THE RIGHT WAY
Getting the Palmetto State BACK ON TRACK
GETTING THE PALMETTO STATE
BACK ON TRACK
United Writers Press Asheville, N.C., 2013
Getting the Palmetto State BACK ON TRACK
United Writers Press Asheville, N.C., 2013
The Right Way
The Right Way:
Getting the Palmetto State Back on Track
by Vincent Sheheen
Copyright © 2013, Vincent Sheheen
All Rights Reserved.
ISBN: 978-1-934216-49-1 www.VincentSheheen.com
Printed in the U.S.A.
I dedicate this book to the past, present and the future of South Carolina; to my parents, Fred and Rose, for the love they have given to family and the commitment they have shown to community; to my wife, Amy, for her fiery passion in everything she gives and does; and to my three sons, Austin, Joseph and Anthony, for the honorable men they are becoming. And to all of those people around our state, who have shared their hearts and hopes with me. We all still have much to do together.
Table of Contents
Introduction Total Change Education Improvement Government Restructuring Tax Reform Transportation Jobs and Economic Development More Good Ideas Conclusion Endnotes Index About Vincent Sheheen vii 1 7 27 53 73 85 101 107 111 121 127
I am in love with South Carolina—have been and always will be. From the pine-covered Sandhills, to the swampy Lowcountry, to the rocky foothills, I have lived it, felt it and breathed it all in. I’ve argued, loved, prayed, cried and learned with these stubborn, stiff-necked, kind and passionate brothers and sisters of mine for more than 40 years. If America has a soul, it’s here in South Carolina. We have pushed and pulled and torn and scraped this country backwards and forwards since before it was a country. White and black, music and cuisine, war and gentility, great wealth and great poverty, we have swirled the currents of our own lives and the currents of the nation for centuries. South Carolina is different and I love it. We still have a sense of place here that leads to the inevitable first question upon greeting a new friend, “So, where are you from?” If I know where you are from in South Carolina, I probably know someone you know. If I know where you are from, I can understand what you understand. And if you are not from here, well, I can understand that too. South Carolina is a small enough place for you to know someone from every part of the state, but it’s large enough not to have to know everyone. In the words of our great patriot, James Petigru, “South Carolina is too small for a republic and too large for an insane asylum.”1 South Carolina is where our American patriots fought the guerrilla battles of the Revolutionary War. It’s the home for men with names like “the Gamecock” and the “Swamp Fox.” vii
The Right Way I look from my window in my home in Camden onto the ridge of the battleground where American patriots camped, marched, fought and likely died. We know the War of Independence was won right here, not in Delaware, not in Virginia but here where South Carolinians laid the groundwork for American victory through tremendous losses, draws and victories at places with names like Cowpens, Camden, Hanging Rock, Ninety Six and Charleston.2 South Carolina is the state that launched an atrocious civil war to keep a people enslaved. And it’s a place that could produce a hero like Sgt. Richard Kirkland3, the Angel of Marye’s Heights, who risked his life to share water with dying Union soldiers on the battlefield. Throughout history, our state has been filled with dark hate and passionate love. It’s a state known for its hospitality, friendliness and high spousal abuse rate. If America is a melting pot, South Carolina is a swirling, boiling cauldron of diversity. We are the land of soul food, the blues, the Charleston and Big Apple dances, Appalachian music, blind tiger bars, grits and a church on every country road. We are the place where Scots, Irish, Huguenots, Germans, Native Americans, Jews, Africans and Anglos mixed and lived from the very first days. South Carolina is the home of Dizzy Gillespie, James Brown, Mary Boykin Chesnut and Stephen Colbert. Our state is small, but we live large. With our richness of history, cultural diversity and unsurpassed natural beauty, why are we still stuck in the ditch when it comes to employment, education, government and health? Why in recent history have our neighbors to the North
Vincent Sheheen and South reliably and relentlessly embraced progressive reforms and proposals years ahead of South Carolina? Why did North Carolina’s leaders have the vision to invest and plan for the Research Triangle while South Carolina was jacking up college tuition rates on its students? Why did Georgia’s elected officials invest in four-year old kindergarten, while South Carolina was being sued by her children for failing to provide even a “minimally adequate education”? South Carolina hasn’t always been this way. When many Southern states were using dogs and fire hoses on their citizens in the 1960s, South Carolina was, by and large, beginning to peacefully, albeit recalcitrantly, integrate its colleges and schools. While other Deep South governors actively blocked black students from admission to schools and universities, South Carolina remained calm with Gov. Fritz Hollings saying the rule of law must prevail in his famous last address to the General Assembly in January 1963. In the 1960s and 1970s when most of the South was still stuck in a mono-visionless agricultural past, South Carolina built foreign investment in manufacturing. When many Southern states struggled to understand workforce training, South Carolina invented the modern technical college system that has been copied around the country and globe. In the 1960s and ‘70s, South Carolina embraced public-private partnerships that yielded real dividends in job growth, investment and educational improvement as our visionary business and political leaders used personal friendships for the betterment of our entire state. And we reaped the benefits in the 1980s and 1990s as unemployment was low and our progress in education was recognized around the country.
The Right Way But that’s changed in today’s South Carolina. Where are the visionary government leaders to carry on the work by governors like Fritz Hollings, Robert McNair, Dick Riley and Carroll Campbell? Where are state business leaders today who give freely of their time, effort and capital to push South Carolina forward like past business luminaries Francis Hipp, Charlie Daniel, Buck Mickel and Jim Self? It’s time to get their modern equivalents more involved with government leaders to push us forward.
Time to do what’s right for South Carolina
We have heard over and over again that government isn’t THE answer. But surely it is a part of the answer. Otherwise, why did our intelligent, hard-working forebears fight and die for its independent establishment in this country? Why did they dedicate their sweat and time in order to form a more perfect Palmetto State? For more than a decade, the so-called “leaders” of South Carolina have preached a false gospel. They have told us ad nauseam that government is incapable of being efficient, honest and constructive. And instead of remembering our past successes, we the citizens bought into their cynical rhetoric, their cynical leadership. In return, we have ended up with the most inefficient, dishonest and destructive government a modern society could practically have in America. With the leaders we’ve had, it’s no wonder South Carolina is a recurring laughingstock on late night television shows. It’s high time that we stop doing what’s not working. My philosophy of government is simple: Let’s find out what works
Vincent Sheheen and do it! Regardless of party, ideology or prejudice, let’s find solutions and not be afraid to try new things. South Carolina has all too often seen its major state agencies operated like personal fiefdoms with unqualified campaign donors and hacks running the show. We have seen inexperienced directors and board members appointed with disastrous results. I’m not referring to obscure bureaus with no purpose or function. I’m talking about state agencies that provide core government functions, which we all expect to perform without excessive waste, dysfunction and incompetence. • Our Department of Employment and Workforce is operating on such a dysfunctional level that the federal government has threatened to take over because unemployment benefits weren’t being paid out correctly or in a timely fashion. • Our Department of Revenue operated so incompetently in 2012 that it allowed millions of our tax records to be stolen—the biggest electronic security breach of any state ever. • Our Department of Social Services has paid more than $100 million in fines with our precious taxpayer dollars because it could not comply with basic rules about requiring deadbeat parents to pay child support.4 • During summer 2011, the state Department of Transportation was mismanaged and had serious cash flow problems. Contractors across the state were not getting paid.
The Right Way This list goes on and on and on. We should learn two things from these situations. First, the state should not appoint highranking officials simply because of their political connections or contributions. Appointees should be well-qualified. Second, the state should hold officials accountable for failures that rise to the level of criminal negligence. Meanwhile, the practical things that really matter to our people have been ignored. • Thanks to a roller-coaster of revenues supporting our state budget, the S.C. Highway Patrol has been strained in numbers, reaching a high of around 1,050 troopers in the 1990s, only to be slashed to about 800 by 2012. And while our state government’s leaders pushed state troopers out the door, our population and numbers of vehicles on the road jumped dramatically. Our state law enforcement officers are now among some of the lowest paid in the country. Many trained state officers leave the force to work for local towns or counties who show them more respect by paying them the living wage they deserve. • Over the last two decades, South Carolina’s “leaders” have made the tax system less fair, less transparent and less predictable. Our leaders have allowed education funding to lurch into an inequitable mess that bases kids’ opportunities on where they happen to be born. And our leaders have played politics while the roads and bridges that our forefathers invested in are crumbling and rotting.
Vincent Sheheen • Even worse than the dysfunction of government agencies, this state has notched an electoral record of crooks and ethically questionable officials unsurpassed in South Carolina modern history. We have seen a commissioner of agriculture and a state treasurer go to jail. We have witnessed a governor plead no contest to 37 ethics violations and pay a $74,000 fine. In recent years, our great state has been victimized, stigmatized and traumatized by unsavory and unethical behavior from numerous elected officials. The results have been disastrous. South Carolina has ranked as one of the highest unemployment states in America for the last 10 years. We are one of the only Southeastern states to see such large numbers of our college-educated young people depart our borders. South Carolina now has the highest public college tuition rate in the Southeast and one of the very highest in the nation. Recently, we were ranked as a state with one of the worst economic mobility opportunities for our citizens—a literal repudiation of the American Dream. Instead of promoting public education, our leaders have preached hostility toward its historical role in providing a means for families to move forward. Instead of making college more affordable for middle class families, our elected officials have made it almost price prohibitive. And instead of working to gain trust and honor in our government, they have squandered their political capital on their own selfish personal and political greed.
The Right Way Surely one-party rule is part of the problem. Whether it’s Democrats or Republicans, one-party rule leads to arrogance, incompetence and unethical behavior wherever it occurs. Over the last decade, South Carolina’s government has suffered from an even more pernicious infection—a monstrous attitude problem. Much like an unrelenting algal bloom on a stagnant lake, our state has allowed an attitude of failure, of inevitability and of disappointment to creep into our lives. Today in times when we need dynamism and a bold vision to shake us out of our sleep, inertia is the most powerful force in our state’s government. I believe it is time to get the ball rolling again. It is time to make South Carolina what she was and can be—the shining star of a bolder South, moving forward and upward. This short book is not meant to propose solutions to all of our state’s problems. Most of those can only be remedied when each and every one of us takes a good, long look in the mirror. But I offer the following chapters as a starting point to get back to the basics of moving South Carolina forward. This book proposes ideas for us to consider and debate to try to get our state back on the right footing and shed the inanities of the past few years. More than anything, this book of ideas is an attempt to promote more rational political discussion and policymaking. Ultimately, we will still need committed citizens and leadership on many fronts to make it so.
Getting the Palmetto State BACK ON TRACK
The politics and government of South Carolina are just too dysfunctional and too broken to repair piece by piece. We need two things to happen—new leaders and new government. And we need them to happen as soon as possible.
New leadership now
It’s time to scrap the current generation of nihilistic leaders. You know who I am talking about—the type of people who are always telling us why we can’t accomplish things or solve our problems. Think about it: What has South Carolina accomplished during the last decade? Now, as it has for the last 10 years, our state sits atop the list of states with high unemployment rates. South Carolina has seen public college tuition skyrocket to the highest in the Southeast at $10,698 per year5—one of the highest tuitions in America. We have seen the leaders of this state either ignore public education or lead an assault on our children’s future by attempting to raid education funding. We have suffered embarrassment after embarrassment caused by our leaders’ unethical behavior and boneheaded statements and we have become the butt of late night television jokes all too frequently.
The Right Way This downward spiral in our government should surprise no one. Why? Because we have elected leaders who proclaim a belief that government is always part of the problem. Once elected, they prove their theory correct by making our state’s government a dysfunctional embarrassment that is incapable of efficiently meeting the demands of core government functions. No matter the policy changes or government reform, the Palmetto State will never move forward as long as we elect leaders who drag us backwards. We need leaders at all levels who believe their service in government is honorable and more important than their own political careers.
Clean break for a new government
Hand in hand with a need for leadership change is a need for structural change in our state government. It’s time to scrap South Carolina’s current form of government. No longer can we afford the tinkering that has occurred over the decades. We need a clean break. We need a clean break because our government structure is no good. We need a clean break because our political culture is rotten. After watching for two terms from the back row of the South Carolina Senate, it is clear to me that the habits and expectations of South Carolina’s political elite and culture can’t be reformed because it has just gotten too bad. Trying to mend the current way that our government works would be like trying to use superglue to erect a tree blown over by Hurricane Hugo. Now is the time for South Carolina government to begin anew. For a clean sweep of South Carolina’s government to occur, we must make changes outside of the influence of the current
Vincent Sheheen power structure. It’s time for the people to rise up and once again assert themselves in perfecting our form of government. It’s time for a South Carolina Constitutional Convention. South Carolina’s constitutional tradition has been one of restrained popular involvement. South Carolina’s citizenry last met in a constitutional convention in 1895. Prior to the Convention of 1895, the people of South Carolina had seen fit to meet together to perfect their form of government on multiple occasions: 1776, 1778, 1790, 1865 and 1868. Until the 20th century, our populace and elected representatives were not shy about calling for a convention to rewrite our basic law. In fact, we used the convention an average of every 20 years for the first half of our nation’s history (1776 to 1895 or 119 years), but we haven’t used this vital tool of democracy at all in the second half of our democracy (1895 to 2013, or 118 years). When our last convocation occurred in 1895, only white men could participate. The convention was in part called so that newly re-ascendant whites could undo work that the state’s Reconstruction government had created after the War Between the States. The convention also had a goal of re-centralizing power in the state government and away from emerging local governments. Since 1895, South Carolina has continued to use the constitution for policy decisions by amending it many times. We have amended the constitution dozens of times since 1895. Our constitution currently contains provisions dealing with local matters as varied as paving assessments in Forest Acres to revenue for bridges in Beaufort County. It controls
The Right Way the alcohol policy of the state and decides how retirement funds can be invested. So what we’ve been doing for more than a century is amending a document that arose in the days after the Civil War when horses and buggies were a primary means of transport and the telephone was a newfangled invention. The constitution that South Carolina operates under today continues to reflect populist urges present on the state level in the late 1800s and an approach to government and governing that are no longer wise in the 21st century. For example, our executive branch power is fragmented amongst numerous elected officials. Instead of the strong separation of powers we find on the federal level, our state constitution allows sometimes strange intermixtures of powers between the branches. Many states have seen the need to rewrite their fundamental law in the modern era. Since 1950, some 15 states have held constitution conventions. The time has come for South Carolina to join the ranks of modernity. Our constitution is an anachronism of a time that is past. Its fragmentation of power amongst numerous officials weakens the executive’s ability to steer the ship of state. Mixed into the time-weary structure of government is a jumble of policy decisions that are better left in statutory law. Finally, if for no other reason, the South Carolina Constitution needs rewriting because many of its provisions no longer are relevant to our society. Among other nullities, our constitution still states that each county shall have a senator and allows for
Vincent Sheheen literacy tests for voting—ideas that were banished by the U.S. Supreme Court in the 20th century. Our state constitution is too badly structured to be remedied by amendment. The time has come to rethink, fundamentally, how our state is organized. The time has come to convene a constitutional convention with nonpartisan delegates elected to restructure and reform our broken system through rational debate. From such a convention should emerge a more balanced and effective government. In that convention, we can strip away the unnecessary policy provisions in our current constitution and omit the historical appendages that remain. We should focus on the basics: government’s structure and our fundamental rights. We should empower our local governments and clearly define the roles of the executive and legislative branches. A belief in American democracy is a belief in the constitutional form of government. Underpinning respect for our state constitution must be a respect for ourselves. We must have leaders we can be proud of and we must have a government structure that works. South Carolina deserves both!
