Maj. Gen. Lawrence Wells was stationed three times at Shaw Air Force Base in Sumter during his 35 years in the military, twice as a fighter pilot and most recently as commander of Ninth Air Force.
When it came time to retire last year, he and his wife, Kathy, had to weigh two things: Stay in South Carolina with their extensive community connections and well-established base of friends; or, move to North Carolina to be nearer their three grown children.
They listed the pros and cons. The two states came out even – except for one thing. South Carolina was going to tax his $120,000 a year military retirement pay – $8,400 annually. North Carolina wasn’t.
“That was the deciding factor,” he said from his home in Fuquay-Varina, a suburb of Raleigh. “But it wasn’t really the money. It was the principle. My view was, after 35 years of service, multiple moves and lots of combat time, it would be nice to keep all my retirement pay. One state recognized that. The other didn’t.”
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Wells is not alone.
Despite its beaches, mountains, low cost of living, military-friendly communities and warm climate, South Carolina has dropped from eighth to ninth in states with the most military retirees. It was overtaken by Alabama, which hasn’t taxed military retirement since 1989.
And the state could drop farther.
With the military sharply downsizing after 13 years of war in Iraq and Afghanistan, a flood of new retirees will start their search for a place to live over the next two years. Southeastern neighbors North Carolina, Georgia, Alabama and Florida all offer better deals when it come to the retirees’ bottom line.
“We’ve lost our last three (retiring) wing commanders” at the 20th Fighter Wing based at Shaw, said Stephen Creech, a former Sumter mayor who now serves on the S.C. Military Base Task Force, which was appointed by Gov. Nikki Haley to protect and expand missions at the state’s six major military installations. “They just pulled out a map and said ‘OK, which state won’t tax us.’”
To counter that, the S.C. Legislature is now considering House Bill 3112 - which would exempt military retirement from state income tax. It unanimously passed the House in the past session, but arrived too late to the Senate to come up for a vote.
It also carries a heavy price tag: The tax generates $22 million a year in revenue, according to the S.C. Board of Economic Advisors.
But advocates for the bill say those dollars and more can be recaptured as the state grows its retiree base. The revenue would be made up by additional sales taxes paid by the retirees and income taxes paid by merchants and service providers who profit from them. The retirees themselves would pay income tax if they take a second job, which many do.
“We spend a lot more in North Carolina than it would receive if they taxed us,” Wells said. “A lot more.”
Vets migrate to military towns
There are presently 57,775 military retirees in the Palmetto State, according to the U.S. Department of Defense. Retirees are different from other veterans because they served at least 20 years in the military and draw a pension.
Most of those retirees are clustered around the state’s four military communities – Columbia, Sumter, Charleston and Beaufort. There are also high concentrations of retirees in Aiken County, because of its proximity to Fort Gordon in Augusta, as well as Horry, Georgetown, York, Greenville and Spartanburg counties, according to a study by the S.C. Department of Commerce.
Of the 57,775 retirees, about half live in Columbia, Sumter, Charleston and Beaufort, the study showed. They migrate to military towns to take advantage of benefits like shopping in tax exempt commissaries and base exchange stores, having access to veteran’s services and being able to associate with other military people and institutions.
Those veterans near bases pump more than $442 million a year into the economies of those four communities, the study showed. But when the numbers are expanded to include all of the retirees in the state, the annual economic impact to South Carolina is more than $1.1 billion.
And that figure likely is low, according to the study.
A person who joins the service at age 18 can retire when he or she is 38. The vast majority of those retirees – still far from Social Security - choose to have a second career.
“Hence DOD pension payments might only represent a proportion of the linked retiree’s entire income that is spent on goods and services,” the study said.
Why the colonel stayed here
One of those retirees is Col. Bryan Hilferty.
A Boston native, Hilferty retired from U.S. Army Central at Shaw in August. He had served as its director of communications, and previously served as director of communications for the U.S. Military Academy at West Point, the U.S. Army Human Resources Command at the Pentagon and U.S. Army Europe.
At 52, Hilferty chose to stay in Sumter with his family and is presently looking for work. Why stay here?
“I’m sitting by my pool right now,” he said Wednesday. “I’ve been stationed in Alaska and the northern border of New York and we like it better here.”
For Hilferty, the choice wasn’t about the $5,600 a year in state taxes he will have to pay on his $80,000 a year colonel’s pension.
“Why should you have to pay taxes and not me?” he said. “I think sometimes people in the military have a sense of entitlement. We joined to serve.”
