S.C. House takes middle lane on roads plan

An S.C. House committee combined an income-tax cut proposal Thursday with a plan to raise money to fix the state’s crumbling roads, giving South Carolina three road-repair plans. The House plan could emerge as the “just right” porridge as lawmakers try to stir up a road deal.

Another plan – Gov. Nikki Haley’s tax-swap proposal – is too hot, legislators say, adding the state can’t afford the income-tax cut that the Republican governor wants. The third plan – the Senate’s – is too cold, without enough support to survive a Haley veto.

That leaves the House proposal as possibly the middle ground.

The three proposals have been offered as solutions to the $1.5 billion-a-year shortfall in the money needed to maintain, repair and expand the state’s road, bridge and mass transit system, according to the state Transportation Department. Just to pay for maintenance and preservation of the state’s existing roads and bridges would require an extra $1billion a year.

The House plan, sponsored by state Rep. Gary Simrill, R-Rock Hill, would raise roughly $427million a year.

That plan would increase the state gas tax by the equivalent of 10 cents a gallon and the state’s maximum sales tax on vehicles to $500 from $300. After Thursday’s action by the House Ways and Means Committee, the House proposal now also includes an income-tax cut that would save the average taxpayer $48 a year.

That’s far less than the tax cut that Haley has said she wants in return for supporting a roads deal. But legislators and others say Haley’s proposed tax cut would wreck the state’s general fund budget.

Haley unveiled her proposal during her State of the State address in January. She proposed swapping a 10-cent-a-gallon increase to the gas tax, to be phased in over three years, for a 2 percentage point reduction to the state’s top-end 7percent income tax, to be phased in over 10 years. Her plan would raise an average of $353million a year during the next 10 years.

But critics say Haley’s proposed income-tax cut would reduce state revenues by $1.8billion a year, when fully implemented in 2025, forcing cuts in state spending on education, health care and law enforcement.

Haley has said the cuts would be offset by natural growth.

If Haley’s proposal passes, the state would need to develop a comprehensive, convincing plan to cut its spending – including for education and public safety, Loftis said.

Haley’s proposed tax cut also would affect the state’s ability to pay for other obligations, such as spending more on poor schools after a recent state Supreme Court decision, or responding to a natural disaster, Loftis warned.

Finally, the agencies that oversee South Carolina’s top-notch AAA credit rating would not like the tax cut, Loftis added. “It is likely that the rating agencies would view the reduction in the income tax and the resulting drawdown of general funds available for expenditure as a credit negative.”

Haley talked two weeks ago to two credit-rating agencies – Moody’s and Standard & Poor’s – about the impact of her proposed income-tax cut. If the state cuts taxes, the credit-rating agencies will want to see state spending “shift” as well, she said last week.

Protecting the state’s credit rating, which determines the cost of future borrowing, is incredibly important, Haley spokeswoman Chaney Adams said Thursday.

That, she added, “is why Governor Haley got on the phone with credit-ratings agencies just days ago, and in doing so, came to understand that there will be no issue in South Carolina giving more money back to the taxpayers as long as we control our spending at the same time.”

This story was originally published March 26, 2015 at 10:34 PM with the headline "S.C. House takes middle lane on roads plan."