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Money issues will dominate S.C. Legislature's 2012 session

When state lawmakers return to Columbia on Tuesday, they will have to decide how to spend an extra $900 million, how much in retirement benefits to take from state workers and retirees and exactly how much power to give Gov. Nikki Haley.

And they will have to do it all during what is sure to be a cramped session, bookended by two elections: the Republican presidential primary Jan. 21 and the state primary on June 12.

"The 2012 session (will) be the Atkins diet session," said Senate Majority Leader Harvey Peeler, R-Gaffney.

"If it's not red meat, we are not going to touch it."

One of the biggest pieces of red meat is how to spend state tax dollars.

In November, the Board of Economic Advisors added an extra $900 million to the state budget, citing better-than-expected tax collections as the state recovers from the recession.

State agencies have been cut $1.66 billion since 2008 because of the recession, and agency directors are hoping to use some of that "new" money to restore their budgets - including $3 million for vaccines for poor children, $3 million for "life-saving medications" for HIV and AIDS patients, and $3.2 million for 40 more state troopers.

"There is going to be a massive fight over what to do with those extra funds," said state Rep. Jim Merrill, R-Berkeley. "The cuts to government, that kind of made it easy. You had to cut, you had to prioritize. It's when you have money and you have to prioritize that we get ourselves into trouble."

Senate President Pro Tempore Glenn McConnell, R-Charleston, last week warned state agencies not to expect more money.

"We start getting into a caught-up mentality with the budget, and the budget is going to blow up like a balloon on an air hose," McConnell told reporters last week during a preview of the upcoming legislative session. "You hold back, in good times, money to pay in lean times. And I'm hopeful that we will not go down the slippery slope of blowing that budget up simply because there is a bag full of money."

While lawmakers have a lot of money, they also have a huge deficit - $13 billion - in the state employees' retirement system.

A proposal moving through the House of Representatives would require employees to pay more into that retirement system for their pensions and potentially get less after they retire. The State Employees Association has agreed employees should pay more into the system but only if they get a raise from some of the state's "new" money.

Les Boles, director of the Office of State Budget, said a 1 percent raise for state workers would cost the state - and taxpayers - about $14 million. But lawmakers from both parties seem willing to give a raise to state workers, whose numbers have been cut while enduring pay freezes and furloughs.

"I would absolutely like to see us give the state employees a raise," said House Speaker Bobby Harrell, R-Charleston, echoing comments from McConnell and Democratic Reps. Harry Ott of Calhoun County and Gilda Cobb-Hunter of Orangeburg. "We don't need to talk about adding back employees that the agencies would want to add back. But we don't need to be penalizing state employees, either."

Before lawmakers discuss any of those issues, they will first debate a bill that would create a Department of Administration, consolidating much of the administrative functions of state government into a cabinet-level agency that reports to the governor. The House passed the bill last year, but it got hung up in the Senate.

State Sen. Larry Martin, R-Pickens, said the bill will be first item up on the Senate calendar.

Most lawmakers agree the bill should pass, but there could be a fight over what to do with the state Budget and Control Board, a five-member board that oversees most of the functions of state government. Some want to eliminate it; others want to keep a watered-down version of it around to dilute some of the governor's power.

A look at the session's key issues:

RETIREMENT SYSTEM

The issue

South Carolina's retirement system pays out more benefits than it receives in contributions. In 1999, this meant the fund had a $178 million deficit. Today, the deficit is more than $13 billion.

What's driving it?

Money, of course. Taxpayers have had to supplement the shortfall. In 1996, taxpayers contributed $359 million to the S.C. Retirement System, which includes state employees, teachers and local government workers. In 2010, taxpayers contributed $818 million to that system. Taxpayers have had to increase their contributions to the system for six years in a row, taking money that could be used for other things.

The proposals

The S.C. State Employees Association wants state employees to pay 0.5 percent more of their salaries into the system, but only if lawmakers agree to give them at least a 2 percent raise. The State Retirees Association of South Carolina has proposed state workers and taxpayers pay 0.75 percent more and cost-of-living-raises be limited to retirees who are 55 and older.