South Carolina’s future
I remember how my twin sons, Austin and Joseph, each wrapped their hands around my finger shortly after they were born. Something changed inside me in that magical instant. Not only did I feel a physical connection to my boys, but the gentle squeeze from their hands opened my eyes to the overwhelming responsibility that Amy and I now had. In those opening moments of their lives, I felt a duty to protect Austin and Joseph and to make sure they got whatever they needed to thrive and grow. I remember thinking—just like every parent thinks—“I want what is best for these boys so they can experience the joys that I have been blessed to experience—and so that they can achieve things I never dreamed of.” Four years after the birth of our twins came our new addition, Anthony. He came into the world, reached out, grabbed my finger and those feelings of responsibility surged inside me again. I sat by, alone, for what seemed like hours as he was placed into an oxygen tent to gain his strength. Today, Amy and I still feel that same sense of duty every day—a responsibility that we need to provide, as best as we
The Right Way can, for our sons and their future. No parent wants lives for their children that are worse than the one they have enjoyed. No grandparents want a grandchild to have fewer opportunities than they did. But if my sons and South Carolina’s children are to be ready for the world of the future—to have lives that are better than that of their parents and grandparents—they’ll need to be ready to compete in the global economy of the future. And if they aren’t prepared, they will be relegated to competing for a decreasing number of low-wage, low-skilled jobs—if they can get work at all. Projecting from 2008 until 2018, new jobs in the Palmetto State are estimated to grow by 94,000 for people with training and education beyond high school. But jobs for high school graduates and dropouts are projected to increase by less than half of that number. The same study showed that some 56 percent of South Carolina’s 1.2 million jobs will require some kind of advanced training after high school.6 In other words, future success for South Carolina’s workers— as well as the entire state—requires more education, not less. Unfortunately, South Carolina’s recent leaders don’t have a good record in making smart investments in education to ensure that our children will have the training they need to get the better-paying jobs of the future. I believe it’s time we turn that abysmal record on its head. Simply put: How can the students of today expect to hold the jobs of tomorrow if they don’t have enough knowledge?
Parents and teachers know
Talk with any teacher or parent and ask the question, “Is it better for a child to have more or less education?” Our answer is a no-brainer: More, of course. So why do South Carolina’s education policies work in the opposite direction? Solutions don’t have to be complicated. South Carolina has spent recent years implementing or flirting with gimmicks to improve public education that are more driven by politics than data. Parents know our state is not going to “standardize test” its way to success. And teachers know that “vouchers” are just another unproven gimmick that will cost our state dollars. The key to future success, any teacher will tell you, is a solid foundation of education. Not only do college graduates earn more than people with lower levels of education, but more schooling improves interpersonal skills, giving people a better chance for a higher quality of life. More and better education gives people more and better opportunities for jobs and success. But in South Carolina overall, students aren’t excelling at the pace they need to keep up with the increasing needs of the global economy. A basic measure of how South Carolina is treating her children is the annual Kids Count survey. Sadly, South Carolina has consistently ranked in the bottom 10 states in the country for providing healthy, nurturing environments for our children. Other key indicators from the 2012 survey:7
The Right Way • Poverty: Some 278,000 children, or 26 percent, of children through age 18 live in households where incomes are below poverty; about half of the state’s children live in households with incomes 200 percent of poverty. • Education rank: 40 of 50 states. • Failing: 7.4 percent of students were failing grades 1 to 3. • Below standards: 32.9 percent of third graders tested below state standards in math in 2009; 22 percent tested below standards in reading. • Achievement: 39 percent of fourth graders scored below basic and 72 percent below proficient on reading achievement levels in 2011. • Graduates: 34 percent of high school students—20,160 students—did not graduate on time in 2009.
A historic perspective
Part of the reason that South Carolina’s children are behind compared to other states is how the public school system has developed through the years. The current constitution for the state of South Carolina—the one from 1895—called for a “liberal system of free public schools for all children between the ages of six and twentyone years.” In the South Carolina of that time, those schools were segregated. In other words, the state ran two school sys10
Vincent Sheheen tems—one for blacks and another for whites. For a poor state, that was an expensive proposition; as a result, few got a really good education. In 1947, almost two dozen black families in Clarendon County filed a case against a local school district that mushroomed into a case in which the families sought equal educational opportunities for their children. In 1952, the U.S. Supreme Court agreed to hear this case, Briggs v. Elliott, and four others to rule on “separate but equal” education in parts of the country, but particularly in the South. Two years later, the high court ruled that separate schools were not equal and segregation was harmful. It ordered desegregation of public schools “with all deliberate speed.” And so came desegregation, although it didn’t happen throughout much of the state until the late 1960s and early 1970s. In fact, I was one of the first generations of South Carolina students to have attended integrated public schools from start to finish. It’s something that has enriched my life immeasurably. As desegregation of public schools came, so did the rise of private schools from just a small handful to more than 250 today. In general, these private schools drained some white students from public schools, which led, in some parts of the state, to private schools with mostly white students and public schools with mostly black students. South Carolina’s historical reliance on property taxes to fund schools also led to inequities in opportunities for our kids. Counties with wealth and population tend to have the financial wherewithal to offer children many diverse and high 11
The Right Way quality educational opportunities. Poorer rural communities, however, often cannot even raise enough funds to build safe and modern school buildings. By 1993, poorer South Carolina school districts filed a case in state court claiming that school funding wasn’t fair—that a child’s educational opportunities shouldn’t be determined by where that child happened to be born. These schools, many located in the “Corridor of Shame” from Dillon to Ridgeland along Interstate 95, argued their children received a constitutionally, inadequate public education for a number of reasons but most importantly because of funding inequities. Six years later, the state Supreme Court issued a major interpretive ruling that set the state’s standard of constitutionallymandated public education as “minimally adequate.” In other words, the court said the state constitution required that our students receive only basic instruction on how to read, write and speak English, do math, understand economic, social and political systems and get academic and vocational skills. The high court then sent the case back to a lower court for a ruling on the allegations by the poor, rural districts. Years passed. By 2004 after a 102-day trial with 102 witnesses, Circuit Judge Thomas Cooper ruled the state had provided a minimally-adequate education to the poor, rural districts. But in a partial victory to those poor counties, Judge Cooper required the state to fund a limited, early childhood intervention program to meet the provisions of the state constitution.8 Our state government did only what was minimal required to satisfy the court and no more. This again proved that South Carolina’s current crop of leaders are unwilling to push for 12
Vincent Sheheen a progressive vision of the future that could move our state forward. South Carolina’s leadership responded to the ruling in 2006 by establishing the Child Development Education Pilot Program (CDEPP) as a public-private partnership to deliver 4-year-old kindergarten to children in the 37 poor, rural school districts from the 1993 case. By 2012, more than 5,200 children received early childhood education from public and private sources through the CDEPP program.9 As I have learned while visiting public schools, thousands more of our state’s children whose parents desperately attempt to enroll them in early childhood programs like 4-year-old kindergarten are turned away every year.
Where South Carolina is
In many ways, the court-initiated establishment of the CDEPP program was a validation of what teachers, business leaders and academics had said for years—that children, particularly those in poor areas with historic challenges, need more education earlier. Across South Carolina, public schools educate about 700,000 students in a variety of settings—from traditional schools to charter, public Montessori, virtual and other schools. About 50,000 students are in private schools and an estimated 12,000 are home-schooled.10 State law requires attendance of five-year-olds in a kindergarten program, although parents may sign a waiver if they don’t want to send children to kindergarten. Other states— and even countries around the world—are doing much, much 13
The Right Way more. Across the United States, leaders have increasingly focused on offering school to children early. In South Carolina, the first tentative step in that regard came only as the result of an order of a court. Federal Reserve Board Chair Ben Bernanke, who attended Dillon public schools, once highlighted the importance of starting school earlier:
“Investment in preschool programs for disadvantaged children has been shown to increase high school graduation rates. Because high school graduates have higher earnings, pay more taxes and are less likely to need to use public health programs, such investments can pay off even from the narrow perspective of state budgets; of course, the returns to the overall economy and to the individuals themselves are much greater.”11
Of the almost 60,000 4-year-olds in South Carolina in late 2012, some 24,266 were in a public 4-year-old kindergarten program provided by public school districts or private vendors. This included 19,004 students in public 4K programs in public schools throughout the state, 4,714 targeted students in public CDEPP programs in the state’s poor counties and 548 in CDEPP programs provided by private vendors. Another 5,994 4-year-olds participated in preschool through the federally-funded Head Start program. Furthermore, 3,625 students were in pre-school special education classes and another 2,165 in child care programs funded by ABC Child Care vouchers. Finally, an estimated 9,000 children were in private kindergarten programs.12
Vincent Sheheen All totaled, just over 45,000 children in South Carolina were in 4-year-old education or child care programs. That left approximately 15,000 children apparently in no pre-kindergarten program at all. Importantly, the quality and effectiveness of the various public and private offerings varies dramatically. Some “kindergarten” programs are no more than children parked in front of a television.
What South Carolina must do
The South Carolina Chamber of Commerce says South Carolina needs to do a much better job on early childhood education. One of its continuing goals to push the state to be more competitive is for 80 percent of at-risk children to complete pre-kindergarten by 2020. I agree. But we must do even more if we want to compete in the new, global world. We need must make early, quality childhood education something that all South Carolina 4-year-olds can attend if their parents choose. It’s particularly important for the 15,000 children who get no 4-year-old pre-school education right now and the thousands who are parked in subpar day care programs. If we can provide quality, early childhood education for children across the Palmetto State, those kids will have a lot better chance of getting quality jobs and becoming taxpayers instead of drains on public coffers. Furthermore, the earlier kids learn, the fewer problems appear later in school enabling teachers to teach more and kids to have a better chance of graduating. In the long-term, earlier childhood education opportunities will reduce the number of South Carolinians in an unemployment
The Right Way line or in prison. Our state must begin to think about the future now. And the key is earlier education. In a groundbreaking 2007 study, education researcher Robert G. Lynch outlined how early intervention programs are a huge benefit to society overall:
“Children who participate in high-quality pre-Kindergarten programs require less special education and are less likely to repeat a grade or need child welfare services. Once these children enter the labor force, their incomes are higher, along with the taxes they will pay back to society. Both as juveniles and as adults, these children are less likely to engage in criminal activity thereby reducing criminality overall in society. Highquality pre-Kindergarten benefits government budgets by saving government spending on K-12 education, child welfare and the criminal justice system, and by increasing tax revenues.13
Lynch’s study estimated the benefits to South Carolina if it were to start a high-quality pre-K program for 3- and 4-yearolds. If the state had started a program in 2008, it would have cost $442 million and would have started paying for itself in just nine years. (My suggestion, remember, is to do voluntary 4-year-old kindergarten statewide and not include 3 year olds.) By 2050, Lynch predicted that investing in a two-year prekindergarten program would cost $1.2 billion but save $9.2 billion. Not only would the state budget benefit by $2.3 billion due to education, prison and welfare savings, but individual savings from crime reduction would be $1.8 billion. And because South Carolinians would tend to graduate more from high school and college, the state’s total increased wages and benefits would be $5.2 billion. 16
Vincent Sheheen It’s time for South Carolina to begin to think about how we can save money in the long term and improve our quality of life.
Lynch’s research isn’t unique. Businesses across the country are starting to understand that early investing in education will have a big benefit for individuals and government—but an even bigger benefit to America’s future because it will help the country remain competitive in the global economy. More early childhood education, according to the Partnership for America’s Economic Success, “increases high school graduation rates by 16 percent—and college attendance by more than 50 percent.”14 Currently, South Carolina isn’t keeping up with the rest of the country. A July 2010 report15 by the Georgetown Public Policy Institute shows that two-thirds of the jobs in 2020 across the United States will require some kind of postsecondary education and training. But by that time, as mentioned earlier, only 56 percent of South Carolina’s jobs will require such training, which indicates that the Palmetto State will be “caught in a low-wage/low-skill equilibrium.” What’s worrisome about this report is that it suggests South Carolina won’t be ready to compete for future jobs. Just as the state has been left behind for years, it will continue to do so unless it gets its education act together. Other states are seeing big dividends on their investments. In Texas,16 every dollar invested in a high-quality, pre-kindergarten program was projected to bring a $3.50 benefit. In Arkansas,17 long-term savings on education spending, child 17
The Right Way welfare and criminal justice had a $1.58 benefit for every dollar invested, not to mention the additional benefits to creating more taxpayers earning more and paying more to the state. For South Carolina to catch up and make sure we have the knowledge for the future, we need to do more now. The best way to start is by investing in a statewide, voluntary pre-kindergarten program that will offer all kids a better chance to be ready for first grade. Our neighbor, the state of Georgia, has a model that we could follow pretty easily by blending and expanding current programs in South Carolina.
Georgia knew what to do
Twenty years ago, Georgia started a pilot program to offer pre-kindergarten to 750 children in 20 counties.18 By the 199394 school year, the program expanded dramatically to serve 8,700 at-risk children. Two years later, the state opened the program universally to all eligible children—not only at-risk children—on a voluntary basis. By 2011-12, Georgia’s pre-kindergarten program, called “Bright from the Start,” served 86,000 children at a cost per child of just under $3,500.19 The total state dollars were just over $300 million for the public-private collaboration. Those monies were allocated between public school systems, which provided 1,726 classrooms that educated 37,283 children, and private providers, who offered 2,111 classes educating 44,732 children. Although created by Democrats, Republican and Democratic leaders in Georgia are now solidly behind the state’s pre-kindergarten program. GOP Gov. Nathan Deal said that it was 18
Vincent Sheheen a direct investment in future success on Sept. 28, 2012, as the state celebrated the 20th anniversary of the program: “As we recognize this milestone, we also recognize that in order for Georgia to be competitive in a challenging global economy, we must have an educational system that transcends the K-12 model. Our nationally-recognized pre-K program is the first step in ensuring we have a highly-educated workforce ready for the 21st century.”20 Recalling that three quarters of South Carolina children already receive pre-kindergarten through publically-funded or private sources, South Carolina conceivably could offer voluntary 4-year-old kindergarten to the remaining 15,000 students for about $52.5 million (based on Georgia’s costs). Assuming some capital cost help for school districts and that some children in private kindergarten would take advantage of the public system, South Carolina could achieve universal 4-year-old kindergarten by simply dedicating $100 million in recurring state revenues as a true long-term investment in our children. This one simple commitment would create better opportunities for our kids’ and our state’s future. Most importantly, such a transformational change could be made now without raising taxes if South Carolina’s leaders simply have the foresight and guts to do it.
Consequences of doing nothing
Unfortunately, failure to provide universally-accessible, quality pre-kindergarten to South Carolina’s children will cost us more in the long run.
“When we fail to invest early, children suffer from a range of problems—they are at higher risk for be-
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ing abused, becoming teen mothers, dropping out of high school and misusing alcohol and illegal drugs. They are less likely to be healthy and more likely to be criminals.”21
An example: States can spend $10,000 now per child on quality pre-kindergarten and if one student in 10 earns a high school diploma, the state will save at least $2.50 for every dollar spent, according to a 2011 analysis by economist Mark Cohen and criminologists Alex Piquero and Wesley Jennings. As a contrast, states can pay $250,000 later because “a high school dropout’s lower earnings create costs for public assistance programs an efforts to offset the dropout’s reduced contribution to society.”22 There is no better time than now for South Carolina to invest more in early childhood education, as suggested in a December 2012 column in the Florence Morning News by Don Herriott, director of Innovista Partnerships at the University of South Carolina:
“Expanding the availability and improving the quality of programs that serve young children—publicly or privately funded—is imperative for the success of our businesses and the prosperity of our state. Now is the time to invest in South Carolina’s future.”23
Other education ideas
While early childhood education is the best idea to get South Carolina’s education system moving again, more great ideas are out there. Here are some highlights:
FOR PARENTS: Accountable child-care ratings
State law requires the Child Care Services Division of the state Department of Social Services to oversee child care programs and regulate about 3,500 child care providers to ensure they meet basic health and safety requirements. But programs that operate less than four hours a day are exempt. Furthermore, child care professionals say hundreds of child care providers are operating without a license and don’t register with the state. The lack of accountability makes it hard for parents to have good information about quality and safety of the places where they entrust their children. Fortunately, the Division of Child Care Services has a voluntary ABC rating system that calls for participants to post their ratings. But we need to go a step further. Think about it: We already require businesses to post business licenses and restaurants to post cleanliness grades. Consider what’s happening in South Carolina: Places where you eat a hamburger are rated for quality but some businesses that keep our kids aren’t. Common sense tells us that the centers where we entrust those we love the most, our children, should be required to post ratings in very visible places. Non-licensed centers that don’t participate in the program should be required to post a “NR” (not rated) designation if they don’t want to be accountable. Having a visible rating system will ensure that parents have a chance to know about the safety and quality of the businesses that are entrusted with mankind’s greatest gift on this Earth, our children.
