Gov. Nikki Haley wants to start phasing in a 10 cent-a-gallon gas-tax increase and a huge cut to the state’s income tax.
Haley’s proposal for the state budget, unveiled Friday, outlines her priorities for the state’s fiscal year that starts July 1 — a year when the state will have more than $1 billion in added revenues. S.C. lawmakers will begin writing the state budget next month.
The Republican governor wants to spend $345 million more on roads, including $231 million in one-time money and $49 million from her proposed gas tax increase, to be phased in over three years.
Haley’s road-spending proposal is just shy of the $400 million a year in added spending that she says is needed to maintain S.C. roads and bridges. However, it is only about a quarter of the $1.5 billion a year in added spending that the state Transportation Department has estimated it needs to repair, maintain and expand the state’s roads, bridges and mass transit systems.
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Haley’s budget proposal was met with skepticism by legislators.
Some said it did not do enough for roads. Others said her proposed income tax cut is wrongheaded.
“She can’t address a $40 billion shortfall (for roads) with $400 million,” said S.C. House Minority Leader Todd Rutherford, D-Richland, referring to the Transportation Department’s estimated shortfall through 2040. “It’s not even close. It’s not a drop in the bucket.”
Haley included $131 million in her budget proposal to phase in the first year of a 2 percentage-point cut in the state’s income tax rates.
Last year, Haley tied her acceptance of a gas-tax hike to cutting the state’s income tax by two percentage points over 10 years. That proposal would reduce the state’s highest tax rate, now 7 percent, to 5 percent.
Critics have said that, when fully phased in, Haley’s income tax cut would cut $1.8 billion a year from state revenues while her proposed gas-tax hike would add only about $350 million a year for roads repairs, forcing cuts to state services, including education.
Under Haley’s plan, the average taxpayer would get a $623 tax break. However, an estimated 1.1 million S.C. residents would get no tax break because they do not make enough to pay income taxes. But they would have to pay the higher gas taxes. Meanwhile, the wealthiest 379 S.C. taxpayers would see their income taxes cut by $145,784 each, according to 2015 estimates.
Rutherford said he has not had a single constituent ask for an income tax cut. Instead, Richland County residents want their roads fixed and for the state to do more for schools. Citizens understand they have to pay for those things and they’re ready to do so, he said.
However, Haley again vowed Friday “to veto anything that is a net tax increase.”
Haley’s tax-cut proposal will face legislative opposition, including from fellow Republicans.
“I don’t think tax cuts belong in a budget,” said S.C. House Ways and Means chairman Brian White, R-Anderson.
Instead, tax-cut proposals should be debated as free-standing legislation, White said. He added lawmakers must weigh the state’s unfunded liabilities when considering tax cuts, including the multi-billion-dollar deficit in state’s pension system.
State Rep. Gary Simrill, R-York, said it is time to put more money into infrastructure. The state needs to catch up on years of Great Recession-era budget cuts, when spending was slashed on buildings, law enforcement, education and infrastructure.
In her budget proposal, Haley makes education spending a top priority.
The governor suggests spending $300 million more on schools, including $165 million to increase to $2,300 a student the amount that schools get based on their enrollment. That is an increase of $80 per student. But it only would put a small dent in the added $684 million that state law says South Carolina should be spending on K-12 schools.
Haley also wants to spend $3.7 million to study the condition of the state’s school buildings. Earlier this week, Haley proposed the state borrow up to $200 million a year to renovate blighted school buildings or build new ones. However, that borrowing likely would not start until 2018, Haley’s last year in office.
Haley’s other spending proposals include:
▪ $165 million for flood recovery, including the state’s match for flood-relief money from the Federal Emergency Management Agency and $49 million to pay the state’s share of repair costs for roads and bridges damaged by the flood. Haley also proposes spending another $40 million for beach renourishment and roughly $700,000 for seven new employees at the state Department of Health and Environmental Control to regulate dams. In its initial budget request, the environmental agency asked for $595,000 for inspectors.
▪ $113 million to pay local governments the amount that state law says they should receive from the state. The state pays counties and municipalities for state services that the local governments provide. However, local governments have not received the full amount that state law says they should get from the state since the start of the Great Recession. Local governments have argued that being shortchanged by the state forces them to raise taxes.
▪ $96 million for the state’s retirement system to defer a 0.5 percent increase in pension costs that would be shared by state workers and their employers.
Richland County state senators proposed a 5 percent across-the-board pay increase for S.C. state employees earlier this week. However, Haley only included raises for school bus drivers and Corrections Department employees
“We’ll take the governor’s recommendations of how to spend the money, and we’ll take that into consideration,” White said, adding his committee has been interviewing state agencies about their budget requests.
$1 for the Confederate Flag display
Republican Gov. Nikki Haley put $1 in her budget proposal for the cost of displaying the Confederate flag at the S.C. Confederate Relic Room and Military Museum.
The place-holder move acknowledged there will be a cost to display the flag, Haley said. But, the governor added, she did not want to guess what that cost will be.
“Certainly, $5 million was a hefty price-tag,” Haley said of the original estimate of the cost to display the flag. Subsequently, that estimate was dropped to $3.6 million. “I think they will go lower, as they should,” Haley said.