Other ideas include:

Increasing public workers' contributions to 7.5 percent of their salaries instead of 6.5 percent - an average increase of $408 a year.

Once retired, basing an employee's pension check on five consecutive years of that worker's highest salary instead of three years, likely to result in a lower benefit.

Requiring employees to work for 30 years and until age 62 before they could receive full retirement benefits. Currently, retirees can retire after 28 years of service, regardless of age. (This change would not apply to police officers and firefighters, who can retire after 25 years of service.)

Eliminating automatic cost-of-living raises for retirees.

If the period used to calculate a worker's pension benefit includes a 40 percent raise, only giving him credit for 20 percent. This is to discourage end-of-employment wage "spiking" that artificially inflates an employee's pension benefits.

Allowing employees to use overtime pay to calculate their pension benefits. (An exception would be made for police officers and firefighters)

Key players

Lawmakers

Haley, a Republican, has said workers need to pay more and work longer before they can retire

Sen. Greg Ryberg, R-Aiken, co-chairman of the Senate retirement subcommittee

Sen. Thomas Alexander, R-Oconee, co-chairman of the Senate retirement subcommittee

Merrill, chairman of the House retirement subcommittee

Lobbyists

Carlton Washington, executive director, S.C. State Employee Association

Sam Griswold, past president and spokesman for the State Retiree Association of South Carolina

Roger Smith, executive director, S.C. Education Association

What's likely to happen?

The Legislature will act.

In the past two years, 40 states have passed some type of major retirement system reform. South Carolina has not. Any plan that passes likely will have state employees paying more and getting less once they retire.

But there are some unknowns:

Will lawmakers increase employee salaries to offset the pension contribution increase?

Will the changes affect all employees or just future hires?

STATE BUDGET

The issue

The good news: State lawmakers will have an extra $900 million to spend in next year's general fund budget, thanks to better-than-expected tax collections and some accounting changes.

The bad news: Lawmakers have to figure out how to spend it.

What's driving it?

South Carolina's general fund budget has been cut by $1.66 billion since 2008. State agencies have made dramatic cutbacks on services - and agency directors are clamoring to restore those services. But Haley repeatedly has said she does not want to grow the size of state government. Any extra money, she says, should be used to pay down state debt or returned to the taxpayers.

What are the proposals?

The first step is for Haley to release her executive budget - her first as governor. That is expected this week. That proposal sets the tone for the budget debate. But state agencies already have submitted their budget requests.

Some highlights:

$36 million for new school buses at the Department of Education

$3.2 million for 40 new state troopers at the Department of Public Safety

$3 million for vaccines for uninsured children, as requested by the state Department of Health and Environmental Control

Who are the key players?

Haley, in her second legislative session but her first time presenting an executive budget.

Sen. Hugh Leatherman, R-Florence. Chairman of the Senate Finance Committee, Leatherman sets the budget agenda in the Senate.

Rep. Brian White, R-Anderson. The first-year chairman of the House Ways and Means Committee is responsible for setting the budget agenda in the House.

What's likely to happen?

As they showed during Haley's first year in office, the Legislature is not afraid to override her budget vetoes. So Haley is likely to lose the spending battle, and state agencies should see an increase in their budgets.

The wild card is the state retirement system. It's $13 billion deficit could nudge lawmakers to be more frugal.

HIGHER EDUCATION

The issue

Public colleges and universities are funded partially through a complicated state formula that few understand.

Schools also lobby the General Assembly for money or legislative clearance for special projects. Haley has said the success of those efforts is uneven and based, too often, on old allegiances and alma mater pride. She wants a simplified funding process that takes the mystery out of which school gets what and why.

What's driving it?

There is a strong sentiment among political conservatives - the Republicans who control the Governor's Mansion, House and Senate - that S.C. public colleges and universities are inefficient and the state's process of funding higher education is a grab bag.