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FOR TEACHERS: Less paperwork
Everybody knows how much time teachers spend at school— from early morning hours until after school. And then after school, they grade papers and plan future classes. As the son of a school teacher, I can still remember walking to my Mom’s classroom after school and watching as she cleaned up, graded tests, met with parents and took a big box of papers home to read over. And that was 30 years ago. Since that time, South Carolina’s government has imposed more and more bureaucratic forms, reports and paperwork on the teachers who should be allowed to spend their time teaching our kids. What most people don’t realize is how much paperwork that teachers have to fill out—forms, evaluations, reports and more. As I have spent time in South Carolina’s schools, one of the greatest complaints that I hear from teachers is how overloaded they are with excessive paperwork. What teachers across the Palmetto State really need is a way to spend more time teaching and less time filling out unnecessary paperwork and red tape associated with it. Reducing paperwork doesn’t require changes of law or lots of bureaucratic nonsense. It requires the state Department of Education and the 85 school districts across the state to take a good look at how they do business with an eye for cutting the time that teachers have to spend doing things that are not helpful to teaching. As a way to jumpstart a movement to cut unnecessary paperwork, the state Education Oversight Committee should empanel a diverse blue-ribbon panel of teachers and adminis-
Vincent Sheheen trators from across the state with the express purpose of developing common-sense strategies for our public schools to reduce paperwork. By getting rid of burdensome paperwork, we’ll create a better environment for our teachers and allow them to do more of what they enjoy most—teaching our kids.
FOR DISTRICTS: Alternative pathway programs for teachers
South Carolina can do a better job in providing qualified teachers in the classroom by rewarding life experience in the teacher credentialing process. If a businessman with a 20-year-record of running a successful business retires early and is willing to teach economics or business in a public school, he should be able to do so without having to complete a lot of burdensome coursework to be certified. The same goes for a scientist, writer or other professional. As a state senator in a small county bordering North Carolina, I have heard over and over how our neighboring state to the north does a much better job of streamlining the process for getting business people and professionals into the classroom as teachers. To address teacher shortages and to increase diversity, particularly in rural areas that have recruitment challenges, the state should develop a more streamlined licensure program that allows professionals to get limited teaching licenses after completion of the program. Successful candidates must be able to pass written exams on reading, writing and math.
The Right Way They also need to be able to qualify for teaching in specific areas based on content exams for those areas. (A businessman, for example, needs to be able to pass an exam on business and economic concepts that will come up in the class he is teaching.)
FOR STUDENTS: More math and science
STEM education focuses on improving high school education in four areas—Science, Technology, Education and Math, hence “STEM.” These are subjects where a tremendous number of high-quality jobs in the future will likely be focused. South Carolina should review and overhaul how it delivers STEM education and increase the number of teachers who provide STEM classes, perhaps using the alternative pathway program referenced above. By providing better STEM instruction, students will be better qualified to pursue college degrees in areas that are critical to the country’s competitiveness. Having better-qualified students with science, technology, engineering and math skills will lead to more scientists, software engineers and technology developers who can keep the country in face of growing international competition. Also by providing more training to teachers on STEM components, the public school system will encourage more students to take part in STEM classes, which again will increase the nation’s output of technically-oriented students who are ready for 21st century jobs in the knowledge economy.
FOR SCHOOLS: Education audits
Last year, I introduced a budget proviso to promote “education audits.” Education audits encourage school districts to save our precious tax dollars so they can be focused on directly educating students. Education audits allow a school district to retain the services of a private auditor who can evaluate expenditures of school districts in a search to save money. The audits can evaluate everything from ways to save on the power bill to ways to save on purchasing and anything the auditor is creative enough to think of reviewing. The savings resulting from implementing recommendations can then be used for helping teachers and students learn. The state of Virginia has seen great success in saving money through education audits during recent years. We should be using this tool, too.
Let’s make South Carolina more competitive for the future
If we want to have more students ready for the global knowledge economy, they have to get the needed knowledge. It is our generation’s responsibility to ensure success in this endeavor, just as our parents and grandparents laid the groundwork for us. It is our duty to provide that level of commitment now. We—and they—can’t afford to wait.
Time for a new state government
I love the sign that President Harry Truman kept on his desk: “The Buck Stops Here.” It tells you everything you need to know about governmental accountability. Ultimately, government is accountable when we have leaders who are honest, open, responsible and effective. I share Truman’s belief that citizens deserve to hold someone accountable for government’s failures. Accountability in South Carolina’s government has been missing for more than a decade. In the end, a government can be successful and accountable regardless of deficiencies in its structure if it has strong, responsible and effective leaders. However in South Carolina, a combination of ineffective leaders and confusing structure has led to our government being ranked one of the most dysfunctional and unaccountable in the nation. Accountability has been elusive for us despite the fact that “it is a concept that is fundamental to our democratic system. It clearly establishes the right of the people both to know what the government intends to do and how well it has met its goals.”24 Our state government is so fractured that figuring out who to hold accountable when problems arise can be
The Right Way complicated, allowing our leaders all too often to escape responsibility. After a series of reforms beginning in the 1970s, the governor’s office has become a much more powerful position in the Palmetto State. Now in control of almost all major agencies through either direct or board appointment, the governor has the ability to exercise power undreamed of by our South Carolina forefathers who strongly favored legislative power over executive. While our General Assembly has dramatically loosened its direct involvement in the executive branch of state government, it has yet to step up to its responsibility in providing necessary evaluation and oversight of programs and state agencies that we should expect in a modern government. Furthermore, the continuation of hybrid entities such as the State Budget and Control Board has led to fiefdoms of power exercised by the governor and legislative leaders that intermingle the roles of the executive and legislative branches, and fragment the responsibilities of elected officials. The result has been a government on auto-pilot with no clear direction. When combined with weak leadership, this fractured, auto-pilot style of government has failed to meet the modern challenges we face as a state. We must take control of our state government and make it accountable to the people of South Carolina to meet our challenges head-on. To do that, we should fundamentally reform the executive and legislative branches. Some of the work has already taken place over the last several decades, but much more needs to be done.
Vincent Sheheen Here’s where we are so far: • The Home Rule Act of 1976 gave the state a more autonomous, functioning local government structure and removed much of that authority from the legislature. • Major restructuring occurred in 1993 following Operation Lost Trust, a federal sting operation that netted more than 20 state legislators and lobbyists. This restructuring consolidated agencies and moved most of the state’s agencies into the governor’s cabinet. • In the late 2000s, the state Department of Transportation was reformed to allow the governor to appoint a cabinet-level secretary to run the administrative side of the agency. • Next, the Employment Security Commission was abolished and replaced with a cabinet-level agency directly responsible to the Governor. • Today, the Department of Natural Resources and Department of Health and Environmental Control are controlled by the governor through board appointments. • The Public Employee Benefits Authority was created in 2012 and removed a significant component from the Budget and Control Board, marking the first step towards its abolition.
The Right Way • The Office of Inspector General’s creation in 2012 established a true government watchdog whose whole purpose is to sniff out and expose government waste, fraud and abuse. Here’s what should happen next: • Eliminate the constitutional impediments to unifying the executive branch under common leadership to establish a strong separation of powers in our state government. • Abolish the oligarchic Budget and Control Board and assign its various programs, duties and functions to appropriate government agencies and the General Assembly. • Establish a state Department of Administration to carry out the day-to-day activities associated with running the purely administrative functions of state government that are now principally the responsibility of the Budget and Control Board. • Complete the 1993 restructuring and move remaining government agencies into the governor’s cabinet • Ensure that the Office of Inspector General is funded and staffed fully so it can be the watchdog of taxpayer interests that it was created to be. • Implement programmatic budgeting to enhance accountability among the state’s agencies for how well they deliver services to the public
Vincent Sheheen • Restructure the General Assembly so it exercises its constitutionally-vested authority to conduct oversight investigations of the executive branch to ensure the laws it passes are being carried out properly and, hopefully, so that problems can be detected early and dealt with before they become a crisis. The restructuring of our state government will require constitutional and statutory reforms. These issues can be dealt with by taking the bold step of holding a constitutional convention to rewrite the state’s constitution or through an incremental approach. In Part One of this chapter, I offer the reforms we must undertake and provide thoughts about how to achieve them incrementally. Part Two of this chapter addresses the idea of achieving many of these reforms through a new state constitution.
PART ONE Fix our state government now!
Reduce the number of constitutional officers
The South Carolina Constitution splinters the executive branch into too many separately elected statewide officers. When I speak to groups, I often ask them to name our secretary of state, commissioner of agriculture or comptroller general. People very rarely know who hold these offices. Yet, we ask them to vote on these positions.
The Right Way In addition to electing a governor and lieutenant governor, South Carolina voters elect an adjutant general, attorney general, commissioner of agriculture, comptroller general, secretary of state, state treasurer and superintendent of education. The diffuse power structure established by our constitution fragments the executive branch, maintains the existence of meaningless offices and inserts partisan politics into state offices that should not be partisan. This needs to change. Many of these offices need to be run by effective, efficient officials who understand the powers and duties of their office. We do not need to inject partisan, elective politics into these offices because they are mostly bureaucratic in nature. Excepting for the governor, lieutenant governor, attorney general and treasurer, it is time that we move away from a multi-elected executive branch. Furthermore, either abolishing or unifying many of the now elected offices under gubernatorial leadership will mark a powerful step towards lessening the fragmentation of state government and focusing accountability on the one statewide official that voters look to for leadership—the governor. To achieve this end, we should amend the state constitution in several ways: • Comptroller General. The comptroller general performs purely administrative tasks. The comptroller general’s role is essentially to be the state’s accountant. His primary job is to make sure that we have the money in the bank to pay our bills and monitor the transactions of the state treasurer.25 A good comptroller general is someone who has a background in complex accounting for large entities with a broad scope
Vincent Sheheen of activities; preferably someone with governmental accounting experience. Partisan biases have no role in the duties exercised by the comptroller general. I have twice proposed legislation to abolish the comptroller general. Under my plan, the powers and duties of the office would be merged with existing offices and produce a more streamlined financial agency for the state through increased efficiencies and a reduction in duplicative administrative operations. Why waste money on an office and department that is not needed? Our governor should be able to find the right person for this job—the person with the right mix of skills needed to effectively administer this vital office, not the right mix of skills to get the most votes. • Secretary of State: The secretary of state is essentially a high-paid record keeper for the state of South Carolina who registers lobbyists and corporations and maintains municipal records.26 While the state needs a repository for these records and a person competent to manage the repository, we do not need to elect that person to a statewide office and pay for another salary and division of government. Rather, the duties of the office should be transferred to the attorney general’s office, primarily because of the importance that most of the records have to legal proceedings. • Adjutant General: South Carolina has the only elected state adjutant general in the country. The general serves as executive head of the State Militia,27 or Military Department. In that role, he also
The Right Way administers the affairs of the South Carolina Army and Air National Guard, the Emergency Management Division28, the State Guard29, Youth Challenge30 and Americorps.31 Given the heavy influence that the military has on this office, I believe that the adjutant general, even more than any other office discussed on these pages, should be apolitical. The administration of the Army and Air National Guard as well as operations of the Emergency Management Division during a natural disaster should not be influenced by political leanings or ambitions. Permitting the governor to appoint this position for a specified term of office with advice and consent of the Senate helps remove it from the elective political realm—as it should be. The members of the Army and Air National Guard deserve the right person for the job and the people of our state deserve to know that in the face of an emergency, we have the best possible people in place to help them make it through tough times. • State Superintendent of Education: Our public schools are in a crisis of neglect and right now they cannot look to Columbia for leadership. Like state government as a whole, our state educational structure lacks effective leaders, is highly fragmented, lacks strategic vision and has no single person that can be held directly accountable for its shortcomings. The state Board of Education is responsible for setting state education policy for the state superintendent32 to carry out. Correspondingly, the state superintendent can be held responsible for a limited
Vincent Sheheen number of administrative problems, but he cannot be held responsible for policy decisions that don’t work. Our governor holds the bully pulpit on educational improvement and too often fails to use it. The Education Oversight Commission has a role in setting policy and standards for our schools, yet is mostly made up of appointed officials unaccountable to anyone. Let me be clear: Our children need us to fix this educational unaccountability. We must streamline the state-level educational structure so we can embark upon one clear, coherent, strategic plan to establish our public schools as among the best in the nation. Even more importantly, we cannot continue to let our leaders hide behind organizational confusion as an excuse for failing to make the gains we need. To achieve this “one voice” for education, I propose we abolish the state Board of Education and have its powers and duties transferred to the state superintendent of education. A second step is to allow the governor to appoint the state superintendent so one unified strategic plan can be implemented and our highest state official can be held accountable by the voters for failing to take sufficient interest or action in public education. • Commissioner of Agriculture: This office has various duties related to helping farmers, administering weights and measuring systems, overseeing agribusiness-related licenses and regulations and more. Today, the office is much like a cabinet-level agency.
The Right Way It shouldn’t be a partisan political office. As such, I continue to call for the duties of the office to be under a non-elected cabinet agency appointed by and accountable to the governor.
Abolish the Budget and Control Board
For several years, I have introduced legislation to abolish the state’s Budget and Control Board. It is an oligarchic agency that controls a limited number of the operations of state government and has served as a repository for “an inter-branch smorgasbord of functions”33 that do not fit neatly into other agencies or programs. The governor chairs the board and serves with the treasurer, comptroller general, chairman of the Senate Finance Committee and chairman of the House Ways and Means Committee. Collectively, they oversee the administration of the confusing mixture of powers and duties vested in the board that comprise the byzantine agency. For example, the board is responsible for things ranging from ensuring light bulbs are changed in government office buildings to procuring of state government’s goods and services to regulating the use of the state’s geothermal resources and allowing state government to deficit spend. There are two primary problems with the Budget and Control Board. First, the blended executive and legislative functions irreparably blur the lines of proper separation of powers and, as a result, erode the inherent checks and balances that form the foundation of good government. Second, because a board makes decisions rather than an individual, accountability for
Vincent Sheheen those decisions suffers. The governor and other board members all too often hide behind “the will of the board” when faced with having to answer for unpopular or poor decisions. Furthermore, the board allows the governor to exercise legislative power and the legislative members to exercise executive power. The result is a disempowerment of the General Assembly as a whole on financial issues and a fragmentation of executive power on administrative issues. Following years of debate on this subject, I have concluded that the Budget and Control Board cannot be reformed. It must be dismantled and its component parts reassigned to appropriate government agencies and the legislature. For years, I have proposed eliminating the Budget and Control Board and creating a Department of Administration to absorb the purely executive functions currently undertaken by the Board34 that are not more appropriately located at another existing35 or a newly-established agency while sending the legislative duties to the General Assembly.36 Under my proposal, the Department of Administration would also house an Executive Budget and Strategic Planning Office to equip the executive with the tools necessary to make serious, thoughtful spending recommendations to the General Assembly and to establish a forward-looking strategic vision for our state government. Creating the Department of Administration will be a vital step toward establishing a more traditional separation of powers and bring with it the checks and balances that are necessary for accountability between the branches of government. A new department also will shift accountability for much more
The Right Way of the operation of the state to the governor and shift financial policy decisions to the General Assembly. Accountability, between the branches of government and individually for the governor, is fundamental to good government. When a government official knows he or she must explain decisions and actions, he or she is more careful about the decisions made or actions taken. Furthermore when things go wrong, knowing who to hold accountable is the first step in solving the problem. In 2012, the General Assembly took the first significant step toward eliminating the Budget and Control Board by establishing the Public Employee Benefit Authority to oversee state employee retirement and health care. In so doing, we were able to take employee benefits out of the hands of politicians and put them in the hand of industry experts. Now is the time to finish the job.
