S.C. legislators return with debt, taxes top issues

COLUMBIA -- With $913 million in extra cash, state leaders and lawmakers return to a GOP-dominated legislature Tuesday saying they'll cut taxes, fix a cash-strapped pension system and pay off bills while making no promises to restore cuts to public schools, welfare programs and state jobs that came through the recession.

Republican Gov. Nikki Haley said “the key is we are expecting to have higher revenues this year. They cannot spend it. It should either go to tax relief, debt relief or back to the tax payer.”

Republicans are telling voters in this election year the leaner government payrolls are here to stay and that raises state employees may get after a three-year-hiatus could be erased by higher pension payments. And, House leaders carp they'll spend time waiting for the Senate to pass the stack of bills they wrapped up last year, including items at the top of Haley's agenda.

Haley is waiting on Senate action on restructuring and streamlining bills the House passed last year, including putting much of the state's bureaucratic operations directly under a Cabinet-level Department of Administration that she would control. She also wants joint elections for governors and lieutenant governors, the power to appoint the state's education superintendent and a merger of the state's probation agency into the prison system.

“Before getting started on anything else, we need to finish up the business of the day,” Haley said. “They said they'd take it up first thing this session, so we're going to hold them at their word that they'd take it up first thing this session and pass it out.”

Some are leery that the bills on the new Cabinet agency and others will be sidetracked. Haley said they “are all right there ready to go and just that set of legislation is a huge win to say, ‘OK, we've finished what we needed to do and now we're moving on.’”

For Republicans and Democrats alike, the biggest problem remains South Carolina's high unemployment. It's an issue that's confounded leaders heading into and out of the recession. They've used a familiar formula of tax cuts and business-friendly measures – including limiting lawsuit payouts, cutting unemployment benefits and making those benefits harder to get or keep. They say the changes make it easier for businesses to add jobs in South Carolina or bring new operations here.

The numbers show how tough that's been. Haley took office last year with the state's unemployment rate at 10.5 percent. This year's peak was 11.1 percent in August and was down to 9.9 percent in November. The state's unemployment rate was the nation's 42nd highest. Still, that was one of South Carolina's best showings for the year.

“We started the year with double-digit (unemployment) and we ended the year out of double digits, but that doesn't mean that we're out of the woods,” Haley said. In her office suites, nearly every desk has a sign showing the state's current jobless rate.

It's been a costly problem. Years of high unemployment and breaks to businesses' jobless benefit taxes were leading reasons the state's unemployment trust fund went broke. The state needed to borrow nearly $1 billion to keep checks paid during the recession. Fixing the system included higher premiums for employers. Just as businesses were getting the bills last year, an unexpected rebound in state tax collections let legislators put cash into a bailout for businesses.

The debt getting the most attention now is a $13 billion gap in what's needed to cover pension costs.

Several proposals are being offered: increasing the retirement age, raising number of years required to work to qualify to 30 from 28 and making workers pay more than the current 6.5 percent toward retirement.

Haley said the pension overhaul has to happen this year. “No more putting our heads in the sand. This has got to happen.”

And there's a major push for tax breaks as a House GOP committee wraps up a draft of an overhaul plan.

Haley and some lawmakers want to begin eliminating the state's corporate income tax. And they also want breaks on property taxes manufacturers pay that reduces the rate from 10.5 percent to 6 percent. It's something voters may have to approve in a constitutional amendment. “Tax reform is a must,” said Haley. She sees the tax agenda taking years to implement.

House Speaker Bobby Harrell said the agenda will have to move through the legislature in batches that will take years. He thinks it is only fair to move slowly enough to give businesses and consumers plenty of time to hash out those changes. “Rushing it through the House would not be the right thing to do,” the Charleston Republican insurance executive said.

Haley also wants individual income taxes streamlined into three tax brackets from the current six in a move that would lower taxes for about 80 percent of the state's taxpayers and leave payments about the same for everyone else.

House Minority Leader Harry Ott said the tax reductions need to start with small businesses, not the corporate rate. And, the Democratic St. Matthews farmer said, if income tax brackets are to be eliminated, legislators need to get rid of the lowest tax bracket first. That would help everyone. He doesn't buy the idea that benefits from giving breaks to high-income taxpayers will ultimately reach lower-wage workers. “I've had about all the trickle down I can afford,” Ott said.

After covering shortfalls expected in a property tax break, nearly $184 million for Medicaid program expenses and other items, legislators may have more than $393 million left for the tax breaks and other issues.

Republicans see the extra cash as an issue that will bring calls to spend more on programs that lost money during the recession – from schools to social service programs. Senate President Pro Tem Glenn McConnell of Charleston and Senate Majority Leader Harvey Peeler of Gaffney said spending caps are needed to end boom-to-bust spending that leads to program cuts in lean times. Meanwhile, Harrell said the state should add more to the state budget reserve accounts as a buffer for a downturn.

Democrats see a sideshow in the talk about fiscal discipline.

Ott noted Republicans have controlled the boom-and-bust budgets since taking charge of the legislature in 2000. “You control the House, you control the Senate and you've got the Governor's Mansion – just control spending,” Ott said. “You don't need a bill to tell you to quit spending money. You just need some self-control.”

Ott said the pension problem was created by the GOP by not putting the money or changes needed in place to keep the system sound.

“They had the fiduciary responsibility to make sure this retirement system was sound,” Ott said. He wants the system run by an independent panel free of the political influence. But the pension system can't be fixed solely by workers who haven't had raises in three years.

And some legislators are saying they need to be included in the pension reform, including ending the practice of allowing them to draw legislative and retirement pay at the same time.

There are other issues tied up in courts that can keep the legislature busy, too.

The legislature is defending new laws in federal courts: One requires government-issued photo identification to vote; a second requires police check the immigration status of people they stop for traffic tickets. The state Supreme Court is deciding whether nearly $3 billion in special sales tax exemptions are allowed under the constitution.

Harrell said a decision tossing out the exemptions would force legislators to ask voters to pass a constitutional amendment allowing the tax breaks.