What is the proposal?

Haley wants a new system that would fund schools based on whether they hit targets, relating to student graduation rates, economic development and job training.

Who are the players?

Haley, who has taken a personal interest in the issue and met with college presidents

University of South Carolina president Harris Pastides, Clemson University president James Barker and College of Charleston president P. George Benson. The presidents of the state's largest, public four-year schools already have given some of their thoughts on the creation of a new higher education funding system. They want to make sure that the targets are achievable and that hitting them actually will result in more state money.

Midlands Technical College president Sonny White, who, along with officials from other two-year schools, will press to ensure any funding system takes into account the different goals and different capabilities that two-year schools have when compared to their four-year brethren. They also will press for recognition that many students transfer from two-year schools into four-year schools before earning a degree, which impacts the graduation rates of two-year schools.

What's likely to happen?

Haley and college officials have met multiple times and, last year, seemed on the verge of creating a new system. But those efforts stalled.

If four-year schools are confident the funding targets are reasonable and that hitting them will bring more state money and if two-year schools get some recognition of the different nature of their mission and the different needs of their students, they are likely to strike a deal with the governor.

TAX REFORM

The issue

South Carolina depends mostly on three sources of revenue: individual income taxes, corporate income taxes and sales taxes.

The thorn under the state's saddle is those sales taxes.

South Carolinians make nearly $5 billion in purchases every year that could be taxed. But the state only collects $2.2 billion in sales taxes because of a host of exemptions written into state law. There are so many exemptions - 73 - that the state exempts more money, $2.8 billion, than it collects.

Critics say this is unfair.

Beyond that altruistic argument, if the state would eliminate sales tax exemptions, it significantly could lower, or get rid of, state income taxes.

What's driving it?

A former newspaper reporter turned attorney has asked the state Supreme Court to throw out the state's sales tax exemptions. This has the attention of Republican lawmakers, who would view the move, not as a $2.8 billion windfall for the state's recession-depleted coffers, but as a $2.8 billion tax increase on an already depressed economy.

What are the proposals?

Haley and lawmakers agree the state's tax code needs to be changed. Legislators just don't want the Supreme Court telling them what to do. Of course, they have been saying that for years and done nothing, so the court's gun at their heads may spur action.

House Republicans met all summer, taking testimony from interested groups on how best to reform the tax code. They have not released a report.

Meanwhile, a Senate subcommittee has endorsed a slate of bills that would:

Limit how much money the state can spend each year;

Take away the Budget and Control Board's authority to allow state agencies to run deficits;

Create a commission on "streamlining government and the reduction of waste;" and

Establish trust funds that only can be used for specific purposes - unless two-thirds of lawmakers vote to change the rules.

Who are the key players?

McConnell, who says the time is right to try again to resolve the tax-reform issue.

Harrell, who, as speaker of the House, controls the lower chamber's business.

Sen. John Land, D-Clarendon, the Democratic leader in the Senate

Ott, the Democratic leader in the House

What's likely to happen?

Major tax reform is difficult anytime. But this session will be particularly difficult, with Haley pushing for a major restructuring of state government plus the retirement system changes. As a result, the outlook is murky.

DEPARTMENT OF ADMINISTRATION

The issue

Known as "the five-headed monster" by critics, the state Budget and Control Board is a unique feature to S.C. government. Its five board members - three statewide officers and two legislators - oversee a patchwork of state functions, ranging from human resources to information technology.

Critics have long said the board is inefficient and unnecessary. Haley, a member of the board, wants to move many of the board's functions under a new state agency to be called the Department of Administration that would report directly to her.

What's driving it?

Some call it a power grab. Others call it letting the governor actually govern. Either way, the establishment of a new Department of Administration would create a direct line of accountability from the governor to various parts of state government.

What are the proposals?

Lawmakers are expected this session to decide whether to:

Create the new department and eliminate the Budget and Control Board;

Create the new department and leave the Budget and Control Board intact - but with less power; or

Do nothing and leave the Budget and Control Board as is.