Complete restructuring started in 1993
In 1993, South Carolina saw a broad restructuring of our state government. The bipartisan effort resulted in the governor being handed an unprecedented amount of authority as the cabinet was drastically expanded. The governor now has 16 cabinet agencies37 that allow the chief executive to direct some of the most important functions of state government. For example: • The Department of Commerce and the Department of Parks, Recreation and Tourism are central to economic growth in the state. Properly utilized, those two agencies can bring jobs to our fellow South Carolinians and expand the revenue base for the government.
Vincent Sheheen • The Department of Health and Human Services and the Department of Mental Health provide vital healthcare for the neediest among us. The role that these agencies play will be increasing in the years to come. • The Department of Employment and Workforce provides the helping hand that our state’s unemployed need to bridge the gap between jobs—and helps match them with new job opportunities. But the 1993 restructuring didn’t go far enough. It must be completed because it is an indispensible part of establishing an accountable government with a clear separation of powers between the executive and legislative branches. There are still a few agencies operated by unaccountable, appointed boards38 or constitutional officers39 that need to be abolished or folded into the cabinet. Finishing the 1993 restructuring will end the days when the public has to go hunting for the person who is responsible for some problem caused by a government agency. The governor and the agency head will be forced to stand tall and account for the outcomes of their decisions. Some argue that the recent dysfunction of the Department of Revenue and the Department of Employment and Workforce are prime examples of why we cannot give the governor more authority. I disagree. I think that we are fortunate that the recent problems arose at cabinet agencies because we know the buck stops with the governor for the failures.
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Fully fund the new Office of Inspector General
On February 1, 2012, the governor signed into law a bill that I authored to establish the Office of the State Inspector General.40 This was significant for our state because for the first time we have a government official who “is responsible for investigating and addressing allegations of fraud, waste, abuse, mismanagement, misconduct, violations of state or federal law and wrongdoing in agencies.”41 Criminal matters were investigated by the State Law Enforcement Division or other investigatory agencies and then prosecuted by the Attorney General and our solicitors, but no single public official was dedicated to rooting out and exposing non-criminal but damaging mismanagement and misuse of taxpayer money.42 You have heard of the fox guarding the hen house. Well before this new agency in South Carolina, no one was guarding the hen house. By creating the Office of Inspector General, we have established a platform for enhanced accountability and an enforcement mechanism for breaches of the public trust related to governmental waste, fraud and abuse. Now it is time to ensure that the Office of Inspector General is funded sufficiently so that the inspector general can hire the staff and marshal the resources he needs to carry out his mandate. In fiscal year 2013, the Office of Inspector General was appropriated enough to hire four people.43 That was enough to get started, but it is far from where we need to be. It is going to take a commitment from the General Assembly and the governor to bring this office to staffing levels that it needs to fully act as the taxpayer watchdog it was created to be. In the
Vincent Sheheen fiscal year 2014 budget, the governor proposed a significant increase in the inspector general’s budget44 that should allow for hiring more staff. I support the commitment to the Office of Inspector General as reflected in her budget but I hope that the General Assembly will be able to improve upon her proposal. I will work to ensure the inspector general has the resources necessary to keep every agency of our state government accountable for their actions.
Restructure the legislature
South Carolina is often referred to as a “legislative state,” meaning that the General Assembly is the predominant power in the government. That may have once been the case but not so anymore. Truthfully, the General Assembly controls little of what actually occurs in the operations of state government’s day-to-day operations. The General Assembly, however, is complicit in our state government operating on autopilot for years because it neglects its responsibilities to review programs and agencies on a regular basis. Each year the General Assembly convenes on the second Tuesday in January and adjourns sine die on the first Thursday in June. It may come back for a day or two to complete some clean-up or housekeeping matters, but for the most part its work is done in early June. While in session, the General Assembly does little more than pass bill after bill on subjects ranging from where you can hunt to what you can buy in a store. The General Assembly also passes a budget each year that appropriates money to the various government agencies so that the “auto-pilot” can
The Right Way keep humming along. It would astonish most South Carolinians to see how quickly their representatives in Columbia spend billions of dollars without fully scrutinizing how well our government agencies are performing with the money they already have. It seems that debate on budgetary matters is rushed more each year. To combat this problem, the General Assembly needs to reform the way it appropriates the taxpayers’ money and change the way it generally carries out its business. A structural and cultural change is necessary for the General Assembly to transform itself into more of an active participant to steer the ship of state rather than a passive bystander enabling the ship to sail rudderless. Two important ideas could dramatically change how the legislature operates: Performance-based budgeting and proper use of legislative oversight.
Raising and spending revenue is one of the fundamental constitutional duties of the General Assembly envisioned by our early leaders. The manner in which the legislature carries out that duty is governed by statute. I have proposed that we change our statutory budget mechanism to a performance- or “programmatic-” based budget model. Under the current system, each agency comes to the General Assembly and asks for appropriations based upon what it received the year before. There is some quick talk in sparsely attended sub-committees and then the talk shifts to how much more money the agency needs to do the same job they did the previous fiscal year. This process is repeated year in, year out.
Vincent Sheheen Performance-based budgeting “differs from traditional approaches because it focuses on spending results rather than the money spent—on what the money buys rather than the amount that is made available.”45 While no one definition fully encapsulates the varied nuances involved in performancebased budgeting, it has been noted that “[m]any experts in public finance believe that the cardinal aim of PBB is accountability.46” Such accountability is the key to budget process reform that will ensure we have our limited resources properly focused on the agencies and programs that are performing. It will also expose the agencies and programs that are falling short so we can determine what, if anything, can be done to get them on the right path. Unlike the current system, a performance-based budget system requires agency accountability in the form of objective data concerning its progress toward achieving predetermined performance measures and the General Assembly’s active monitoring and assessment of that data and what it reflects. Without measuring outcomes, how can we know if our agencies are successful? After measuring outcomes, the General Assembly and governor can then make funding decisions based upon an agency’s or program’s performance. This approach is a much more complex system that requires increased attention from the agency and the General Assembly. It will force the executive and the legislative branches to engage more fully in the budgetary process and turn off the “auto-pilot.” I am also convinced a system like this will result in more thoughtful and informed appropriation decisions which, in turn, will improve the quality of governmental service delivery.
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In the modern age, the General Assembly has an obligation to do more than meet in Columbia and think up new laws to impose on the people of South Carolina. Section 1 of Article XII of the State Constitution requires the General Assembly to provide for appropriate agencies to function in the areas of health, welfare and safety, and to determine the activities, powers and duties of these agencies and departments. This constitutional duty is a continuing and ongoing obligation of the General Assembly that is best addressed by periodic review of the programs of the agencies and departments. Despite this constitutional duty, the General Assembly does not conduct appropriate oversight of the executive branch. As an institution, the General Assembly does not organize itself to exercise this duty and, as a matter of culture, the General Assembly has not yet expressed a desire to exercise this constitutional obligation. I have proposed legislation that will hold the legislature’s feet to the fire. Under this proposal, each agency of the state government will have to undergo a full oversight review by a legislative committee on a recurring schedule. Oversight investigations will focus on whether the agency is executing the programs, laws and regulations within its jurisdiction in accordance with the intent of the General Assembly and whether the agency or programs should be continued, curtailed or eliminated. In addition to the scheduled agency investigations, this legislation also allows for more frequent oversight reviews when appropriate.
Vincent Sheheen The goal of these oversight reviews is not to dig up dirt on government agencies or target them for unwarranted scrutiny. Rather, it is my hope these oversight activities will allow the General Assembly to troubleshoot issues before they reach a crisis point and support programs that are performing well. Of course, if problems are uncovered and an agency is found to be acting contrary to the intent of the laws within its jurisdiction, then appropriate action is warranted. Overall, legislative oversight should become a constructive, professional process of accountability where the needs of the people of South Carolina are at the guideposts for all involved. The citizens of this state deserve a legislature that operates in the modern age and is not stuck in the era of horses and buggies. Proper legislative review and oversight of state programs will result in dollars saved and better government.
PART TWO We should start over.
While we should take steps to address our state government’s problems incrementally to ensure we are moving in the right direction, we still need to start over. Our current state government is so flawed and fractured because it uses a constitution written in 1895 that does not allow us to adequately address the modern problems we face. Recent leaders have been so bad that our state needs a fundamental break with the past. Our starting point for South Carolina’s government is seriously flawed. It’s time to start over.
The Right Way We should adopt a new South Carolina constitution to break with our past and catapult us into the future. A state constitutional convention is the most efficient way to achieve fundamental restructuring that increases government accountability, transforms our government and breaks with our negative past. This is a bold step, but our current situation demands bold action. A constitutional convention is not a radical idea but one rooted in a core belief that power resides with the people. It also is idea with recent precedent. For many politicians, the idea of a constitutional convention to draft a new state constitution seems scary, but our country’s greatest leaders knew better. Thomas Jefferson mocked the timidity of leaders unwilling to consider changes to a state’s fundamental laws. “Some men look at constitutions with sanctimonious reverence and deem them, like the ark of the covenant, too sacred to be touched.” He went on to say, “laws and institutions must go hand in hand with the progress of the human mind.” People often confuse the creation and purpose of our state constitution with that of the United States Constitution. The comparison is false. The historical precedent and the traditions of the United State Constitution are vastly different than those surrounding most state constitutions, including South Carolina’s.47 In fact, scholars have noted that in the United States, there exist two distinct constitutional traditions, a federal tradition and a state tradition.48 The United States Constitution created a central federal government that could exercise only limited, enumerated powers. It was intended by its authors to bind together the sov-
Vincent Sheheen ereign states into one nation but restrain federal power without usurping the state’s sovereignty. Put simply, the federal constitution was a grant of authority to undertake certain actions and exercise certain authority ceded by the states to the federal government. As the foundational document creating our federal government, the United States Constitution has been tampered with only on rare occasion in response to an overwhelming consensus among the citizenry. The amendments—there are only 27 since 1789—primarily affect the fundamental rights of citizens and do not delve into vagaries of governing. State constitutions, on the other hand, have traditionally been more of an exercise in active, popular sovereignty. States commonly include policy decisions in their constitutions that affect the day-to-day operation of the state government and the lives of ordinary citizens. For example in South Carolina, we have provisions establishing the state lottery and protecting it from competition, the manner in which one county can use the proceeds of selling electric properties, the methodology that must be used when calculating ad valorem taxes and the regulation of alcoholic beverages. Furthermore, the structure of government established in many state constitutions in the late 1800s was reflective of an emerging populism. While the federal government opted for consolidation of power into three separate and powerful branches of government, states chose to fragment power into numerous statewide elected officeholders. In South Carolina, our current constitution from 1895 is no different. As mentioned earlier, our constitution requires that we elect a governor, lieutenant governor, treasurer, secretary of state, comp-
The Right Way troller general, superintendent of education, commissioner of agriculture and adjutant general. In the spirit of the constitution that fragmented power and authority so thoroughly, our government established numerous boards and commissions to operate a wide variety of state agencies. Both in actual, literal terms and in exercising the spirit of the document, the South Carolina Constitution has splintered the government so completely that it severely lacks accountability to the populace. Coupled with recent ineffective leaders, our form of government has led to a state government that is dysfunctional in the extreme. We must heal these fissures to create a strong executive branch of government, an empowered legislative branch and a true separation of powers. People have asked why I prefer to go the route of a constitutional convention rather than take an incremental approach. I am not opposed to healing our government incrementally. I am, however, skeptical that our current leaders will finish the job with that approach. I believe that when a government has reached such a level of dysfunction and disintegration as South Carolina’s, it is time to return the power to the people.
How a constitutional convention is called and what happens then
The authors of our current constitution anticipated that at some point in the future, the people of South Carolina would want to meet and rewrite the constitution. Section 3, Article XVI of the South Carolina Constitution provides that a constitutional convention may be called when two-thirds of the
Vincent Sheheen General Assembly adopt a resolution placing a referendum of the question on the next general election. If the majority of those voting on the question support it, then the General Assembly must provide for a constitutional convention. I have introduced a joint resolution to put this issue squarely before the General Assembly. It is time to act. If a majority of the voters support holding a convention, the issue then comes back to the General Assembly to set the wheels in motion. Again, I have introduced legislation to propose how the convention should be set up. Under my proposal, a South Carolina Constitutional Study Commission would be established to prepare a comprehensive analysis and report of current and future economic, social and other conditions. The work of the study commission would be made public and serve as the foundation of deliberations at a nonpartisan constitutional convention. The state constitution requires there be 124 delegates to the convention—the same number of members of the state House of Representatives. My proposal calls for non-partisan elections in each state house district for delegates. After the election, the delegates shall assembly, organize and begin deliberations. The deliberations must be concluded in about two years, unless extended by the General Assembly. When the delegates meet, everything will be on the table. They will have the power to apply their common sense and wisdom to the issues we face and come up with a new constitution, subject of course to federal constitutional limitations. I trust my fellow South Carolinians. I believe that they could achieve what the General Assembly has failed to achieve—true reforms for the sake of our children’s future.
The Right Way When the delegates agree upon a new constitutional framework, their work will be submitted to the voting public. The people will have the final say. A ‘yes’ vote adopts the new form of government and a ‘no’ vote maintains the status quo. And then, should we vote yes, we can move forward as a state.
Are constitutional conventions common?
There have been 233 state constitutional conventions held in our nation’s history. Many states, like South Carolina, have not adopted a new constitution since the 19th century. However, many states have revisited and changed their constitutions in modern times. Connecticut revised its constitution in 1965. Florida’s constitution was adopted in 1969. North Carolina and Virginia adopted new constitutions in 1971, Louisiana in 1975 and Georgia in 1983. In 2010, it appeared the voters in Maryland agreed to call for a constitutional convention. Unlike holding a constitutional convention and adopting a new constitution, putting the question before the people of a state as to whether they want to hold a constitutional convention is common. In fact, 14 states pose that question on the ballot in regular intervals ranging from every 10 years in Alaska, Hawaii, Iowa, New Hampshire and Rhode Island, every 16 years in Michigan and every 20 years in Connecticut, Illinois, Maryland, Missouri, Montana, New York, Ohio and Oklahoma. Admittedly, these ballot questions regularly fail49 but I think presenting the option to the voting public is the right thing to do. It stimulates the conversation of whether we have the government we want or whether we want—or need—to make fundamental changes. We owe it to the voters of South Carolina to get their input.
What we need next
Through weak leadership in recent times and a governmental system confusing to virtually everyone, South Carolina’s government has arrived at a low point. We have a choice: To continue with the same poor leadership and same poor system, or break with the past and make dramatic change. We can’t afford to wait on current crop of political leaders to make the changes our state needs and deserves. We must take things into our own hands and force change. Either through incremental or dramatic change, we must alter the trajectory of South Carolina’s future. My children and yours deserve our best efforts.