“But I’m a colonel,” he added. “For a sergeant at $30,000, that money is more important.”
Hilferty said the family voted to stay in South Carolina because they like the people in Sumter. The cost of living is low. And they like the short drives to the beach and the mountains.
But most importantly, his three children are all in high school at Wilson Hall and love it.
“We’ve moved them around every couple of years since they were born,” he said. “That was one of the primary motivations to stay put.”
Hilferty said that many of his comrades have chosen to move to Virginia because of the number of jobs open to ex-military in Washington, D.C. (Because of that, Virginia does not exempt state taxes.) And he had a “really good” job interview in New York.
“But we don’t want to live in Virginia or New York,” he said. “The cost of living is a big part of that. But it’s the whole package.”
S.C. strives to keep vets’ skills in state
Keeping Hilferty’s and other retiree’s skills in the state is another reason to become more attractive to veterans, said William Bethea, the Beaufort County attorney who chairs the S.C. Military Base Task force.
“It’s not just a money issue,” he said. “It’s a workforce issue. They have skills that they have developed over 20 to 30 years. And we need those kind of people to attract industry.”
One of the biggest factors that an industry like Boeing or BMW considers when they are choosing to build a plant – aside from free land, tax incentives, no unions and low regulation – is a trained workforce. For Boeing and BMW, the state’s wealth of military trained vehicle and aircraft mechanics boosted the state’s chances.
With South Carolina being a small state – less than 5 million people – building a skilled labor pool should be a priority, Gov. Nikki Haley said. While the governor said she supports tax relief for veterans and retirees, she did not throw her support behind a specific bill.
“As a military wife and someone who believes we should lower income taxes for all South Carolinians, Governor Haley would certainly support efforts that work to reduce the tax burden on our veterans, including eliminating income taxes on retirement pay. These veterans and their families sacrifice for our freedoms and our quality of life, we owe it to them to do the same,” her spokesman Doug Mayer said in a statement.
Other states already are taking action to make themselves attractive to military retirees.
For instance, Iowa – a state of 3 million people – eliminated its state income tax on military retirement pay this year.
With the military drawdown looming, the adjutant general of the Iowa National Guard went to Gov. Terry Branstad and urged him to “get ahead of the curve,” according to an article in the November issue of Military Officer Magazine.
The state formed the Home Base Iowa initiative, which, among other actions, eliminated state taxes on retirement pay.
“Each state has to make their own choices,” Bill Finch, a former naval commander and financial planner for the Military Officers Association of America told The State. “Having a larger skilled and dedicated labor workforce (in South Carolina) would offset the loss of revenue from the retirement exemption.”
‘The right thing to do’
In addition to the end of the wars and an expected wave of retirees, the military also is facing BRAC, which stands for base relocation and closing, a process used by Congress and the Pentagon to realign or eliminate missions, personnel and real estate to cut the budget and become more efficient.
With the military set to cut more than $500 billion over the next 10 years due to the Budget Control Act of 2011, commonly called the sequester, a new round of BRAC is expected in 2017. That could be a watershed moment for South Carolina, considering the military pumps $15.7 billion into the state’s economy each year, according to Commerce.
One factor the military will consider when realigning its assets will be the support a community or a state offers military members – called quality of life. The tax exemption is one of a number of state initiatives that will build a state’s quality of life score when cuts are being considered.
South Carolina already has passed six key initiatives pushed by the Department of Defense - from allowing veteran’s courts to lower property tax assessments for deployed military personnel. But enacting the tax exemption and passing other initiatives, such as allowing in-state tuition for veterans without a one-year waiting period, would help build the state’s case, advocates said.
“As BRAC discussions continue, you would be well served to address that,” the military officers association’s Finch said.
Those two pieces of legislation – the exemption and tuition bills – will be the task force’s “top priority” when the Legislature convenes in January, Bethea said.
The task force plans to offer to lawmakers a “dynamic analysis” that would show the benefits – from fiscal offsets, to workforce development, to BRAC, to patriotism – that would offset the $22 million cost.
And lobbying will start early, he said.
“What we want to do is be able to show that this is not just a negative issue” from a revenue standpoint, he said. “We have to paint a fair picture of the economic result.”
But from Maj. Gen. Wells perspective, there are things that are more important than money.
“It’s something I have worked at throughout my career, to make communities more supportive of the military,” he said. “They are people who have put their lives on the line. It’s the right thing to do.”