Senate Moving Ahead with Fee, Tax Hikes

● Numerous and complicated tax and fee hikes.
● Constitutional issue addressed – briefly.
● Bill to come up in full Senate next week.

The Senate Finance Committee had a productive meeting on Wednesday, passing out a road funding bill to the full Senate. This may be good news for the committee, but it’s terrible news for taxpayers.

The committee’s meeting focused on a package of proposals prepared last week by a special transportation subcommittee. The committee opted to strike the existing text of a road bill (S.523) by Sen. Cleary (R-Georgetown) and replace it with the proposals suggested by the transportation subcommittee. Once these proposals were inserted, the committee members proceeded to offer further amendments on the transportation subcommittee package (which was now the bill).

When all was said and done, the committee passed – by a 16-7 vote – a bill that was largely the same as the transportation subcommittee proposals approved last week. The current provisions of S.523 include:

  • A 12 cent gas tax increase phased in over three years, followed by annual increases in the gas tax to account for inflation (the inflation increases would be limited to no more than a 2 cent increase in the tax per year). The inflation increase would not be imposed if it would create a South Carolina state gas tax that is higher than the highest gas tax (combining state and local taxes) in either North Carolina or Georgia.
  • An increase in driver’s license issuance fees from $12.50 to $25 for a five-year license, and from $25 to $50 for a ten-year license.
  • A $16 increase in all biennial vehicle registration fees.
  • A new $60 biennial road use fee on hybrid vehicles, and a new $120 biennial road use fee on electric vehicles.
  • An increase of the cap on motor vehicle sales tax from $300 to $600. Twenty percent of the first 300 dollars in sales tax on any motor vehicle would be dedicated to the Education Improvement Act fund. 15 percent of the remaining revenue would be dedicated to the State Non-Federal Aid Highway Fund. The remainder of the revenue would be dedicated to the State Highway Fund. Of the revenues dedicated to the State Highway Fund, the Department of Transportation (DOT) would in turn transfer 50 percent of these revenues to the State Transportation Infrastructure Bank (STIB). The STIB could use the monies it receives from DOT for any project on which it can legally spend Act 98
  • Any new revenues generated by the bill cannot be used to hire new state employees.

One of the original subcommittee proposals was left out of the bill by the full committee. This proposal would have imposed a new road use fee on commercial motor vehicles weighing over 2,600 pounds, in place of property taxes. Several senators expressed concern over what would happen to the political subdivisions (such as cities and school districts) who rely on property taxes if this provision were to be included in the bill. As a result the provision was omitted from the committee version of the bill. Sen. Cleary indicated he may reintroduce the provision on the Senate floor.

On constitutionality

A number of crucial issues weren’t addressed at all in committee. The first and perhaps most important of these is the fact that the bill is unconstitutional. The constitution states in plain language that all bills for raising revenue shall originate in the House. As a Senate bill explicitly designed to raise taxes and fees in order to raise revenue, S.523 clearly violates the constitution.

The only senator to even come close to addressing this point in committee was Cleary, the bill’s sponsor, who claimed that somehow the constitution wasn’t violated if the Senate was only raising fees. But Cleary went on to undermine his own argument on Thursday on the Senate floor when – challenged on the point by Sen. Larry Martin (R-Pickens) – he stated that any time the Senate changes fees it also raises or decreases revenue.

There are two problems with Cleary’s argument. The first was inadvertently pointed out by the senator himself; the constitution makes no distinction between taxes and fees – it only refers to revenue. Fees raise revenue just as taxes do.

Second, several of the charges the senator would like to refer to as fees are in fact taxes.

The South Carolina code defines a service or user fee as “a charge required to be paid in return for a particular government service or program made available to the payer that benefits the payer in some manner different from the members of the general public not paying the fee. ‘Service or user fee’ also includes ‘uniform service charges.’” Gasoline is a privately sold product, not a government service. Any governmental charge on gasoline’s purchase is a tax, not a fee. The same is true for motor vehicles. Personal motor vehicles are purchased from a private business, not the government. Any governmental excise charge on the sale or purchase of a motor vehicle is a tax, not a fee.

On revenue needs

Only one senator on the committee brought up the point that not everyone agrees the state needs more money in order to fix roads. Senator Verdin (R-Laurens) made this point in passing, but the committee quickly moved on afterwards. For the rest of the meeting, before and after Verdin’s remark, the committee operated on the premise that more money was the only way to fix South Carolina’s roads.

SCPC has repeatedly emphasized that the state does not need any more revenue to address the decrepit state of South Carolina’s roads. And even if more money was needed, legislators have access to hundreds of millions of dollars (arguably even more than that) currently being spent on non-core and unnecessary programs in the state’s bloated budget.

SCPC has laid out five non-revenue related reforms that are vital to improving South Carolina roads. Any discussion of increasing state revenues prior to making these reforms is putting the cart ahead of the horse, and throwing good money after bad. Naturally, the committee did not see fit to discuss any of these reforms.

On maintenance priorities

Most South Carolina road funds are currently prioritized for new construction over maintenance and repair. This prioritization results from the funding decisions of the STIB (which never funds road maintenance) and a federal road funding match that favors new construction over maintenance.

The structure of the STIB and the DOT commission also ensures that certain counties receive more road funding than is proportionately warranted, while others are neglected.

In an attempt to remedy this problem, Sen. Sheheen (D-Kershaw) introduced an amendment that would have required 15 percent of revenues generated from all the bill’s tax and fee increases to be dedicated to the State Non-federal Aid Highway Fund. Unlike the State Highway Fund, the State Non-Federal Aid Highway Fund can only be used on secondary roads. Secondary roads make up around half of South Carolina’s 41,459 state road miles. But because secondary roads are more often in rural areas and are not eligible to receive a federal match, they are neglected by DOT. Sen. Grooms pointed out in the meeting that only 10 percent of secondary roads were rated in good condition.

Sheheen’s amendment was an attempt to force DOT to maintain the roads it currently neglects because – to put it plainly – the Commission would rather chase federal dollars. It was therefore unsurprising when a DOT representative at the meeting, while not explicit, implied DOT would be uncomfortable with the amendment. Surprisingly, though, the amendment passed: a tiny victory for road maintenance in an otherwise terrible bill.

In short, the Senate’s road funding bill, in addition to being unconstitutional, attempts to repair South Carolina’s road problem by taking more money from a comparatively low-income citizenry and throwing it at a broken system.

Expect the bill to be debated on the Senate floor on Tuesday the 31st.

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