Making it fair
When I was a boy, I can remember my mom telling me to clean up my room. Why? Because it was usually a mess with clothes on the floor, a baseball glove here, a football there. I wasn’t the neatest or the most responsible kid and, more often than not, my clothes and things ended up shoved under the bed or stacked in the closet. Unfortunately for people who live in our state, many of our recent state governmental leaders have acted more like irresponsible children than responsible adults when cleaning up the taxing and spending issues of this state. They have literally jumbled our tax code into an amorphous mess and shoved it under the figurative bed to mold. The result is an unfair tax code, unstable revenues to support core government functions and a disincentive for business growth. For years, the revenue system that funded state services from state troopers and parks to public schools and roadways was a balanced chair of four legs—income taxes, sales taxes, property taxes and user fees. But in recent years, the state’s leaders have made the chair shaky with a series of untested and unwise tax changes to score political points with voters without keeping sight of future needs. In short, state leaders
The Right Way transformed a relatively coherent and balanced system into a non-sustainable and dysfunctional mess that: • Screwed up the property tax system on a popular whim that hurt businesses and caused the tax chair to teeter; • Smashed the sales tax system with billions of dollars of special-interest exemptions that eroded its power and made it more volatile in bad times; • Flattened the benefits of the income tax system by making it less fair; and • Dramatically increased fees and charges to benefit the few at cost to the many. If South Carolina continues to tinker around the edges with its existing tax structure, nothing substantive will change. One of the greatest obstacles to robust economic growth in South Carolina is our state’s broken and dysfunctional tax system. Furthermore, a special-interest-controlled tax code means that general taxpayers will end up with fewer core services that they say they want. Sure, in good times of budget surpluses, politicians will spread the wealth to make all appear rosy. But all they’ll be doing is bandaging a broken system, which will unravel once again when they cut what they recently added during downturns. It’s a seesaw system of government that leaves us all up in the air. Now is the time to do something and get off the seesaw of this dysfunctional tax structure. We can’t afford to keep a broken system that is unfair to most South Carolinians. If we don’t do
Vincent Sheheen something soon, South Carolina’s economic power will continue to be stifled. As has been said many times before, doing the same thing over and over again and expecting a different result is the definition of insanity.
A little background
Many South Carolinians complain about high tax rates. And they’re right. But the reason they’re right is that the base from which those taxes are collected is narrow compared to many other states. For example, South Carolina collects less in sales taxes than it exempts from the sales tax. According to a 2012 study50 by the State Budget and Control Board’s Board of Economic Advisors, the state exempted or excluded $3.1 billion in sales taxes to more than 80 special interests. It collected about $2.7 billion in sales taxes at the rate of 6 cents per dollar in the same time period. Or how about this: just over 40 percent of South Carolinians— more than 870,000 of 2.1 million state individual tax returns— paid no state income tax at all in fiscal year 2007, according to a December 2010 report offered by a special blue-ribbon state panel of business leaders, the S.C. Taxation Realignment Commission.51
“South Carolina ranked 37th among 50 states and the District of Columbia in taxes as a percent of income in 2008. South Carolina’s 8.8 percent of income paid in state and local taxes was lower than the U.S. average of 9.7 percent. Georgia ranked 16th at 9.9 percent and North Carolina ranked 20th at 9.8 percent.”52
The Right Way South Carolina generally has much higher tax rates because the tax base is smaller than it should be due to exemptions, exclusions and lack of tax liability. As Chester grassroots activist Michael W. Fanning of the group Reduce Our Awful tax Rates (ROARSC.com) has said to scores of people who attended tax reform seminars, South Carolina’s tax code is such a mess that we collect taxes at twice the rate that we have to from payers to fund what needs to be done.53 How much sense does that make? As we work to develop comprehensive tax reform proposals for South Carolina, we must understand how South Carolina’s taxation system compares to other states. A very helpful resource is the “50 State Comparison” released annually by the private group, The Taxpayers Network. This guide, which can be found online at www.TaxpayersNetwork.org, generally provides objective data about state spending and taxation. It also provides state-to-state comparisons of average personal income, property levels and economic activity. If you look at the report, you can see that South Carolina is a comparatively low-tax state. Some data: • Tax burden. South Carolina’s “Tax Freedom Day”— the day that taxpayers in the state have earned enough to pay all of their taxes for the year—fell in 2011 on March 29. That was the third earliest date in the nation, which can be interpreted as the overall tax burden faced by South Carolinians being the third lightest in the country.54 If you rank state and local tax burdens, as the Tax Foundation has done, South Carolina had the 10th lowest tax burden in the coun-
Vincent Sheheen try in 2011, according to the group’s 2012 report.55 As a percentage of income, South Carolina’s tax burden was 8.4 percent, compared to the high in New York of 12.8 percent and low of 7 percent in Alaska, which relies on oil production to keep taxes low. • State sales tax rates. South Carolina and 10 other states have a relatively high state sales tax rate of 6 cents on the dollar. Fifteen states have higher rates, with California topping the list at 7.25 percent. Twenty states have lower rates than South Carolina; five states have no sales tax.56 • Cigarette tax. While South Carolina had the lowest cigarette tax rate a few years ago at 7 cents per pack, we raised it by 50 cents in 2010. But today, our tax still is 9th lowest with New York’s per pack rate being the highest at $4.35 per pack and Missouri the lowest at 17 cents per pack.57 • Gasoline tax. South Carolina’s tax at the pump is 16.8 cents per gallon, the fourth lowest in the country. The gas tax hasn’t been raised in more than 20 years. If it had been indexed to inflation, it would be just over 30 cents per gallon, which is about what Georgia’s gas tax is and about a dime per gallon less than North Carolina’s.58 If you are looking for one map to highlight how the tax environment has fundamentally changed through the years, just look at how tax collections for states changed from 2001 to 2011. The Tax Foundation describes how South Carolina has
The Right Way had the second highest decline in tax collections in the country in the 10-year period.59 The state collected 18.04 percent less in 2011 in real dollars from state tax revenues than it did in 2001. Only one state—Georgia—had a higher decline. This is just more evidence about how our nonsensical tax system is hurting our state’s ability to deliver core government services like roads, police and public education while not even lowering tax rates. During the last 20 years, the number of people who make South Carolina their home rose from 3.5 million to 4.6 million—a 30 percent increase in population. But the number of state employees dropped from about 80,000 to less than 58,000. Yet many people expect at least the same level of law enforcement, public education and road improvement as 20 years ago.
Creating fair tax policy
For South Carolina to have a more balanced tax structure that removes gross inequities and becomes fairer, we need to have a complete tax overhaul. Our state should take into account some basic economic principles. (Note to readers: This is the section that may be real boring, but it’s important because our broken tax system operates like a three-ton anchor dragging down our economic growth. Fortunately for all of us, I’ve tried to keep this short and relevant): • Fairness: Tax systems can be measured as “fair” based on how they treat people’s ability to pay taxes. A tax is balanced, or fair, if everyone pays essentially the same rate at the cash register or tax office.
Vincent Sheheen • Efficiency. For a tax system to be efficient for economists, it generally minimizes negative impacts as much for everyone as possible. “An important aspect of efficiency is to rely on several broad-based taxes with relatively low rates, rather than few kinds of taxes at higher rates.”60 • Adequacy: If a tax system is adequate, it generates enough revenue in a stable manner to fund government services called for by citizens. For tax systems to be adequate, they need to be predictable and keep up with population and economic growth to cover increased service needs. Inadequate tax systems often are unbalanced and lead to a seesaw effect—surpluses in boom years and revenue shortfalls in bust years. • Simplicity: Tax systems should be simple. Taxpayers don’t have to struggle to comply with simple tax systems because meanings are clear and transparent and, therefore, more accountable. Taxpayers often gain confidence in tax structures that are easier to understand and open. • Neutrality. A “neutral” tax system doesn’t impact economic decisions of taxpayers. That means a consumer’s choice of purchases isn’t due to a tax on one thing being higher than another. For example, all sales taxes on books are the same—taxes aren’t different on books with red covers compared to those with black ones.
The Right Way With these definitions61 as the underlying principles of reform, South Carolina should undertake comprehensive reform in several areas, including property tax improvements, sales tax reform, income tax changes and more.
Improving the property tax system
In South Carolina’s early days of funding public schools, the state relied on a statewide property tax. But in the early 1920s, South Carolina eliminated the statewide property tax and instead reserved property tax for counties, municipalities, local school districts and other local entities. By 1951, the state chose to invest more money on educating its children and enacted its first comprehensive sales tax, a 3 percent levy on retail sales that was increased to 4 percent in 1969. In 1985 through the Education Improvement Act, another penny in sales tax was added for educating the state’s children.62 South Carolina also continued to rely heavily on local property taxes for both funding school construction and school operations. This reliance on local property taxes caused a growing tax burden on local property owners and unequal funding for students based on where they happen to live. If, for example, a student lived in a county with a broad tax base, such as an urban county, property taxes could be comparatively low but pull in a lot of revenue. But if they lived in a rural county without much of a property tax base, property taxes tended to be high, yet still not provide revenues to keep up with urban and suburban schools. In 2006, the General Assembly enacted property tax change that essentially was a property tax-sales tax swap for school
Vincent Sheheen operating expenses. In exchange for abolishing property taxes on owner-occupied homes for school operating purposes, the General Assembly increased the sales tax by a penny to 6 percent, reduced the sales tax on groceries, capped local government’s ability to increase tax revenue and capped reassessed values to artificially cap taxable value. The legislation was short-sighted, caused a serious disruption to the real estate market, shifted the burden of local property taxes onto business property and destabilized funding for schools. These changes, known as Act 388, must be reviewed today to deal with expected and unforeseen consequences. For example, the legislation initially sent sales tax dollars back to the school districts based on a dollar-for-dollar exchange in 2006, not based on the number of pupils at schools. The salesproperty tax swap also generated much less in revenue in recent years than expected, in part because of the Great Recession as people purchased less. “Thirty-nine of the state’s 85 school districts saw actual declines in state funding per pupil between 2006-07 and 2009-10. Another eight districts had increases of less than 2 percent per year. The 47 districts at the bottom of the state funding list include 20 poor school districts. … The consequences of Act 388 of 2006 suggest that it is perhaps time to take a more comprehensive look at the state’s role in funding public education and in promoting equity in funding across districts with unequal needs and unequal resources.”63 Another negative repercussion: Renters and business property owners continue to pay taxes for school operating expenses. A 2013 report by the state Budget and Control Board highlights how the property tax burden for business owners
The Right Way grew an average of 9.4 percent across the state from 2005 to 2011, principally as a result of Act 388’s attempt to protect homeowners from school operating tax hikes. Otis Rawl, head of the S.C. Chamber of Commerce reiterated in 2013 that Act 388 “was the worst piece of tax policy the General Assembly could ever consider passing, because it put business at odds with our education community. I think the General Assembly understands that they screwed up but nobody’s got the intestinal fortitude to say, ‘We need to go back and fix it.’”64 Any comprehensive review of South Carolina’s tax system must include substantial changes to our property tax structure, particularly to address inequities. Overall, property taxes are an antiquated way to fund schools because they levy taxes on a limited pool of citizens who may have little direct relationship with education, an occurrence even more prevalent today as businesses shoulder an unbalanced share of the burden. The overall property tax system is fundamentally unfair and must be overhauled or replaced. For example, Act 388 generally cut the growth of property tax for wealthy people causing increases on property taxes owned by middle-class property owners. The tax also discriminates against young people trying to buy a new home because they pay taxes based on a higher market price, instead of the capped reassessed value that more established homeowners enjoy. So here are some ideas on how we can make property taxes fairer in the future:
Vincent Sheheen • Abolish local property taxes for school operating expenses and institute a low statewide property tax that uses the state’s entire property base. This approach would allow the state to distribute funding equitably across the state regardless of where students happen to live. This system also would reduce inequities in the tax system created by Act 388 and would tend to inject more money in poorer schools that have been historically underfunded. Additionally, it would ensure that property taxes generated from new major manufacturing facilities and power plants will be distributed across the state, instead of being limited to isolated areas. • Fair market value. Assess property based on true fair market value so that government isn’t picking winners and losers, or punishing small businesses, young people and newly married couples trying to grow their businesses and families. By abolishing local property taxes for school operating expenses, property taxes can remain low while also being assessed in a realistic and fair manner. • Lower the industrial tax rate assessment. The current industrial property tax rate for manufacturing or warehousing is 10.5 percent. That’s way out of whack with the commercial property tax rate (6 percent) or owner-occupied rate (4 percent). It is also the highest industrial tax rate in the entire country! Talk about a disincentive for business to locate here.
The Right Way • Catch the tax cheats. Law enforcement and county tax authorities should beef up enforcement against property tax cheats who claim the lower owneroccupied tax rate of 4 percent when unjustified. For example, out of state people who own property in South Carolina should never be allowed to claim a home as “owner-occupied.”
Modifying South Carolina’s sales tax preferences
If we accept that a major policy goal of comprehensive tax reform is to create a broader tax base so we can reduce rates on everyone, South Carolina should dust off the bipartisan Taxation Realignment Commission’s report from 2010 for ideas. One of the key components of this report, developed primarily by business leaders, is to change how the state taxes sales of goods and services. As mentioned earlier, South Carolina gives up more revenue in sales taxes—about $3.1 billion—than it takes in thanks to a bevy of special-interest sales tax loopholes, exclusions and caps. Back in the early 1950s when South Carolina started a sales tax to help fund education, South Carolinians generally bought more goods—clothing, food, appliances, furniture—than services. But legislators quickly bowed to the pressure of special interests to exempt or exclude certain goods from sales tax. Among the first things exempted were books, magazines and newspapers used in schools, which today costs the state $15.6 million in uncollected tax revenues. Also exempted early were:
Vincent Sheheen • Livestock ($82.2 million of unrealized tax revenue); • Poultry and livestock feed ($41.9 million); • Insecticide and farming chemicals ($20.6 million); • Newsprint paper and newspapers ($13.1 million); and • Coal and other fuel sold to manufacturers and power producers ($127.5 million). Today, there are more than 80 different types of produces exempt from sales taxes, including: • Tangible personal property sold to the federal government ($244.6 million of unrealized tax revenue); • Telephone toll charges ($57.8 million); • Motor fuel ($721.8 million; gas is taxed by the gallon, not by a sales tax); • Recycling, manufacturing and mining equipment ($69.9 million); • Prescription medicine and prosthetic devices ($448.8 million); and • Residential electricity ($276.7 million). The list65 goes on and on. And some of it just doesn’t make sense. For example, the state collects $300 in sales taxes for a $5,000 15-foot fishing boat—and the exact same amount on a $6.5 million yacht. And why exactly is it that newspapers aren’t subject to sales tax but magazines are? Maybe both
The Right Way should be exempt or maybe both should be taxed. Either way, we should have some logical reasoning behind sales tax loopholes in South Carolina. South Carolina needs to have a debate on how it taxes sales. Quite frankly, some sales tax exemptions make sense. For example, having an exemption on manufacturing equipment encourages manufacturers to invest in South Carolina, which creates jobs. But some exemptions, especially some created when we bought more goods than services, might be outdated now. Today, we live in a knowledge economy. Isn’t it time to review the exemptions and exclusions that have been on the books for up to 60 years and see if they still make sense?
“Removing unnecessary sales tax preferences will create a fairer tax and open the door for meaningful tax reform.”66
The TRAC report suggests that South Carolina’s sales tax base needs to be broadened:
“One of the few areas where South Carolina does not rank as a low tax state is sales tax. At 6 percent, South Carolina is tied for 13th highest nationally. Due in large part to a tremendous narrowing of the tax base (only 38 percent of gross sales are subject to tax in South Carolina,” TRAC recommends a broadening of the base by repealing or amending more than 60 of the state’s 80-plus sales and use tax exemptions, exclusions, “max” taxes and/or discounts.”67
If South Carolina repeals or revises three-fourths of its existing loopholes, it would collect more than $600 million in unrealized revenue. The TRAC panel suggested that the revenue
Vincent Sheheen could be used to lower the sales tax rate on everyone to make the regressive sales tax less tough on all families. If it did so, the rate could drop by a penny or two, which would make the state more attractive to outsiders and help families keep more of their household income. We would also build a more stable revenue system to adequately fund core governmental services and get off South Carolina’s budget see saw of the last decade. The goal of tax reform should not be to raise taxes. To achieve true economic success, our state must reform how it taxes goods so that it can reduce the rate for everyone. That’s something we should all be for.
