Fixing Your Roads: The Gas Tax Fight
Efforts to raise the state’s gas tax to pay for road repairs suffered perhaps a fatal setback last week when South Carolina lawmakers found out they will have $1.2 billion in added money to spend next year.
Momentum to raise the tax had been building since early October, when more than 2 feet of rain drenched portions of the state, washing out and damaging 541 roads and bridges.
However, the $1.2 billion added to the state’s budget last week will fuel the arguments of conservative lawmakers who say the state’s surpluses and growing revenues can pay for road repairs without a tax increase.
Advocates of a higher gas tax say it’s not realistic to put all $1.2 billion toward the cost of road repairs. Other causes – flood damages, rural schools, the funding needs of state agencies cut during the Great Recession – will lay claim to some of that money, they say. And, they add, a one-time $1.2 billion windfall will not address the state’s long-term road needs – estimated to cost up to an added $1.5 billion a year for the next 30 years.
To get a long-term road repair solution, lawmakers will have to strike a deal on three issues – raising the state’s gas tax, cutting its income tax rates and reforming the state Transportation Department.
“It’s going to be difficult, but I don’t think it’s impossible,” said state Sen. Shane Massey, R-Edgefield. But to make a deal, a lot of lawmakers will have to move considerably in their positions on the three issues, he added.
Meanwhile, any deal may be delayed until after March 30, the deadline for challengers to file to run against sitting House and Senate members next fall.
How to spend $1.2 billion dollars?
When senators return to Columbia in January, a proposed gas tax hike will be waiting for them.
“There’s a plan still set for special order in the Senate, so we’ll take that up,” said Senate Majority Leader Harvey Peeler, R-Cherokee, adding, “I’m sure there will be tons of amendments to it.”
In an effort to block a vote, some senators could add up to 100 amendments to the proposal, said Senate President Pro Tempore Hugh Leatherman, R-Florence.
But, he added, the Senate needs to address the issue. “I want to work with our members to get a road funding package passed.”
That state needs a recurring source of revenue to repair and improve its highway system, said Leatherman. “I’m not interested in going to the general fund,” the state’s $7.7 billion operating budget.
But some conservative lawmakers – led by state Sen. Tom Davis, R-Beaufort – will want to do just that, using the added $1.2 billion on road repairs.
Last spring, Davis filibustered a gas tax hike during the last three weeks of the legislative session, arguing lawmakers should spend the state’s savings and surpluses on road repairs, not raise taxes. Davis’ filibuster blocked senators from debating the roads bill. Instead, lawmakers agreed to send $216.4 million in surplus money to counties for road repairs.
As floodwaters ravaged South Carolina last month, destroying roads and bridges, Davis said South Carolinians could see the need for more money for roads, hinting he could moderate his opposition to a gas tax hike. Now, however, after the floodwaters have receded, Davis wants to use the $1.2 billion added last week to the state’s budget for roads.
But other lawmakers say some of that added money will be needed to pay flood damages and increase the budgets of state agencies, cut during the Great Recession and never restored.
State Sen. Joel Lourie, D-Richland, said more money for K-12 education, the Department of Social Services, higher education and vulnerable seniors will need to come from the added $1.2 billion.
For example, there is a $500 million deficit between the amount that legislators now are funding K-12 schools and the amount state law says those schools should get.
“It would be irresponsible to think that we could fund our roads problem with economic growth,” Lourie said, adding roads projects need to be planned and paid for over years.
Republican Massey agreed. “It’s important that you have a dependable and dedicated funding stream going to roads and bridges.”
‘Strengthened push for income tax relief’
Lourie said the flooding that devastated parts of his Richland County district last month shows how important it is for the state to have solid infrastructure.
“Our roads and bridges were in poor shape to begin with and, now, many of them are even worse,” he said.
But Republican Gov. Nikki Haley said Friday that paying flooding costs should be separated as an issue from finding a long-term road funding solution.
“The dangerous thing that can happen in government is when you start to combine one issue with the other,” Haley said. “These are two separate issues and should be treated separately.”
Last year, critics ripped Haley for combining two issues – saying she would approve a gas tax increase if legislators passed a larger income tax cut. In her State of the State address in January, Haley proposed cutting the state’s top income tax rate to a 5 percent from 7 percent over a 10-year period.
Haley’s proposal went no where.
But now, said Republican Massey, the added $1.2 billion means “there will be a renewed and strengthened push for income tax relief” when senators debate how to raise money for roads.
After Haley’s plan collapsed, Massey and Republican state senators introduced a plan to raise $700 million a year for roads, largely by increasing the gas tax, and also cut income taxes by about $700 million.
Republican senators hoped to win over Haley with their tax-cut proposal – reducing the highest income tax rate by 1 percentage point to 6 percent.
The Republican senators’ plan was contingent on the state’s general fund revenues growing by 1 percent a year before either the gas tax increases or income tax cuts would kick in. “We really were trying to do this in a responsible manner so we’re not going to put the state in jeopardy of financial problems,” Massey said.
But Haley said Friday she is not willing to sign on to the Senate GOP plan. The Republican governor said she still wants a 2 percentage-point cut in the state’s income taxes, adding the $1.2 billion in added money means the state can afford it.
“I will stay at the 2 percent(age points) until they give me reason to go below that.”
‘Short-sighted regionalism and political horse trading’
The Transportation Department says it needs an additional $1.5 billion a year to repair, maintain and expand the state’s highways. If lawmakers fully funded that request from the general fund it would eat up all of the added $1.2 billion and then some.
Repairing, preserving and modernizing the existing roads system will cost an added $1 billion a year, the agency says. That’s do-able with the added $1.2 billion – for one year. Where the money would come from in year 2 is unknown.
