ANALYSIS: Senate Compromise on Road Funding

A COMPROMISE? SURE. A COMPILATION OF ALL
THIS YEAR’S BAD IDEAS? THAT TOO.

Last week, a majority of Senate Republicans produced a compromise on the subject of road funding. At this point, the legislation itself isn’t available to the public; we only have a press release. But if that release accurately reveals the plan’s details, the compromise is little better than a compilation of all the bad ideas put forward during this year’s debate over road funding.

The governor’s tax swap

The new proposal takes one of its most distinguishing features, a tax swap, from the “roads plan” suggested by Gov. Haley. Under the compromise proposal, as in Governor Haley’s plan, taxpayers would face a substantial increase in the gas tax in the near future and a promised income tax decrease phased in over a longer period of time. Also like the governor’s plan, the compromise proposal is based on a projected four percent growth in tax revenue by the BEA. Using the numbers associated with the governor’s plan, that growth was calculated on the assumption that the average taxable income would grow to $37,837 from $28,330, an increase of $9,607, or about 34 percent, over the 10-year period. The best that can be said for that assumption is that it’s unrealistically optimistic.

If the Senate Republican plan relies on the same BEA projections the governor’s plan relied on, the 1 percent income tax cut would be contingent on the average South Carolinian’s wages rising substantially.

The tax swap component of the compromise differs from Haley’s plan by proposing a larger gas tax increase (12 cents instead of a 10 cents), and a smaller income tax cut (a 1 percent decrease in tax brackets over five years instead of a 2 percent decrease over 10 years). Senate Republicans admitted in a press release that these changes meant the bill would generate $800 million in revenue, but provided only $709 million in net tax relief.

Finally, whatever their other differences or similarities, the tax swap components of each plan would make South Carolina’s tax code more regressive. One million South Carolina tax filers pay no state income tax. For these individuals – low income South Carolinians – both the Haley and compromise proposals would mean only a tax increase.

Senate Finance’s multiple fee and tax increases

The compromise borrows all of its revenue-raising measures from the Senate Finance Committee bill designed to raise revenue for the Department of Transportation (DOT). The new and increased taxes and fees in the compromise proposal include:

  • Increasing the gas tax by 12 cents over three years, and thereafter increasing the tax to account for inflation (the inflation adjustment is not to exceed two cents a year).
  • Doubling the vehicle sales tax by increasing the cap on the tax from $300 to $600.
  • Increasing driver’s license fees.
  • Increasing car registration fees.
  • Imposing new fees on hybrid and electric vehicles.
  • Putting a road use fee in place of property tax on property carrying motor vehicles weighing over 2,600 pounds. *This provision was in an earlier version of the legislation that became the Senate Finance Committee revenue bill, but it was omitted by the full committee.
House reform plan

The compromise takes its DOT “reform” provision from the gas tax bill passed by the House. This provision allows the governor to appoint the eight-member DOT commission (the body that sets DOT policy), who will in turn appoint the DOT Secretary. The legislatively controlled Joint Transportation Review Committee (JTRC), however, would still retain the power to screen and approve the DOT commissioners appointed by the governor. Retaining JTRC approval would ensure continued legislative control over the DOT. More specifically, it ensures continued control by the current House Speaker and Senate President Pro Tem, who appoint six of the JTRC’s 10 members.

But the reason South Carolina’s road system requires reform at all is that it’s dominated by lawmakers who can’t be held accountable by the vast majority of the state’s citizens. There is no reason to believe that, if House reform were to pass, the legislative leaders who control the JTRC would suddenly take a deferential or hands-off approach to the governor’s appointments. To put it bluntly: the JTRC is a major means by which legislative leaders maintain control over the state’s road system; it should be eliminated completely.

Indeed, true reform means reducing legislative control over the DOT, abolishing the DOT Commission, and allowing DOT policy to be set by a secretary appointed by the governor. That arrangement would force the department to foster a statewide mentality on road prioritization, and would provide a clear line of accountability from the secretary to the governor. Neither the House nor Senate compromise proposal achieves that aim.

Bottom line

The compromise proposed by Senate Republicans is nothing more than a reheating of bad policy. South Carolina roads don’t need a gas tax hike to function properly, and citizens don’t need a tax swap that merely reshuffles revenue and shifts more of the tax burden to the poor.

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