Mend the income tax
At the turn of the last century, Congress proposed the Sixteenth Amendment to the U.S. Constitution, which gave it power to collect taxes on incomes. Ratified in 1913, states soon followed suit by enacting state income taxes to provide more revenue to pay for things like education, roads, bridges and other infrastructure. South Carolina started its income tax in 1927 with proceeds directed to the state’s General Fund. In the 2011 fiscal year, according to the state Department of Revenue, the state collected $2.4 billion in income taxes at a rate of 3 percent to 7 percent, depending on an individual’s or family’s taxable income.68 Unlike sales taxes, which are considered regressive, income taxes are, in theory, progressive because the more that someone earns, the more he or she pays in taxes. Why? In part, 67
The Right Way progressive taxes balance the regressive nature of sales taxes. Progressive taxes are also strategy by governments to balance the burden of income inequality so that people who have more means and who have more non-essential luxuries pay a higher percentage in income tax. What’s interesting, however, is that over the years, the progressivity of income taxes has eroded because there’s not a whole lot of difference between one bracket and another. A few years ago, South Carolina eliminated the lowest two brackets so that five remain. However, the top bracket imposes a 7 percent tax on taxable income that’s more than $13,800. The lowest bracket imposes a 3 percent tax on taxable income of at least $2,760. The point, as you may see, is there’s virtually no difference between the remaining top and bottom brackets. For all intents and purposes, the so-called progressive income tax has become a flat tax in South Carolina because a large percentage of taxpayers have income that’s more than the highest bracket. Some progressivity of the income tax remains, however, because 43 percent of South Carolina’s individual income tax returns incurred no tax. Zero. Of the state’s 2.1 million returns in fiscal 2011, 884,516 individual returns had no income tax liability, according to the Revenue department. Perhaps some of them should have a small financial stake in the income tax system as well? With this information as a backdrop, there are some policies that lawmakers should consider to restore balance to the tax system through its income tax:
Vincent Sheheen • Adjust brackets. As in most Southern states, South Carolina’s income tax brackets haven’t been adjusted in decades since we were a farm-to-market economy. Because there is little difference between the remaining income tax brackets, progressivity can be increased if the state considers adjusting them upwards, which would lower rates on middle class taxpayers.69
“Southern states are now in a 21st century economy with 21st century incomes. It is imperative for states to modernize their tax systems for today’s economy by expanding tax brackets and by possibly creating new top rates to reflect actual conditions of today’s Southern residents.”70
• Earned income tax credit. The federal Earned Income Tax Credit helps poor and working poor families and individuals across the United States by giving them an incentive to work. If filers work and earn a low income, they may qualify for the EITC, which can reduce or eliminate their federal tax burden. Few Southern states have state earned income tax credits. From a policy standpoint, South Carolina has something similar to, but more general than, an EITC because it exempts all taxable income less than $2,760 from state income tax. But the removal of the two brackets does just as much to reward people who are not working as it does to those who do work. The state may want to consider a refundable earned income tax credit to give low-income South Carolinians an incentive—and a reward—for working.71 We should reward and encourage work in our state.
The Right Way • Other exemptions. While we saw the huge inequities in the sales tax system from $3.1 billion in specialinterest giveaways, the state lost more than $469 million in individual income tax breaks, according to the 2010 Department of Revenue report.72 Some of the bigger tax credits make sense, such as the child care income tax credit that helps 113,267 filers to the tune of $19.6 million in lost revenue. But there are some smaller corporate tax credits which must be examined to ensure they are justified. To boost fairness in the tax code, our leaders need to review these credits and ensure that each is justified. • Corporate income tax. South Carolina’s corporate tax rate is considered low, according to the TRAC report, but generates a “not insignificant” pool of revenue of about $200 million per year over the last 10 years. But only 11 percent, or about 11,000 filers, actually end up owing corporate income tax, which is an indication of potential inequities among corporate taxpayers. The TRAC report offers almost 50 pages of information and recommendations on the corporate income tax. Our state’s leadership should review the concepts in the report, eliminate identified loopholes and implement recommendations that will make the corporate tax system more equitable.73
• Treat S.C.’s Main Street businesses and out-of-state Internet businesses equally. Right now, Main Street retailers face unfair tax treatment because Internet sales merchants generally don’t have to collect and remit state sales taxes to South Carolina. That gives out-of-state online retailers a competitive advantage over a South Carolina business selling the same product. We need to work with other states to get Congress to approve a multi-state solution to eliminate the Internet sales tax preference to take a burden off Main Street retailers in South Carolina. Doing so will make their businesses stronger—and save jobs in the Palmetto State. Any savings could be used to lower rates in South Carolina. • Add sunset provisions to sales and income tax loopholes. One way to ensure that sales and income tax loopholes for special interests have a limited impact, particularly on a modern tax system, is to include a provision that requires them to expire unless they are renewed. Such “sunset” provisions would make the state’s tax system more adequate and equitable in the long term. One of my favorite Bible passages is from Proverbs, Chapter 29. Verse 18 says, “When there is no vision, the people perish.” South Carolina’s leaders have given us no vision of what the future should look like and the path for getting there. Com-
The Right Way prehensive tax reform is a dire necessity for the long-term economic success of our state. We need leaders who can envision increased prosperity by reforming our tax structure. For too long, we’ve had a do-nothing approach to government in South Carolina. That’s why, in part, we rank on the bottom of lists that we should hope to be on top of and the top of list we don’t want to be on at all! For too many years, we have bought into the myths that government cannot do anything well and that we must settle for mediocrity. Wrong. Now is the time to stand up and demand better. Our children can’t afford for us to wait.
Let’s fix our roads and bridges before they fall apart
When I was 14, my dad took me far out of town and down a country highway to teach me to drive. We went out there a few times so that I could get the feel of the car and the feel of the road without too many distractions. Today, I am a state senator for a rural district that includes that country road. I find myself going up and down it frequently as I travel to distant parts of my district. And sadly, that very road is in much worse shape than it was when I first learned to drive. Think about that: 25 years ago, our state government maintained its roads better than it does now. Our parents and grandparents were responsible enough to provide a good road for us to learn to drive on. Shouldn’t we do the same for our kids and grandkids? South Carolina’s transportation infrastructure—her roads, bridges, rail lines and waterways—is broken and needs help. The state road system, the fourth largest in the country, needs billions of dollars of repairs. The rail system needs fixes to make dramatic improvements to the flow of commerce to our ports, the economic engines of the state. We need bold leadership now 73
The Right Way to take three steps to make our transportation system more competitive: • Transform how we pay for our transportation infrastructure; • Focus on fixing existing roadways and bridges, not expanding the system; and • Fundamentally change the structure of the state Department of Transportation to make it more accountable.
Step one: Fix how we pay for highways, roads and bridges
The condition of our nation’s transportation infrastructure, particularly our highways, roads and bridges, has been deteriorating for decades. The federal government has dedicated billions of dollars to addressing our needs, but South Carolina can no longer be so reliant on the federal government. South Carolina is further behind than the rest of the nation. Our roads and bridges are crumbling right before our eyes. Riding on rural roads is becoming more treacherous every day. Interstate 85 through Cherokee County is said to be one of the most dangerous stretches of road in the Southeast. In fact, South Carolina’s roads have been rated as among the most dangerous in the country. According to the U.S. Census, South Carolina had the fifth highest rate of traffic fatalities in the country as of 200974 and nearly twice the national average in 2012.75 Just last year, a study conducted by CarInsuranceComparison.com rated our state as being the “state with the most dangerous highways.”76 74
Vincent Sheheen To put this sad situation into perspective, a report to the Federal Highway Administration77 notes that “over the last 10 years, S.C. has averaged over 100,000 crashes a year, including approximately 1,000 fatalities a year. Of the 100,000 crashes, over 90 percent of them occur on state-maintained roadways.” These are startling numbers. The human toll resulting from our substandard state highway system is unacceptable. Furthermore, economic activity is extremely reliant on a good and viable transportation system. From the movement of goods to the movement of people, business needs good roads, rail, bridges and ports.
Funding of transportation infrastructure
Funding for the state Department of Transportation’s operations comes from state and federal funding sources. Ironically, the federal government pays more to fix South Carolina’s roads than our own state does. The primary state funding source is the gas tax also known as the “motor fuel user fee,” which generates about $500 million per year and accounts for approximately 71 percent of all state-source highway funding.78 Federal funding comes in the form of reimbursements from the federal government for certain approved expenses. Generally to get a federal reimbursement, the state must pay for the entire project and the federal government will reimburse the state for 80 percent of the cost. This works out to be an 80-20 federal-to-state cost-sharing arrangement. The department’s federal aid program stands at approximately $640 million per year, including the state match.79 However as with all federal funds, there are strings attached. The federal funds can only be used for certain types of projects, such
The Right Way as Interstate maintenance, bridge replacements and primary route maintenance.80
The cost of fixing transportation
Like with anything, the amount it costs to fix a road depends on how badly it is broken. Unfortunately for South Carolina, our roads are in awful shape. According to a recent report by the Transportation Infrastructure Task Force,81 “SCDOT anticipates a $29.3 billion shortfall over the next 20 years to bring the state’s roads to a service level” of good.82 That means that just to get our roads to good condition by 2033, the Department of Transportation is going to need at least $29.3 billion in new revenue.83 Generating that amount of revenue is an unbelievable challenge for a state like South Carolina. But it is a challenge we cannot afford to ignore. Our fathers and grandfathers were willing to invest in and create a worldclass road system that we inherited. We can do no less for our children and grandchildren.
Using diverse streams to pay for better infrastructure
Currently, state highway funding is too dependent on one source of revenue — the so-called “gas tax.” South Carolina must diversify funding for the state Department of Transportation. We need to weave together funding sources that complement one another and provide some security against instability—economically or otherwise.
Vincent Sheheen • The gas tax won’t do it: Every state in the union employs some sort of motor fuel user fee, or “gas tax,” to raise revenue to fund highway planning, construction, operation and maintenance of its transportation infrastructure and operations.84 Motor fuel user fees have low collection costs and are relatively fraud proof.85 However on a national level and in South Carolina,86 revenue collections from motor fuel user fees has failed to keep up with inflation, rising construction costs, increased usage of more fuel efficient vehicles and a decline in miles travelled by the public.87 The gas tax can’t maintain our highways and bridges. The gas tax has remained at 16.8 cents per gallon since 1987 and is not adjusted for inflation.88 It is the fourth lowest in the nation and about half of what is charged in North Carolina and Georgia.89 Some have argued that raising the motor fuel user fee is the most effective and fair way to stanch the bleeding that’s weakening our roadways and bridges. But simply increasing the gas tax is not enough to solve our transportation funding crisis because doing so would not address the long term trends and demographic changes that point to a continued decline in per-gallon motor gas tax collections. In other words, with vehicles expected to get more miles to the gallon in the future, revenues over time likely will decrease. Former state Secretary of Transportation Buck Limehouse has recommended increasing the gas tax by
The Right Way 5.5 cents per gallon90 and my colleague, Republican Senator Paul Campbell, suggested increasing it by 6 cents per gallon.91 Either of those two recommendations falls short of what is needed to even start getting our roads up to “good” condition.92 A trade association advocating for an increase in the motor fuel user fee, the South Carolina Alliance to Fix our Roads (www.SCFOR.org), is proposing the fee be increased so that an additional $600 million is collected annually—that would require an increase of between 18 to 20 cents a gallon.93 An increase of that magnitude would raise a significant amount of money but would place an ever increasing burden on those who can least afford it. Furthermore, simply increasing the gas tax fails to address the systemic weaknesses that are eroding the usefulness of the gas tax only approach. The time has passed for a simple per-gallon gas tax to solve our problems. We have to do something different. • Bonding for long term investments: Just like a family that built a house, South Carolina historically used long term bonds to fund long term infrastructure investments like buildings, roads and bridges. This approach makes sense because the use of infrastructure is enjoyed by generations of our citizens. The approach especially makes sense in a times of extremely low interest rates. South Carolina has a very good credit rating and a large capacity to use bonds for permanent infrastruc-
Vincent Sheheen ture improvements. The use of bonds would allow the state to inject a tremendous one-time infusion of funds needed to bring our roads up to standards while using other sources of revenue to maintain their integrity. The responsible use of bonds can go a very long way toward solving our road problems in South Carolina. • Dedicate some General Fund revenue for roads. The state’s General Fund is used to pay for government’s day-to-day expenses. In 2012, the state enjoyed a $379 million general fund surplus.94 Even with increased revenue, only $57,270 was appropriated to the state Department of Transportation from the General Fund.95 As a state, we must decide that road funding is such a priority to deserve a portion of general tax revenue—especially surplus revenue. The easiest way to set aside money for roads is to make it automatic by having any surplus sent to the Department of Transportation. In fiscal year 2012 with a $379 million surplus, $300 million was sent to the Port of Charleston to pay for its harbor deepening project. That is a project well worth the money. However, dedicating funds to address the transportation crisis is equally meritorious. Had the state taken this approach last year, we could have provided the Department of Transportation with $379 million more of state funds—an increase of more than a 60 percent.
The Right Way Even if we still set aside the full $300 million for the harbor deepening project, we could have provided the Department of Transportation with an additional $79 million dollars—almost a 16 percent increase in state funds. One recent idea calls for a process that gradually sets aside up to 5 percent of the General Fund for the Department of Transportation. In each year when a General Fund surplus equals 3 percent, 1 percent of the actual revenue would be set aside for the department. The percentage sent to the department would be built into the budget during succeeding years. The set-aside would keep growing until capped at 5 percent. And funds would be limited to maintenancerelated activities. Whether we dedicate funding from surpluses alone or whether we set aside funding from the General Fund another way, it must be done. If we fail to do so, we will be failing to take one of the necessary steps toward solving our state’s transportation funding crisis. • Other revenue sources that could be options. We must study other potential revenue sources to pay for the roads and bridges this state has neglected for years. The South Carolina Taxation Realignment Commission and the Transportation Infrastructure Task Force have studied alternative methods of taxation to help address the funding transportation funding deficit. These deserve further study:
Out-of-state truck tax. We should evaluate all tax revenue generated from truck travel within our state to ensure that we are comparable with other states’ approaches. Alternative fuel revenue. This approach devises an effective means of imposing user fees on vehicles that use alternative fuel sources. Those vehicles still cause damage to the roadway but, because they use less—or no gasoline or diesel—their contribution to maintain and build roads is drastically diminished.96 New fees. Increase fees that are directly related to using the state’s infrastructure. The Task Force recommended increasing the drivers’ license fee. The fee currently stands at $2.50. For each dollar that it is increased, the Department of Transportation will receive an additional $3.3. million. Another idea: Increase the automobile registration fee. It has not been increased since 1987. For each dollar it raised, the department collects $2 million. And consider raising truck registration fees. Each 10 percent increase would result in $6 million per year.97 Lease rest area to private businesses. With the consent of the federal government, existing and new rest areas could be leased to private businesses which could establish gas and food sales for the traveling public while also generating revenue for the state’s infrastructure needs.
