Pardon Our Dust
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The South Carolina Legislature convened Jan. 10 for the first day of the 2017 session, and Gov. Nikki Haley (R) gave her final State of the State address on Jan. 11, as her confirmation hearing with the Senate Foreign Relations Committee was set for the following week. As Haley answered questions during her Jan. 18 confirmation hearing, the South Carolina Supreme Court ruled on the imminent lieutenant governor vacancy issue. The court made it clear that the constitutional change allowing gubernatorial candidates to pick their running mates will not go into effect until 2018.
Haley was successfully confirmed as U.N. ambassador on Jan. 24, marking the beginning of the official leadership transition in the state. Haley immediately resigned her position as governor, and Lt. Gov. Henry McMaster (R) was sworn in as governor that same day.
Senate Musical Chairs
After Haley’s confirmation, Sen. Hugh Leatherman (R-Florence) resigned from his post as senate president pro tempore to avoid a promotion to the office of lieutenant governor, and Sen. Harvey Peeler (R-Cherokee) announced his intention to seek the president pro tempore position after the lieutenant governor position was filled.
The first order of business in the Senate on Jan. 25 was to elect Sen. Kevin Bryant (R-Anderson) to fill the president pro tempore position after a bipartisan nominations process. Sen. Gerald Malloy (D-Darlington) seconded the nomination of Sen. Bryant, saying “goodbye to a voice this body will dearly miss.” Sen. Bryant spoke and after five minutes as president pro tempore, he was sworn in as lieutenant governor. Lt. Gov. Bryant left behind the chairmanship of the Senate General Committee, which Sen. Katrina Shealy (R-Lexington) will take over. She is the first Republican woman standing committee chairman in the history of the Senate. Sen. Greg Hembree (R-Horry) is the newest member of Senate Finance, taking Lt. Gov. Bryant’s vacant position.
Sen. Leatherman was re-elected as president pro tempore after a challenge from Sen. Peeler that was backed by Majority Leader Sen. Shane Massey (R-Edgefield). Senators supporting Sen. Peeler were concerned about what they felt to be an unjust consolidation of power in one member of the body. Ultimately, the support of all 18 Senate Democrats ensured Sen. Leatherman’s victory.
Tough Budget Decisions Looming
In the House, Rep. Brian White (R-Anderson), chairman of the House Ways and Means Committee, invited all members to attend the Ways and Means meeting on Jan. 25 for a report from the state’s Revenue and Fiscal Affairs Office, which provides independent research and analysis to the legislature.
Revenue and Fiscal Affairs staff gave their annual budget briefing, outlining the state’s expected growth and its implications for the FY18 budget. The main issue the state faces this year is the lack of nonrecurring funds produced from surpluses and the Attorney General’s Litigation Recovery Account. Although revenue growth for the general fund is on track for $300 million-$450 million, the FY18 funding requests greatly outpace the expected growth. This was not good news for legislators, who are looking to fund much-needed infrastructure repairs and the state’s unexpected costs for Hurricane Matthew, and to provide additional funding for education and the state’s ailing pension system.
Infrastructure Funding Plans Proposed
House Republicans introduced a plan to increase the state’s gas tax by 10 cents over five years. The current 16.75 cents-per-gallon tax is the second-lowest in the country, and the legislature’s failure to increase it in the wake of the state’s most catastrophic flooding event was criticized. The Department of Transportation estimated last summer that it needs an additional $943 million each year to make the state’s roads safer.
The bill, H. 3516, also increases biennial registration fees for non-truck private passenger vehicles, increases the vehicle sales tax cap, creates an infrastructure maintenance fee for first-time vehicle registrations, and creates additional biennial fees for vehicles powered by fuel other than gas.
Senate Republicans introduced similar legislation, S. 54, which increases the gas tax by 12 cents over three years, increases biennial registration fees, and creates the additional fees for hybrid and alternative fuel vehicles. The Senate bill also mandates income and business property tax cuts.
Tax Reform: New Statewide Business Licensing System, Two-Year Budget Cycle?
In their first meeting of the year, on Jan. 26, the House Tax Policy Review Committee heard from House Labor, Commerce, and Industry Committee staff regarding a new proposal to create a standard business licensing system for the state. The bill creates a centralized online system, with standard forms, licenses and rate classifications. The bill will not require licensees to file online; it simply provides an additional avenue to timely file across several jurisdictions. Municipalities will still have the ability to create their own fee rates and exemptions. Members were pleased with the effort “to create a more business-friendly” state.
