2009 Mid-Session Legislative Review

April 7, 2009

As the first part of the 118th South Carolina General Assembly passes the halfway mark, top priorities of the South Carolina Chamber of Commerce are moving through the legislative process. They include proposals to examine South Carolina’s tax structure, consolidation of workforce development functions to ensure better job placement, an increase in the state cigarette tax to provide health insurance cost assistance to small businesses and low income workers, and restructuring the state’s port system.

With the current economic times, this year is different than legislative sessions of recent memory. South Carolina is faced with more than $1 billion in budget shortfalls, a reason for lawmakers to shorten the legislative session with furlough weeks. Because of the abbreviated session, the business community’s legislative priorities must move swiftly through the legislative process to ensure passage this year.

With a current state unemployment rate of 11.5 percent, the General Assembly has a real opportunity to set in motion initiatives to ensure a vibrant future for businesses and their employees. Considering the business community’s main legislative initiatives are reform minded and in a year with tremendous pressure on the budget, this is the time to pass much needed reforms. If the House and Senate do not prioritize and move forward on these measures quickly, 2009 could hold many missed opportunities.

Stimulus Battle Trickles Into Other Issues

As Governor Mark Sanford and the General Assembly spar over stimulus funds, how to spend them and even whether to accept them at all, the debate is trickling into other policy issues that are too important to allow politics to hold them hostage. After weeks of back and forth that included a newly written budget excluding stimulus dollars, a federal ruling stating governors must certify requests for federal dollars and protests at the State House, April 3 was the deadline for the governor to “reserve” federal stimulus dollars. Governor Sanford “reserved” the dollars, but he is still urging lawmakers to use the money to pay down state debt.

Tax Reform Lingering in House

Years of tweaking the current tax structure have resulted in a state tax system in need of significant and holistic reform examining every aspect - from sales taxes to property taxes to corporate income taxes. After the passage of Act 388 in 2006, which provided residential property tax relief, businesses were left holding the bag for much of the tax burden. Business leaders are fearful of more piecemeal tax policies after shouldering the burdens of Act 388.

The South Carolina Chamber has begun contacting local school districts inquiring about millage rate increases if K-12 budget cuts are not fully restored. The Chamber is asking districts to hold off on millage increases until a tax study commission can make recommendations. However, some school districts have responded that it is likely businesses will face significant millage increases going into the next fiscal year to fund education.

A recent Ernst & Young study finds South Carolina businesses now pay 43.3 percent of state and local taxes. Georgia businesses pay 41.4 percent, North Carolina businesses pay 36.2 percent, and Virginia businesses pay 36.7 percent. This is leaving South Carolina at a disadvantage compared to neighboring states. The Chamber supports no less than true, comprehensive reform examining the entire tax structure with one report back to the General Assembly.

The Senate passed tax reform legislation in late February. It now waits on the House floor for debate. Earlier this year, the House Republican Caucus voted to make comprehensive tax reform one of their top agenda items in 2009. The debate has been delayed until after the Easter break, giving House leadership time to find a compromise that will satisfy the business community: examination of all aspects of the tax structure at one time with one study back to the General Assembly.

In addition, the Chamber has continuously called for a state spending cap and budget stabilization fund. The current state fiscal crisis clearly demonstrates the need for such budget reforms to ensure state government does not grow beyond its means. Plus, when the state is faced with future downturns, a cap would make certain no needed programs and services are cut.

Politics Slowing Workforce Development Legislation

With South Carolina’s unemployment rate the second highest in the nation, and an unemployment trust fund that is insolvent and has paid nearly $500 million through the first quarter of the year, the time has clearly come to restructure parts of the South Carolina Department of Commerce and the Employment Security Commission into one cabinet level agency. This new Department of Workforce would ensure displaced workers are placed with available jobs and the trust fund is properly managed.

With some of the General Assembly opposed to ceding more power and control to the executive branch right now, the House was forced to delay consideration of the bill to consolidate some core workforce development functions. In the Senate, after weeks of sworn testimony from representatives of the Employment Security Commission, the Department of Commerce and the business community, companion legislation passed the Senate Labor, Commerce and Industry Committee. The legislation will be up for consideration on the Senate floor next week.

Consolidating key workforce development functions is a top initiative for the Chamber this legislative session. Supporters of the legislation ask the General Assembly to simply look at the policy to formulate their decision, free from politics. The business community wants strong reforms this session. With nearly $1 billion expected in federal unemployment loans by the end of 2009, South Carolina employers will likely be the ones left to pay the bill.

Cigarette Tax on the Move

The South Carolina House of Representatives has passed a 50-cent per pack cigarette tax that would provide 70 percent of cigarette tax revenues to small business tax credits and premium assistance for low income workers, 20 percent to the high risk pool and 10 percent to smoking cessation and agriculture marketing. Nearly 100 lawmakers voted for Speaker Bobby Harrell’s (Charleston) plan, a veto-proof margin.

Last year, the House and Senate were able to pass cigarette tax increases, but they were unable to override Governor Sanford’s veto of the legislation. Hopefully, Speaker Harrell’s 2009 proposal, which leverages Medicaid dollars and provides relief for small businesses that purchase health coverage for their employees, is enough of a compromise to bring Republicans and Democrats together to raise South Carolina’s lowest in the nation cigarette tax.

With little time left in the legislative session and the Senate currently working on the 2009-10 budget, it is important business leaders contact senators and encourage them to pass the state cigarette tax increase to fund small business tax credits. Without grassroots efforts over the final weeks of the session, the cigarette tax may once again fall short.

Port Restructuring Must Pass This Year

After the resignation of the South Carolina State Ports Authority (SCSPA) CEO in January, the Chamber met with many of the state’s port users and called for stabilization in the port governance structure.

Legislation that originated in the Senate, offered by Senator Larry Grooms (Berkeley), Senate President Pro Tempore Glenn McConnell (Charleston) and Senator Robert Ford (Charleston), stabilizes the SCSPA board of directors’ terms of service, allowing them to make sound business decisions for the port and state of South Carolina, free from political agendas. The legislation also calls for a long-term strategic plan, continued efforts towards port expansion and a study committee to examine public-private partnership opportunities for the port.

At one point, the Chamber was forced to oppose the legislation until an unnecessary advisory group, with heavy union influence, was removed. The Chamber now supports the Senate-passed legislation and asks that the House Judiciary Committee remove language passed in a House Judiciary subcommittee that allows the governor to remove board members for any reason. As the SCSPA continues the search for a world-class CEO, it is paramount the port restructuring legislation become law before June.