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Step Two: Implement a “Fix it First” Program
By any measure—actual road miles maintained, lane miles or the percentage of total state miles—South Carolina has the nation’s fourth largest state-maintained transportation network.98 Additions to our state system place an increased burden on an already overburdened maintenance program. I have called upon the Department of Transportation to operate with a “Fix it First” policy. It’s a very simple concept—if we can’t afford to maintain roads we already have, then how can we afford to build new ones? The limited resources available should be focused on fixing what we have. Unfortunately, the Department of Transportation has not dedicated the resources we have to maintaining our existing roads.99 Even with a “Fix it First” policy, there are circumstances where some new roads must be built. What we must get away from is the impulse to build new roads just because funding is available. That’s why we should adopt rules like the “Fix it First” legislation I have promoted in the state Senate to ensure our roads can support a 21st century economy.
Step Three: Make the Department of Transportation more accountable
The S.C. Department of Transportation is generally thought of as being in the governor’s cabinet as the result of departmental restructuring in 2007. The governor appoints the secretary of the department who runs the administrative functions of
Vincent Sheheen the agency. But the General Assembly elects the commission which is responsible for setting the policy for the agency to carry out. Under this divided system, accountability can be a problem. If an issue arises that falls within the secretary’s authority, then the secretary can be called to account for his actions. For example during summer 2011, the state Department of Transportation was seriously mismanaged and had cash flow problems. Contractors across the state were not getting paid. All attention was focused on the secretary and he was called before a legislative panel that was investigating why this unacceptable failure was occurring. The secretary accepted responsibility for the shortfall and, importantly, explained that it would be fixed and not occur again. More than a year later, the Department has addressed the cash flow problem. I am convinced that this dysfunction in the agency was remedied because the legislature was able to exercise oversight of a person who was ultimately responsible for the failure. The same can’t be said for the commission. A couple of years ago when controversy arose about a massive commission approved bond package, there was no one that the public could call upon for an explanation. Commissioners had different views about what had transpired. No one could stand with one voice and defend the action taken. While accountability worked to solve the cash flow problem, a lack of accountability caused confusion and frustration with the commission’s bonding proposal.
The Right Way Highway funding and management is a complex issue. While power to run the agency is appropriately the realm of the governor, the power to budget money must be reserved for the legislature. Therefore, the DOT Commission should be abolished and the legislature should reclaim and exercise its responsibility over managing and setting road funding policy. Shirking this obligation has led to a lack of accountability in allocation of road maintenance and construction funding and in a parochial mindset in road building that has harmed the state. Every area deserves to have a voice in allocating road maintenance and construction funding. Furthermore, the State Infrastructure Bank, which is used to fund large road projects, should be combined with the Department of Transportation to provide a consolidated and accountable approach to road improvements and maintenance.
Let’s fix our transportation problems now!
As highlighted, South Carolina has a major transportation infrastructure problem. Our roads are congested, dangerous and an impediment to our state moving forward economically. The problem did not arise overnight and we cannot fix it overnight. But we must make a long term-investment in our highways, roads, bridges and other modes of transportation just as our forefathers did. We are already behind the curve and can’t afford to remain there.
Jobs and Economic Development
I have spent almost my entire life working in the private sector. I grew up running a neighborhood lawn mowing business and working in my father’s small printing and office supply store, where I had the honor of being the head toilet bowl cleaner and floor mopper. In the summers, I collated, stapled and stacked printed materials in Dad’s shop. My jobs during high school and college included working construction site clean-up, golf course maintenance, concretegrinding and as a law firm runner, just to name a few. Since marrying and having children, I have assisted hundreds of small businesses and individuals as an attorney, and I have owned and managed a small commercial property business. Like most South Carolinians, I believe in hard work. I believe we should expect everyone who is physically able to have a job. I don’t believe in handouts. But I also expect that our state government will do all it can to ensure that opportunities exist for our citizens to find a job. It’s in all of our interests for the state to provide a hand-up in the form of job training, economic development, good education and support for small businesses.
The Right Way As communities across the country struggle with emerging from the Great Recession, we must continue to search for solutions to help businesses create jobs. In many ways, economic development in the post-Great Recession world will be vastly different. Capital investment figures will likely increase and job creation could decrease as companies wring productivity gains from automation and fewer workers. South Carolina must be ready to meet the challenges of the changing economic world.
Coming out of the Great Recession
South Carolina’s unemployment figures have been shockingly high compared to the rest of the nation for almost 10 years. In the 1990s, our beloved state had one of the lowest unemployment rates in the nation.100 But under our leaders of the last 10 years, we have seen that figure skyrocket with South Carolina consistently ranking in the top 10 in unemployment. South Carolina was rated as the fourth highest on the Bloomberg Network’s “Misery Index” in part due to our economic woes.101 South Carolina’s median household income has declined dramatically per family from 2008 to 2011 and is one of the lowest in the nation.102 South Carolina’s poverty rate has soared during the last few years and has actually moved backwards compared to other states.103 South Carolina has almost no Fortune 500 companies headquartered within our borders,104 and private investment is notably lacking compared to other states.105 As I have met with numerous start-up businesses, I frequently hear the common complaint that venture capital is also scarce in our state.
Vincent Sheheen Perhaps most troubling, our state is one of the three worst states for upward mobility by the population.106 What most of us believe in as the “American Dream’s” promise of upward mobility is harder to achieve in our state than almost anywhere else in the union. In other words, a child is much less likely to escape the bonds of poverty in South Carolina than in our sister states.
How our state must change now
As the competition for new jobs intensifies, South Carolina must identify and eliminate barriers to growth as well as intensely focus on assisting existing companies grow and prosper. South Carolina is fortunate to recruit companies from all over the world such as Michelin, Boeing, BMW, General Electric and Honda, just to name a few. In fact, foreign investment is one of the few areas in which we rank high in comparison to our fellow states.107 We should continue to leverage this advantage that originated with the foresight of former governors like Fritz Hollings and Bob McNair. To continue our success and move to the next level, our state must critically evaluate our economic development efforts and overcome our weaknesses. To improve our competitive position in the global marketplace, South Carolina must take four actions: 1. Lower the property tax on manufacturers; 2. Streamline our disorganized workforce training to match and maximize tomorrow’s job opportunities;
The Right Way 3. Develop creative solutions to retain and expand our existing companies; and 4. Encourage the development of small businesses and entrepreneurs.
Time to lower South Carolina’s tax on industrial property
Making South Carolina more competitive for industrial development must begin with a property tax rate on manufacturers. Currently, manufacturers are assessed 10.5 percent of the market value for both their real and personal property. Compare that to the 4 percent rate paid by homeowners on their primary residence. According to the S.C. Taxation Realignment Commission, this rate is the highest industrial property tax rate in the country.108 More importantly from a competitive standpoint, this rate is significantly higher than other states in the Southeast where South Carolina competes for new jobs and investment. While South Carolina’s overall tax burden is in the bottom third of the country,109 its high tax on manufacturers stands out to companies conducting an in-depth analysis of operating business costs. In addition to having the highest industrial tax rate in the nation, manufacturers in South Carolina have also been on the receiving end of a tax shift as Act 388 continues to place the burden of school operating taxes on businesses.110 For school districts to raise revenue, they must rely on business proper-
Vincent Sheheen ty, since the portion for homeowners is capped and unavailable to support schools. To stay competitive and attract new industries, South Carolina counties currently use an incentive commonly referred to as a “fee in lieu of tax” agreement or FILOT. Under these agreements, counties negotiate with companies to lower the assessment ratio from the standard 10.5 percent to as low as 6 percent in most cases and 4 percent for extraordinary projects. This lower assessment ratio allows companies to enjoy lower property taxes. A locked millage rate adds a protection against escalating local property tax rates. Over time, counties have successfully utilized the FILOT to remain competitive with neighboring states. A county can also utilize a Special Source Revenue Credit (SSRC) to further lower the property tax paid by manufacturers. Before the Great Recession, SSRCs were used but the size and frequency has increased since the downturn in the economy as counties have become more aggressive in competing for new jobs. Despite the use of these tools, South Carolina still is often at a disadvantage in attracting new industries since other states also have incentive programs that further reduce their already low property taxes. FILOTs and SSRCs do not offer any relief to existing companies simply trying to survive the new economic reality. For companies in survival mode and not adding new capital investment or jobs, these tools are unavailable. That means existing industries in South Carolina shoulder the highest industrial property tax rate in the country with no tax relief available.
The Right Way FILOTs are also complex and expensive to negotiate, draft and approve. These incentives can be even more complicated depending on the size and complexity of the deal. Questions sometimes also arise regarding adequate disclosure to the public. While some projects are straightforward, others take considerable time to negotiate and approve. There’s a better way. A far simpler and fairer approach would be to lower the assessment ratio for all manufacturing companies whether they are expanding their operations or struggling to stay in business. Reducing the assessment ratio for all industrial property: • Allows South Carolina to be more competitive against our neighboring states; • Allows existing companies that are not expanding to receive the benefit of lower taxes, which will make them more competitive; • Eliminates a system of “haves” and “have nots” whereby new companies and growing existing businesses are now on the same playing field as long time manufacturers, who have been paying a higher rate for years; and • Eliminates the time and expense it takes to negotiate and approve FILOT agreements. An important consideration in lowering the assessment ratio for industrial property is the effect on schools and local governments. Manufacturing property is an important source of revenue for the governments closest to the people due to its
Vincent Sheheen high rate of return versus the cost to serve. Often, one manufacturing facility can generate the same amount of revenue as hundreds of homes without the additional burden to existing governmental services. A phased-in approach to lowering the assessment ratio over a reasonable amount of time would lessen the fiscal impact on the local jurisdictions. Furthermore, a truly state funded system of public education would help allow a seamless transition. Ideally, a reduction in industrial tax revenue would coincide with comprehensive tax reform and a shift to a state funded system of public education. For example, less revenue from manufacturing property taxes could be offset by eliminating some of the obsolete sales or income tax loopholes our state has. The state then could send revenue from elimination of tax loopholes to the counties and school districts to offset any lower revenue. For economic development, the last thing we need is more cuts to public education or worse services from local governments. Schools need to be producing a new generation of educated workers. Hamstringing their ability to do so with less funding is counterproductive to our state’s quest for jobs and economic development.
Streamlining worker training
We have all heard how “too many cooks in the kitchen spoil the recipe.” This phrase describes workforce development in South Carolina. Too much of a good thing gets complicated and confusing. In this case, many different groups are doing a good job trying to improve the workforce in this state. But
The Right Way the system is fragmented and confusing to the end user: companies and employees, making it less effective than it should be. A partial listing of the entities providing workforce development and training programs sheds light on this confusing system:
• • • • • • • • • S.C. Department of Employment and Workforce; ReadySC; State technical colleges; State Workforce Investment Board; Local workforce investment boards; S.C. Department of Vocational Rehabilitation; Vocational schools in school districts across the state; Adult education programs; and Private workforce training businesses.
While all of these organizations may provide important services, the delivery system is confusing to companies navigating this maze. We deserve a better coordinated approach that encompasses all of the programs. For example, the State Workforce Investment Board has the responsibility to coordinate federal Workforce Investment Act funds that come to South Carolina but does not have the authority over any other workforce programs. That kind of fragmentation needs to change. Regardless of who is in charge, better coordination on the state level is needed. South Carolina must integrate the various workforce programs into a seamless and well defined network that is easily understood by both workers and com92
Vincent Sheheen panies. Businesses need a truly one-stop shop, and South Carolina employees deserve it.
Better training for tomorrow’s workers
Another critical problem holding back South Carolina’s economic development efforts is the gap between available jobs and the skills of the existing workforce. As already mentioned, companies coming out of the Great Recession have placed more emphasis on upgrading technology and automation to increase productivity with fewer workers. These changes require employees to have more technical skills than in the past. With the need for more skills comes a need for more practical training. Technical degrees are even more important than four-year degrees in many circumstances. Unfortunately, need does not match reality when it comes to producing graduates with the necessary skills and training. Many jobs in the future will require either a two-year degree or technical certificate. Today, some workers with four-year degrees are enrolling in two-year technical colleges to receive the specific training necessary to qualify for today’s jobs. We must change the perception of technical colleges to encourage young people to attend these critical institutions for economic development. The state should make a technical college education affordable for every hardworking and dedicated student willing to give the needed effort. The dividends in the long run far outweigh any short term costs. Programs such as those offered by the state technical colleges show what South Carolina can do to train workers and attract companies. Created by the foresight of past progressive lead93
The Right Way ers in our state, the technical college system is at the forefront of training tomorrow’s workers by providing the skills necessary for today’s jobs. The tech system’s strength is flexibility in adapting to the everchanging needs of today’s employers. Changes in technology alone can be staggering, but the state’s technical colleges offer the ability to quickly respond to those changes. This ability to change quickly to meet the needs of employers is why the tech system is ideally suited to help take on the skills gap challenge and why no willing worker should be turned away from its doors. A key to success is identifying not only the skills necessary to excel in today’s workforce but identifying the jobs and skills that will be in demand for tomorrow’s workforce. A good example is the emergence of the aerospace cluster in South Carolina. Before Boeing came to Charleston, training for aerospace jobs was not on the radar in South Carolina. Now, ReadySC is helping to meet Boeing’s immediate needs by training potential workers on the specific needs the company has. For longer term needs, Trident Technical College and other twoyear colleges can adapt their curriculum to the needs of Boeing or spinoff companies as new processes and technologies emerge. Fully funding our state’s technical college system is a critical component for a successful economic future.
Helping our existing businesses to grow
Just like it’s easier to keep an existing customer instead of attracting a new one, it should be easier for South Carolina to assist existing companies to succeed than to attract new ones.
Vincent Sheheen However, our state’s economic approach seems to focus on the exact opposite. Counties and the state spend a large amount of time and money to attract new companies while paying little attention to the companies already here. The retention of existing companies must be a priority. Our state Department of Commerce, regional economic alliances and county efforts must examine, create and propose new and innovative ideas to assist existing businesses thrive and prosper, including economic incentives, better integration of workforce training, a shift away from the reliance on business property taxes for school funding and promotional efforts for South Carolina businesses all across the world. One of the results of the Great Recession has been the increased number of consolidations as companies have done more with less. One strategy has been to consolidate multiple facilities from a company’s network into a single operation. Competition for these consolidated operations is intense as counties and states fight to ensure their community is the one that does not lose jobs. Consolidated operations often do not increase the headcount at the facility but may actually decrease them as companies turn to automation to increase productivity, many economic development professionals say. This scenario is especially difficult for states and counties since most incentives are geared toward new job creation and capital investment. Currently, South Carolina does not have any incentives to retain jobs as a result of consolidation or downsizing. We should all agree it is important to retain jobs.
The Right Way One idea is for our economic development professionals to identify existing companies that may be a target for consolidation. This effort can be accomplished by strengthening Business Retention and Expansion programs (BRE) at the local level. Most counties have some form of BRE program as part of their economic development efforts. Some programs are more sophisticated than others, but the mission in all of them should be to develop strong relationships with the management of existing industries. If done properly, company leaders will feel comfortable sharing information or issues with the local leaders before problems become public, and they will be able to develop collaborative solutions to keep jobs in South Carolina. When this strategy is employed properly, local business and government leaders are working on the same team to strengthen the business case for the facility. The worst case scenario is when there isn’t the relationship and a company does not feel comfortable reaching out to local officials for assistance. The state should ensure that every county has a strong BRE program that ensures regular contacts occur with existing industry via site visits, phone calls or even emails. Even if a county has the best BRE program in place and is able to be proactive in identifying companies in danger of consolidation or acquisition, it still needs more tools to help retain jobs locally. We have to remember that existing jobs in South Carolina are potential new jobs for other states and targets for recruitment to their communities. Two potential ideas for incentives to retain jobs include property tax reductions on existing property and expanded retraining programs for companies looking to retool their processes.
