Jun 27, 2017

South Carolina 2017 Legislative Report

The South Carolina Legislature adjourned sine die on May 11 for the 2017 session year, the first year of a two-year session. The year’s biggest controversy was settled by the legislature, ending three years of passionate debate on how to pay for much-needed road maintenance and improvements across the state.

After Veto and Override, Roads Funding Plan Effective July 1

On May 9, the House and Senate approved the roads funding plan with veto-proof majorities. Gov. Henry McMaster (R), who previously promised to veto the bill , wasted no time and vetoed the legislation before the end of the day, with a veto message posted on Facebook. On May 10, after several rousing speeches on the floor about executive leadership, or lack thereof on this issue, the House voted 95-18 to override the governor’s veto and the Senate followed with a 32-12 vote to override.

Revenue Generation

Effective July 1, 2017, the legislation will increase the state’s 16.75 cents per gallon gas tax to a total of 28.75 cents per gallon by the year 2022. The legislation’s 12 cents per gallon increase, named the motor fuel user fee, will be phased in as a 2 cents per gallon increase in each of the six years of the plan. The state’s gas tax has not been subject to inflation indexing over the last 30 years, which will not change since the final legislation does not include the Senate’s inflation indexing provision.

The legislation requires that all revenues raised from the 12 cents per gallon increase be placed into the newly created Infrastructure Maintenance Trust Fund, which is required to use these funds exclusively for repairs, maintenance and improvements to the existing transportation system.

Other fees were also increased or introduced to raise revenue for the trust fund, including a $16 increase on every biennial registration and license fee in the state and an increase in the vehicle sales tax, now called the Infrastructure Maintenance Fee.

The legislation is expected to raise approximately $630 million each year for road repairs after full implementation. The plan is estimated to cost a South Carolina driver who travels 15,000 miles in a car that gets 25 miles per gallon about $1.40 per week in additional motor fuel user fees after full implementation.

Tax Relief

Several of the Senate's various tax credit and rebate proposals, originally intended to offset the cost of the increase to the state’s taxpayers as well as help make the legislation veto-proof, are included in the final legislation. The legislation includes the main tax relief program proposed by the Senate, the motor fuel user rebate, which will be a refundable income tax credit for preventative maintenance on the state’s registered private passenger vehicles. The legislation also implements a state earned income tax credit that will be a nonrefundable credit equal to 125 percent of the federal earned income tax credit. The state’s students also received an increase in the cap on their refundable income tax credits for higher education tuition, which will now be up to $1,500 for two- and four-year programs. Finally, in an effort to lower the cost of business in the state, manufacturers will get a small break on their property assessment ratios phased in over the six-year plan.

DOT Governance Reforms

Additional Department of Transportation (DOT) reforms were also included in the final legislation. Legislators opted to add another at-large member to the DOT Commission, the governing body of the DOT, to make full commission membership an odd number to avoid tie votes. All nine commissioners will be appointed by the governor and vetted in some manner by the legislature in a plan inspired by the Ethics Commission appointment process. The seven congressional district seats on the commission will be vetted and confirmed by the legislation delegations of the relevant congressional district, which will now include all legislators who represent any portion of the congressional district. The two at-large members will be confirmed by the House and the Senate.

FY2018 Budget

On June 12, Gov. McMaster utilized his line-item veto power to remove $56.4 million in spending from the legislature’s $8 billion budget. The governor’s veto message focused on transparency in spending taxpayer dollars in light of the recently passed gas tax increase. Here are some highlights of Gov. McMaster’s vetoes:

  • $20.5 million allocated for school bus upgrades because the funding is dependent upon the lottery raising more than projected and lottery money should be spent on scholarships as promised.
  • $8 million for mandatory contraceptive coverage for dependents of state employees receiving benefits from the state health plan.
  • $6.2 million to the Department of Parks, Recreation and Tourism; $3.3 million for sports marketing grants; and $4.9 million for medical contracts because they are vaguely named “port projects.”
  • The legislature’s cuts to the S.C. Conservation Bank, which effectively restores funding to the agency at its current levels, because “South Carolina deserves a reasoned debate about the Bank’s future and mission through normal legislative processes, not the budget.”
  • The provision expanding the counties’ power to spend gas tax money on nonpaving projects.