Recognizing that property tax directly affects education, members suggested that work on property tax should be done with members on the Education and Public Works and the Ways and Means committees. The Tax Policy Review Committee agreed that the issue was too complex to work on in isolation. Several members also suggested that the committee should explore recommending a two-year budget cycle. Members pointed out that the current annual budget process places a lot of pressure on the Ways and Means Committee to make funding decisions before programs are proven or the effects of the previous year’s legislation are fully realized.
Education Improvements and Proposals
State Superintendent of Education Molly Spearman started the session with a request for $95 million to purchase new school buses for the state. Thirty-year-old buses are still in use across the state, which the Department of Education (DOE) says raises safety and reliability concerns, as well as unexpected maintenance costs. Spearman stated that she wished the high-dollar ask wasn’t necessary, but the updates have been overlooked for too long.
The Commission on Higher Education (CHE) requested over $1 million in recurring funds to hire additional staff after announcing that it allowed $534 million in college building projects to proceed without adequate vetting. CHE told the House Ways and Means Higher Education Subcommittee that if the new analyst positions are not funded, they will be able to provide only insufficient oversight. The legislature has lately been unsatisfied with the CHE’s work and deficient oversight of South Carolina’s public colleges and technical schools, and the CHE believes the additional positions will remedy their recent performance. The CHE also told legislators that if they didn’t provide adequate funding to fully carry out their statutorily required duties, legislators should re-examine and update the CHE’s job description.
The Education Oversight Committee approved the final report and recommendations on Jan. 17 for the merger of the state’s accountability systems with federal mandates. The recommendations seek to incorporate the Department of Education’s 2015 adoption of the Profile of the South Carolina Graduate into the state’s assessment and accountability systems. The recommendations include alternating year-end assessments for science and social studies from 4th grade through the end of middle school. Currently, the state tests both in addition to math and reading each year throughout those grades. State Superintendent of Education Molly Spearman and the legislators on the committee supported the reduced assessment recommendation, stating that they hear the most from the state’s teachers about the amount of testing required by the state.
Pension Reform Efforts Underway
The Joint Committee on Pension Systems Review met early on Jan. 10 to discuss broad goals and policy proposals to incorporate into a draft bill. The committee appeared to prioritize the following issues as their top goals for the legislation: paying off the fund’s debt, reducing the assumed rate of return and reducing the amortization period. They also discussed contribution increases and caps for both employers and employees, decoupling employer and employee contribution rate increases to allow increases of different amounts where appropriate, and changing the governance of the fund.
Currently, the pension fund’s unfunded liability is estimated at $20 billion, assuming the standard 7.5 percent return on the pension fund’s investments. However, according to multiple testimonies, 7.5 percent is no longer a realistic market value of return, so the debt is likely greater.
Medical Marijuana for SC?
After the effort failed to gain traction in 2016, legislators from opposing parties are coming together in 2017 to advocate for the legalization of medical marijuana. Sen. Tom Davis (R-Beaufort), the lead sponsor of the S.C. Compassionate Care Act, feels the bill filed on Jan. 10 provides adequate measures to prevent doctor-approved medicinal cannabis from expanding illegal recreational marijuana activity in the state.
The legislation (S. 212) allows patients with qualifying medical conditions, termed “debilitating medical conditions,” and a doctor’s recommendation to obtain registration cards issued by the Department of Health and Environmental Control (DHEC) to use medicinal cannabis. The legislation also allows parents and guardians of qualified patients to register with DHEC to assist the patient with medicinal use. Rep. Peter McCoy (R-Charleston), whose daughter suffers from a rare disease that could be treated with medical cannabis, filed the House companion bill (H. 3521) on Jan. 18.
Dams Safety Efforts Move Forward
The House Agriculture, Natural Resources and Environmental Affairs Committee voted to forward two bills that address lingering issues with privately owned dams affected by October 2015’s historic flooding. The bills require dam owners to annually inspect the dams and submit their findings to the Department of Health and Environmental Control (DHEC), and requires high-hazard dam owners to provide emergency plans to DHEC outlining their response in the event of a breach. The proposals also allow the Department of Transportation to repair dams under roads if a dam owner abandons the structure.
Please contact any member of the McGuireWoods Consulting team if you would like more detailed information about the above issues or any other policy issues in South Carolina.
Governor Jim Hodges, Senior Advisor
William D. Boan, Senior Vice President
Robert Adams, Senior Vice President
Amber S. Barnes, Vice President
Brian P. Flynn, Vice President
Kayleigh E. Hall, Assistant Vice President
Robin T. Crawford, Research Assistant