Some argue far less than $1.5 billion a year is needed. They say if the structure of the Transportation Department – now governed by a legislatively controlled commission – is reformed, it would eliminate waste and political influence in how money is spent, saving money.
Haley advocated abolishing that commission in her January State of the State speech. Getting rid of the commission would make it “so the condition of South Carolina’s roads is no longer driven by short-sighted regionalism and political horse trading, and we stop wasting our tax money,” she said.
In their plans, Republicans, who control the House and Senate, propose giving the governor control of the Transportation Department, allowing the governor to appoint all Transportation Department commissioners, who then would select an executive to head the roads agency.
That restructuring plan passed the House earlier this year as part of a proposal to increase gas taxes, raising $427 million a year more for road repairs. But some Senate leaders vehemently oppose the restructuring.
Filing deadline a factor
One final factor will weigh into whether the Legislature passes a long-term roads plan next year – election-year politics.
The March 30 deadline to file to run for the House and Senate loom over senators and representatives who are waiting to see if they will have primary challengers.
Tax increases never are popular, especially for Republicans, said Winthrop University political scientist Karen Kedrowski. “Republicans that support tax increases do face potential challengers from the right,” she said.
In South Carolina, where legislative districts are heavily gerrymandered so that one party can dominate the results, many legislators fear most a challenge in their own party’s primary, she said.
Even if lawmakers see the need for a gas tax hike, they may not want to go out on a limb – and risk losing re-election – until after March 30.
State Rep. Gary Simrill, a 12-term York Republican, said he never looks at filing deadlines to determine whether he acts on an issue. But some lawmakers do, he acknowledged.
Simrill, who supports increasing the gas tax, contends lawmakers could face more challengers if they do not pass a roads plan.
Voters want the state’s roads repaired, he said. “You’re elected to be a leader, and you’re elected to make things happen.”
Where the road repair plans stand
January 2015: Gov. Nikki Haley’s plan
Money for roads: An average of $353 million a year
Tax hikes: Increase the state gas tax by 10 cents a gallon
Tax cuts: Reduce the state income tax by 2 percentage points – from 7 percent to 5 percent – over 10 years
Status: Likely dead. While introduced in the House, the plan went no where. It was panned for cutting state revenues far more than the amount it would raise for roads through a higher gas tax.
April 2015: House plan
Money for roads: An estimated $427 million a year
Tax hikes: Increase the gas tax by the equivalent of 10 cents a gallon, increase the maximum state tax on vehicle sales to $500 from $300
Tax cuts: Adjust the state’s income tax brackets, saving the average taxpayer $48 a year
Status: Passed by the House 87-20 in April, the second tax hike approved by that body in 20 years
April 2015: Senate Finance Committee plan
Money raised for roads: Roughly $700 million a year
Tax hikes: Increase the gas tax by 12 cents a gallon over three years; increase fees for 10-year driver’s licenses to $50 from $25; levy a $60 fee on hybrid vehicles every two years and a $120 fee on electric vehicles; increase the cap on the state’s sales tax on vehicles to $600 from $300; increase vehicle registration fees, paid every two years, to $40 from $24 for residents under 65 years old
Tax cuts: None
Status: Likely dead. Many senators also want Transportation Department reforms, giving the governor control of that agency, and an income tax cut tied to any roads bill.
May 2015: Republican senators’ plan
Money raised for roads: Roughly $700 million a year
Tax hikes: $700 million a year, mirroring the Senate Finance Committee plan
Tax cuts: Reduce the income tax rate by 1 percentage point over five years, cutting $700 million a year when fully phased in. The plan would save the state’s highest earning taxpayers – those who make more than $2 million in taxable income – an average of $62,066 a year, according to the state Revenue and Fiscal Affairs office. The average taxpayer would save $291.
Status: Could emerge as the main Senate proposal; includes restructuring the Transportation Department, and ties both its gas tax hike and income tax cut to growth in state revenues
Where do South Carolinians stand on a gas tax hike?
The Winthrop Poll asked 1,109 South Carolinians in March if they would support raising the state’s gas tax by 10 cents a gallon if the added money went to pay for roads and bridges, and gas in South Carolina remained cheaper than North Carolina and Georgia.
55 percent support the gas tax hike
42 percent oppose the gas tax hike
3 percent were either not sure or refused to answer
SOURCE: Winthrop Poll
Groups on both sides of the gas tax issue are pressuring lawmakers. A look at who they are:
Americans for Prosperity of South Carolina
The local chapter of the free-market advocacy group, tied to the billionaire political activist Koch brothers, opposes a gas tax increase. The group sent out mailings, robo-called S.C. citizens and held gas giveaways to get out its message against increasing the gas tax last session. “We are absolutely for fixing our roads, but we want to see our transportation system reformed, made better,” said S.C. director Dave Schwartz.
S.C. Alliance to Fix Our Roads
The group is backed by local chambers of commerce, AAA Carolinas, AARP and the American Council of Engineering Companies of S.C. The state has not increased its gas tax for almost three decades, notes executive director Bill Ross, adding, “Nobody wants to be living on what they were living on back in 1987.” Ross also notes if the gas tax is increased, 30 percent of the increased revenue would be paid by out-of-state drivers.
S.C. Policy Council
The limited government think tank opposes a gas tax increase. Executive director Ashley Landess says there is no plan on how to fix the state’s roads, only to raise taxes. S.C. roads are in deplorable condition, largely because most state money has been directed toward new road construction, Landess said. “The money that they’re getting now is not being directed toward fixing our roads.”