget vetoes)

36 vetoes overridden

2009 (First Regular Session)

1,402 bills and joint resolutions introduced

205 passed

16 vetoes (not including budget vetoes)

16 vetoes overridden

As we observed in our special report on shortening session, the South Carolina Legislature passed about one bill a year/per legislator during the 118th General Assembly. Likewise, as a body, seven bills annually were introduced per legislator.

Written by Jameson Taylor

November 10, 2010 at 5:00 pm

Opposition to Act 388 Still Simmering, Not Yet a Full Boil

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Local property taxes brought in $4.375 billion in revenue for FY08-2009. This is one reason property tax legislation is a controversial subject across South Carolina. Another reason is the overhaul of the property tax system (Act 388) in 2006. Act 388 has largely been deemed a failure. Most important, the act’s envisioned “tax swap” has arguably increased the overall tax burden.

Thus, discontent over Act 388 continues to simmer, especially as the weak economy has put pressure on realtors and others looking to jumpstart the commercial real estate market. Until calls for the repeal of Act 388 reach a full boil, though, legislators are unlikely to do anything more than tweak the current code.

Below is a sampling of property tax legislation introduced in 2010 – most of which died in committee. As will become clear, lawmakers shied away from fundamental reform. Likewise, the Senate chose not to pass legislation (H 4585) that would have permitted TRAC to look specifically at Act 388. (That said, the tax reform commission did publish an extensive review of property taxes and recommended reforms for those who want to study up on other property tax issues.)

Here’s a review of property tax legislation for 2010:

H 4839 (signed into law): Another example of a law written for the benefit of a very small number of taxpayers. This law clarifies that Medal of Honor winners or prisoners of war (and their spouses) are eligible for a property tax exemption, regardless of when the honor was received.

S 405 (governor’s veto overridden): This law allows watercraft to be taxed as real property, akin to homes and land.

S 976 (read twice in Senate): This bill would have allowed counties to tax property owners to pay for the cleanup of unhealthy or unsightly material.

S 983 (died in committee): This bill would have provided a property tax break for elderly persons who move to a new residence.

S 1006 (died in committee): This bill would have increased the homestead property tax exemption from $50,000 to $100,000 for persons aged 65 and over.

S 1119 (died in committee): This bill would have required property be valued at the most recent assessment, rather than the original purchase price, as regards eminent domain/takings lawsuits.

H 3480 (died in committee): Currently, fair market value is based on the appraised value of a home for tax year 2007. This bill would have changed that to 70 percent of the appraised value from 2007 – likely owing to the steep decline in home values since the beginning of the recession.

H 4179 (died in committee): This bill would have exempted improvements, that would otherwise be taxable, made to property by its owner. The exemption is aimed at unsold and unoccupied commercial structures, individual units in commercial structures, and individual units in residential structures.

H 4268 (died in committee): This bill would have capped the fair market value increase on property at 15 percent.

H 4830 (died in committee): This bill would have created another exemption for retirees. In this case, the bill exempts one vehicle from property tax for persons aged 65 and older.

H 4934 (died in committee): This resolution proposed amending the state constitution to: provide for a definition of “fair market value”; eliminate the 15 percent limit on increases in property value over 5 years; and delete an “assessable transfer of interest” as an event that changes the value of property for the purpose of levying taxes. If passed, the resolution would have been submitted to voters for approval.

H 4935 (died in committee): This bill would have made significant changes to current property tax law. Among the proposed changes would be a return to the former policy of allowing local governing bodies to increase mileage rates via a positive majority instead of a supermajority.

See the Best/Worst 2010 Property Rights Chapter for additional analysis of legislation related to private property rights.

Written by Jameson Taylor

November 9, 2010 at 12:03 pm

Posted in Taxes

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Hollywood Wins, Fishermen Lose

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We’ve written extensively on how Other Funds revenue – raised from fines and fees – keeps increasing in South Carolina.

The best way to think of fines and fees is that they are really a targeted tax increase.

The Legislature hands out millions in targeted tax cuts every year. For instance, in 2010 the General Assembly gave Hollywood producers a targeted tax cut (proviso 39.15) on aggregate payroll costs and other expenditures.

This tax cut means Hollywood producers pay less than their “fair share” in taxes. What is fair is here defined as what everyone else pays (granted that high taxes are “unfair” for everyone). Thus Hollywood producers get a break from high taxes while ordinary taxpayers are stuck paying the same rate.

More concretely, targeted tax cuts are often paid for through targeted tax increases. The easiest tax increase to pass is one most people don’t notice. A hidden tax – a fine and fee increase.

The General Assembly considered almost 100 separate bills that would have raised fines and fees in 2010. One of the most prominent was S 1340, which passed the General Assembly and was signed by the governor. The law establishes regulations, licensing and fees pertaining to fishing; it also provides for regulations regarding bodies of water.

Here’s a breakdown of some of the new fees created by S 1340:

Section Reason Fee Amount
Section 50‑9‑80 Duplicate License/Permit $3.00
Section 50‑9‑80 Replacement Nongame Fish Tag $1.00/Resident & $5.00/Nonresident
Section 50‑9‑80 Duplicate Antlerless Deer Tag $1.00/Tag
Section 50‑9‑410 Annual Freshwater Commercial Fishing License Resident $50.00
Section 50‑9‑410 Annual Freshwater Commercial Fishing License Nonresident $1000.00
Section 50‑9‑430 Scientific Collection Permit $10.00
Section 50‑9‑610 Tag for Eel Pot $5.00/Resident & $50.00/Nonresident
Section 50‑9‑610 Tag for Fyke Net $10.00/Resident & $50.00/Nonresident
Section 50‑9‑610 Tag for Gill Net $5.00/Resident & $50.00/Nonresident
Section 50‑9‑610 Tag for Hoop Net $10.00/Resident & $50.00/Nonresident
Section 50‑9‑610 Tag for Trap $5.00/Resident & $50.00/Nonresident
Section 50‑9‑610 Tag for Trotline, Not exceeding 50 Hooks $2.50/Resident & $50.00/Nonresident
Section 50‑9‑610 Permit for Using 50 Jugs $5.00/Resident & $50.00/Nonresident
Section 50‑9‑610 Permit for Using 50 Set Hooks $5.00/Resident & $50.00/Nonresident
Section 50‑19‑251 Misdemeanor Fine $10.00-$100.00
Section 50‑19‑1190 Misdemeanor Fine $25.00-$100.00

This year, Hollywood won the tax game. Commercial fishermen lost. Next year, the Legislature will choose other winners and losers. But why not instead level the playing field for everyone?

… To read more about what tax increases the General Assembly considered in 2010 and what they might do in 2011, see our 2010 Best/Worst Taxes Chapter.

Written by Jameson Taylor

November 8, 2010 at 4:47 pm

Posted in Taxes

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