Who are the key players?

Lawmakers and the five members of the board: Haley, state Treasurer Curtis Loftis, House Ways and Means Chairman White and Senate Finance Committee Chairman Leatherman.

What's likely to happen?

A Department of Administration likely will be approved by the General Assembly.

Lawmakers on both sides of the aisle agree it needs to be done. But they'll likely leave a pared-down Budget and Control Board intact as well - denying some power to Haley and future governors. South Carolina has a long-standing distrust of concentrating power under its governors.

JOBS TRAINING

The issue

Haley has said the state needs a new approach to retraining its unemployed workers to do 21st century jobs. She plans to roll out a new jobs-training program during the new legislative session.

What's driving it?

The state's unemployment rate continues to far surpass the national average and the struggling economy is a top issue for the state's voters. Haley, who has made bringing jobs to the state a top priority, says it does no good to bring new jobs to South Carolina if the workforce is not trained to do them.

What are the proposals?

Haley has not released details of her plan but has said she is in talks with Georgia Gov. Sonny Perdue about how his state's "Georgia Works" program operates.

The Georgia program allows businesses to "hire" the unemployed for a limited period of time for free. The jobless continue to collect unemployment benefits while they are learning new job skills with their host companies. At the end of that training period, they, hopefully, get a crack at landing permanent jobs.

Haley has said her program would not be a replica of the Georgia program but could include some of the same elements.

Who are the key players?

Haley likely will use her Cabinet agencies to run the program but also may need approval from the General Assembly.

What's likely to happen?

All elected officials are acutely aware of the state's economic problems and are desperate to fix them.

A retraining program will be implemented.

SCHOOL FUNDING, BUS PRIVATIZATION

The issue

Financial support for the state's public schools varies widely from one part of the state to the other. While state funding is distributed based on a formula, local funding varies, depending on the wealth of the local tax base. Lawmakers will work this session to find a way to distribute money in a more equitable manner.

Also, the state's school bus fleet is the oldest in the nation. Cash strapped, the state Department of Education buys old school buses from other states for its fleet. Haley has proposed privatizing the bus system, saying such a move would not cost the state more money and would secure new school buses. The big question? Whether the idea actually just would shift bus costs to school districts - and local taxpayers - from the state.

What's driving it?

South Carolina has long been plagued by high poverty rates. The poorest parts of the state often have the lowest-performing schools.

Also, the state's bus system is limping along. Last fiscal year, the state spent more than $112 million to operate the school bus system, according to state data. School districts collectively pitched in an additional $138 million. And still, the average S.C. bus odometer reads 195,000 miles. Dozens of buses top 500,000 miles.

What are the proposals?

Leaders in the House and Senate have proposed plans to make state dollars follow individual students - no matter where in the state the students lives. One House proposal would add more state money for students who are poor or are learning English but reduce money for other students. There is disagreement on how much money the proposal would cost the state.

Haley has not released her plan on privatizing the bus system. Several companies submitted suggestions this summer on how they would go about privatizing the system. One proposal is to split the state's school districts into geographic groups. Each group of schools would choose a private transportation company that would buy the state's old buses and buy or lease the 45 state-run garage shops that maintain and repair those buses. The private companies would sell the old buses, buy new ones and take over bus operations.

A problem? There likely would not be a profit motive for private transportation companies to serve poor parts of the state. Thus, the state would have to continue operating their bus systems.

Who are the key players?

Majorities in both the House and Senate would have to sign off on changing the state's school funding formula. Sen. Wes Hayes, R-York, is likely to take the lead on the issue in the Senate.

Haley also likely would need legislative approval for her bus privatization plan.

What's likely to happen?

Lawmakers are unlikely to approve a new education funding formula that would cost more than the current system. Why? It's an election year, and the state is cash-strapped.

Look for a legislative fight over privatizing the bus system - especially if the plan would cost school districts more money. Critics say it invariably would.

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