The legislature may override the governor’s vetoes with a two-thirds majority vote in both the House and Senate, but legislators have suggested they would not return before the end of June. The state’s budget takes effect July 1, 2017, and if the legislature does not return before the end of the year to address the vetoes, the affected agencies will not have access to the funds until well into their fiscal year.

First Part of Pension Systems Fix Finalized, Phase II Begins

After months of study and discussion, Gov. McMaster signed legislation authorizing a plan to fix the state's ailing retirement system. Despite approving the legislature’s efforts to shore up the plan, Gov. McMaster told lawmakers to continue their work. He believes the state needs a deferred compensation, or 401k-style, plan to offer to state employees, as opposed to the current defined-benefit plan, which promises the state's employees an exact monthly payment based on length of service and salary.

The approved plan, which went into effect immediately upon the governor’s signature, decouples and raises the employer and employee contribution percentages. The employer contribution will be raised, by 2 percent, to 13.56 percent on July 1 for FY2018, and will then increase by 1 percent each year until FY2024, for a total of 7 percent over the course of the plan. By the end of the plan, the employer contribution will be 18.56 percent. The employee contribution will also be increased on July 1 from 8.66 percent to 9 percent, but will be capped at 9 percent for the following years.

On June 6, the legislature approved the second piece of “Phase I” of the pension system fix, providing state funding in the FY2018 to state agencies, cities, counties and other local entities to cover half of the required 2 percent increase in payroll allocation.

The Joint Committee on Pension Systems Review, who crafted the plan, met on May 9 to map out its continued study and discussion on improving the system. Discussion over the interim will cover deferred compensation plans or hybrid plans for future state employees. The committee asked interested parties to submit input regarding potential plans or any other ideas for improving the state’s pension system.

Legislature Attempts to Strip Power from State College Oversight Agency

The Commission on Higher Education (CHE) took a hit in the budget, and not just with a loss of funds. The budget conferees agreed to remove the CHE’s authority to review college construction or renovation projects. Under the legislature’s plan, capital improvement projects for the state’s colleges would be reviewed by the Joint Bond Review Committee and the State Fiscal Accountability Authority.

The House has had serious concerns about the mission and authority of the CHE throughout this legislative session. House leaders have stated that they are trying to focus CHE’s manpower on academic program oversight, instead of requiring the CHE’s limited staff to stretch resources to do multiple jobs that could be done by other oversight bodies.

On June 12, in his veto message to the legislature, Gov. McMaster restored the Commission on Higher Education's power to review capital improvement project proposals from the state’s colleges and universities, stating that “the CHE must be allowed to exercise its oversight authority.”

Special Election Results

On June 20, former state Rep. Ralph Norman (R-York) defeated Archie Parnell (D-Rock Hill) in the special congressional election to fill the state’s vacant U.S. House seat. Norman will serve the remainder of former Rep. Mick Mulvaney’s term; Mulvaney resigned to lead the Office of Management and Budget after an appointment by President Trump. Norman narrowly defeated Rep. Tommy Pope (R-York), House Speaker Pro Tempore, by a 221 vote margin in a primary runoff just three weeks before the special election.

On May 30, Lt. Gov. Kevin Bryant’s (R) vacant Senate seat was filled, after businessman Richard Cash (R-Anderson) defeated a last-minute write-in campaign from supporters of his primary opposition, Carol Burdette, former Pendleton, S.C., mayor. Sen. Cash was sworn in on June 6, and immediately began his work on the Senate floor.

Several House seats were also filled in the last month of the session. Ronnie Young (R-Aiken), chairman of the Aiken County Council, was elected to fill the vacant seat of former Rep. Chris Corley, who resigned from the House in January after an arrest on domestic violence charges from an incident in December 2016. Bruce Bryant (R-York), a former York County sheriff, was elected to fill Norman’s vacant House seat after a quiet and uneventful campaign against Democratic challenger Bebs Barron Chorak. Wendy Brawley (D-Richland) was elected to fill the vacant seat of former Rep. Joe Neal, who passed away unexpectedly earlier this year. Brawley, the former chair of the Richland One School Board, easily defeated Republican challenger Bill Strickland in the special election.

Upcoming Special Elections

Two House Democrats resigned from their seats this spring, leaving additional vacancies that must be filled. Rep. Seth Whipper (D-Charleston) resigned to accept a position as a magistrate and Rep. Harold Mitchell (D-Spartanburg) decided to step down in early May, citing health reasons.