Vincent Sheheen One stumbling block for many long-term manufacturers in South Carolina is the high property tax rate previously discussed. If a company is not expanding its facility or constructing a new building, its real property is not eligible for a property tax reduction even if the county is willing. A solution to this problem is to allow counties to designate certain properties for property tax reduction if the company certifies that it is being considered for a corporate consolidation. Certain parameters must be made part of any agreement to ensure counties are not simply played for lower property taxes. Consolidation can also lead to existing workers having to learn new processes if unfamiliar products are a result of the consolidation. The state should be particularly tuned in to providing assistance with the cost of retraining our existing workforce on these new products or processes. Normally, ReadySC is only available when a company is expanding its workforce. The state does have a Job Retraining Credit similar to the Job Development Credit, but it is rarely used. This program should be tweaked to make it more meaningful to existing companies. The program should be flexible enough so the companies can use the training provider of their choice whether it is a technical college, a third-party training company or the company’s in-house trainers. Ideally, the local technical college will be able to assist with the training. Bottom line: All workforce incentives offered by the state and counties should be reviewed with an eye toward how they can be revised to assist existing companies in danger of closing. As much emphasis needs to be placed on business and job retention as it is on job creation.
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Focusing more on South Carolina’s small businesses
We hear politicians say over and over that small business is the backbone of the economy. Yet we see little tangible assistance offered by our leaders to small businesses. Definitions of small businesses range from less than 10 employees to less than 500 employees. No matter how you define them, small businesses comprise a critical component of the economy that needs to be encouraged. The question is how to use limited resources to provide meaningful assistance to the companies who deserve it the most. Most local economic development organizations limit their work to assisting manufacturing, distribution and officerelated projects. This approach is not an intentional slight against small businesses but a decision to help those companies with the greatest potential impact given the limited resources available. What is excluded from most local economic development offices’ services is support to startup companies and entrepreneurs. This reflects, in part, a lack of expertise in the area but also recognition that the failure rate of these types of companies is high. A handful of groups around the state provide services to startups and entrepreneurs, but they are the exception rather than the rule. The S.C. Department of Commerce has a department that provides access to resources for small businesses, but there is little affirmative effort by the state to assist small business.
Vincent Sheheen What is missing most in South Carolina is the right business climate to encourage startups and entrepreneurs. One solution is to help cities and counties create an atmosphere for those companies to thrive. For example, Georgia’s Department of Commerce has focused on its Entrepreneur-Friendly Initiative to help communities incorporate a small business/entrepreneur program within an overall economic development program.111 The idea is for cities and counties to develop an entrepreneur-friendly environment so startups have the right resources to grow. This goal is achieved by identifying a local champion, forming a committee to support the initiative and taking concrete steps in the local community. Other actions include creating awareness in the community on the benefits of entrepreneurs as well as linking local entrepreneurs with federal and state resources to assist them. Interviews with existing local entrepreneurs to discover their needs are also an important component of the program. While we don’t have to duplicate Georgia’s program, we must create an atmosphere and resources statewide for startup companies and entrepreneurs to attract them and assist them in success. The state should not only focus on creating clusters of large manufacturing businesses but also work to create local clusters of small businesses. An example from my hometown of Camden illustrates this point. With planning and investment, Camden could even better capitalize on its already well-know small business success in historical tourism and the equine industry. With the dramatic reduction in the textile industry,
The Right Way our small towns and rural areas are in danger of drying up and blowing away. Small business clustering, promotion and investment may be the only way to save them.
Conclusion: Driving job growth in South Carolina
Job growth is the key driver for South Carolina’s future. An employed citizenry makes a successful state. Having a quality education system, a fair and reasonable tax system and an accountable and efficient structure of government are important to job creation. The Great Recession has added even greater urgency to developing an environment conducive for companies to invest and create jobs. The good news is that South Carolina already has a great potential for success. The challenge is that economic development is extremely competitive and other states are constantly improving their efforts. For South Carolina to grow its competitive edge, several issues must be tackled now. Lowering the nation’s highest industrial property tax rate is a critical starting point. Tackling the skills gap between the existing workforce and the jobs of the future is also key to lowering our high unemployment rate. As the new economy emerges, retention of our existing businesses in South Carolina will become even more important as companies continue to consolidate. Finally, creating an environment conducive to startups and entrepreneurs will help create jobs as these new companies grow and mature. A vibrant economy equals a strong South Carolina.
We have so much more to do
More Good Ideas
South Carolina has even more challenges and opportunities than this book addresses. Below are just a few more hurdles South Carolina faces and some ideas for improvement.
Support rural South Carolina
South Carolina’s rich culture and history comes, in large part, from its rural communities. We are blessed to be who we are because of wonderful communities spread across our state. As a proud son of the small town of Camden and state senator for three of our state’s rural counties, I have a special commitment to rural South Carolina. Over the last 20 years, our state’s rural areas have entered into a crisis situation. Much of rural South Carolina relied on textile plants and other low-skilled manufacturing for job opportunities for most of the last century. With the off-shoring of the bulk of these jobs, our rural areas have seen unemployment rates reach catastrophic levels. During this decade, some of our rural counties reached jobless rates of more than 20 percent according to our Department of Employment and Work Force. Furthermore, steady funding for rural schools has been difficult to provide, and education test scores in rural areas steadily trail scores from urban and suburban schools.
The Right Way Our state needs a multipronged approach to saving our rural areas and small towns. Failure to meet this challenge will doom many communities to a low standard of living and even non-existence. North Carolina has met this challenge head-on and invested heavily in the strategies and infrastructure for its rural areas. We should do the same. For example, a focus on adding value to agricultural products can increase wages, production and job numbers. The real money in agriculture is most often not in the crop itself but in the packaging, processing and marketing of it. Unfortunately in South Carolina, we all too often ship our crops out of state where processors, packagers and marketers make the real money off of our production. The state can assist farmers and businesses by giving financial incentives for the creation of agricultural production, local markets and processing facilities in our rural areas. Similarly important is investment in road, sewer, water and other necessities to encourage businesses to be willing to locate in our smaller towns and rural areas. Finally, a dedicated effort to attracting high-quality teachers into rural areas is absolutely critical if we are to break the cycle of educational failure that we too often see in our rural counties.
Treat law enforcement officers with the respect they deserve
Our law enforcement officers deserve better treatment than they have received from our state’s leaders over the last decade. Highway patrolmen quietly working a second job just to make ends meet are not unusual. Our state’s law enforce-
Vincent Sheheen ment officials are woefully underpaid and their numbers have shrunk as the population of the state has boomed. According to the S.C. Department of Public Safety, the state, which has a population of around 4.5 million people, had only 798 highway troopers on the road in 2012. And of course, they all couldn’t be on the road at the same time! To put the numbers in perspective, our state had 1,045 troopers on the road in 1994. Since then, the numbers of people and cars in the Palmetto State has skyrocketed. Is it any wonder our roads are so dangerous and the traffic laws are so infrequently respected? Not only have our state’s leaders put an increasing burden on law enforcement, but they have treated our officers stingily in their pay. The way South Carolina generally structures law enforcement pay is that an officer who has worked 20 years will make almost the same amount of money as a newly-hired officer on the same level. We give no incentive or reward for long service. Our officers are woefully underpaid compared to their peers around the country and increasingly even within the state when compared to local police pay. The state’s officers have done heroic jobs in meeting the increasing demands with fewer numbers, but shouldn’t we treat better the men and women who we ask to risk their lives to protect our society? As our economy grows and budgets increase, increased law enforcement pay and boosted numbers should be top priorities.
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Promote energy efficiency and alternative energy production
South Carolina has a huge stock of housing that is energyinefficient. Older homes and mobile homes are notorious energy wasters. Mobile homes make up almost one-fifth of the houses in this state, according to the Electrical Cooperatives of South Carolina. South Carolina could easily create a state revolving loan fund to partner with power companies and homeowners to perform energy efficiency renovations. Homeowners would save money by bringing down power bills. Power companies would conserve energy production. And the state could recoup its investment with a small interest growth. A large-scale project based on such a plan would also create thousands of jobs as energy renovations companies worked to re-insulate homes, replace antiquated heating and power units, and perform other energy efficiency remodeling. South Carolina has tremendous potential for offshore wind and biomass production. As an energy poor state, we must explore all possible sources for clean and renewable energy. South Carolina is one of the few states that owns its very own power company, Santee Cooper. Owning a power company presents incredible opportunities to make renewable energy become a priority in our state.
Lower the price of homeowners’ insurance
South Carolina’s rates for homeowners’ insurance are some of the highest in the country. Our state is known for having an understaffed and outgunned Department of Insurance
Vincent Sheheen that neither has the ability nor the inclination to aggressively examine and critique increases in rates made by some of the world’s largest and most sophisticated companies. Companies have manipulated South Carolina’s lax insurance regulations and department with resulting homeowners’ insurance rates higher than need be. For example, over a recent five-year period, homeowners’ insurance companies took in $33.2 billion from South Carolina homeowners and only paid out $18.4 billion in claims.112 South Carolina should undergo a total re-examination of all regulations on insurance rates. It should have pro-homeowner directors running the insurance department. And it should invest in a knowledgeable and sophisticated staff that can better understand the models and proposals submitted by giant insurance companies when they seek rate increases.
Bring sanity to state higher education policy
Not too long ago, I received a call from a frustrated parent and student. The student was transferring from one state institution of higher education to another, but some of the classes already taken by the student were not being recognized by the new college. That is stupid, and it still occurs in South Carolina. It shouldn’t. Furthermore, we should require our technical colleges and universities to accept credits earned at other state technical colleges and universities. South Carolina now has the highest average college tuition rates in the Southeast and one of the highest in the United States of America.113 College tuition has skyrocketed as our state’s leaders have cut funding to higher education by more 105
The Right Way than 50 percent to some colleges. This is nothing more than a dramatic tax increase on young people and their dreams. Our leaders are pricing the middle class out of a college education. The alternative has become hundreds of thousands of dollars of debt incurred by our future workforce. This is a dumb policy. We should dedicate a decent portion of future budget growth to stabilizing college tuition. And when the state funds higher education in a reasonable manner, colleges and universities should be required to keep tuition increases low. While our colleges and universities are world class, our statewide higher education system tends to be disjointed and uncoordinated. For example, funding for institutions varies widely based on no objective criteria such as student population. We must better allocate our state dollars based on some objective measurements of need and performance.
We deserve better
What South Carolina most needs today is leadership. We need leaders who care more about our wonderful state than they do their own petty political careers or ideologies. With good leadership, our state can be successful—regardless of an antiquated governing structure, lack of funds or historical challenges. We have seen it done before. Leaders like Fritz Hollings, Dick Riley and Carroll Campbell brought people together and worked toward a common vision. They were more interested in moving the state forward than promoting their own careers. For several decades, South Carolina was viewed as a leading state in the “New South.” Through enlightened leadership by Hollings and others, we saw the creation of South Carolina’s technical college system, a model for many parts of the United States. Through strong partnerships and efforts, our leaders pushed South Carolina to the top of the list of having investment from foreign manufacturers. In the 1960s, ‘70s and ‘80s, we saw incredible growth in access to college education for the middle class, the enactment of progressive consumer protection provisions and a dedicated commitment to public education improvement.
The Right Way Our state emerged from the civil rights era of the 1960s with less disharmony and violence than many Deep South states because of strong leadership from people like the late state Sen. I. DeQuincey Newman and U.S. Rep. Jim Clyburn. People working together for the good of our state reached a high point in 1972 with the election of progressive governor John C. West over an opponent who appealed to racial hatreds. More than a generation ago, we saw our state’s unemployment rate plummet through a combined effort of intense improvement in public education and strong economic development by leaders like Riley and Campbell in the 1970s and ‘80s. With a collaborative commitment from legislative and executive leaders, our state led the nation in improving ethics laws and reforming government structure in the early 1990s. Somehow, however, we have let the naysayers gain the upper hand over the last couple of decades in South Carolina. You know who I am talking about—the people who tell us what we can’t do instead of what we can do. These are folks who believe nothing will ever get better and that things just are what they are. I am not one of these people. I do not believe that the South Carolina I know is made up of people like that either. From Camden to Charleston, Aiken to Horry and Due West to Denmark, the people I know and meet in South Carolina believe we can do better than what we have experienced in South Carolina’s recent government. In fact, we must. Our leaders have changed from the positive, can-do believers who took unified action to improve our state into a bunch of naysaying ideologues with little interest in governing. Instead of looking out for the best interests of the state, these negative
Vincent Sheheen partisans seem simply to be looking out for the best interest of their own political careers. It doesn’t have to be this way. We again need people who believe in South Carolina and her potential. We need leaders who believe South Carolina shouldn’t be on the bottom of all the good lists and the top of all the bad ones. We need citizens and elected officials who believe so much in our state that they will work hard together across regional, partisan, racial and economic divides to achieve success. We need elected officials who believe they will make a difference in improving our state. And we need ideas—ideas like the ones discussed in this short book. We need fresh ideas that lead to lower college tuition, equitable public school funding, 4-year-old kindergarten, comprehensive tax reform, investment in roads and bridges, reform of our government and, ultimately, a much better South Carolina. But we also need more than just ideas. We need ACTION—action that turns the status quo of the negativists on their heads. It is almost too late. But together, we still have time. If we don’t quickly get South Carolina moving again, our children and grandchildren will pay the price for decades to come. Politics is not a game and government is not a place for personal enhancement. Politics and government are human means to join together in an effort to form a more perfect society. The abuse of important societal institutions that we have seen for more than a decade should sicken all of those who call themselves South Carolinians.
The Right Way This book is not about me. It’s about our South Carolina— a South Carolina we know can exist if we join together in a common vision with leaders who actually care about our state. We are better than what our government has looked like in recent history. We have been better before. We deserve better now. It’s up to us to engage and change. We must do it again…the right way.
Vincent Sheheen ENDNOTES
1. “Petigru, James L,” Wikipedia, http://en.wikipedia.org/wiki/James_L._Petigru 2. For a list of the more than 130 military battles and skirmishes fought in South Carolina during the Revolutionary War, check out this list at Sciway.net: http://www.sciway.net/hist/amrev/engagements.html 3. Leonard, Pat, “The Angel of Marye’s Heights,” The New York Times, Dec. 14, 2012. 4. Smith, Tim, “State still lacks child-support enforcement system,” The Greenville News, Aug. 22, 2012. 5. “Tuition and Fees by State: Public Institutions,” in “Trends in College Pricing,” CollegeBoard Advocacy and Policy Center, 2012, Figure 7, p. 17. 6. Carnevale, Anthony P. et al, “Help Wanted: Projections of Jobs and Education Requirements through 2018,” Georgetown University Center on Education and the Workforce, June 2010., p. 91. 7. South Carolina Kids Count data for 2012, http://datacenter.kidscount.org/data/bystate/stateprofile.aspx?state=SC&loc=42 8. For a concise review of the case’s history, see Andy Brack’s April 20, 2012, article in Statehouse Report: “On hold: High court needs to rule on 1993 school funding case.” http://www.statehousereport.com/CurrentIssue.aspx?ID=180#Commentary 9. “Publicly Funded Pre-Kindergarten Programs Serving 4-year-olds in South Carolina,” Fact sheet from S.C. First Steps, Nov. 13, 2012. 10. Ulbrich, Holley H., “School District Organization and Governance in South Carolina,” Jim Self Center on the Future, Clemson University, March 2010. 11. Bernanke, Ben S., “Challenges for the Economy and State Governments,” Speech delivered at the annual meeting of the Southern Legislative Conference of the Council of State Governments, Charleston, S.C., Aug. 2, 2010.
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12. Fact sheet from S.C. First Steps, Nov. 13, 2012. 13. Lynch, Robert G., “Enriching Children, Enriching the Nation: Public Investment in High-Quality Pre-Kindergarten,” Executive Summary, 2007. http://www.epi.org/publication/book_enriching/#exec 14. “Business case for early childhood investments,” Partnership for America’s Economic Success, The Pew Center on the States, p. 2, cf. endnote 16. http://www.readynation.org/uploads/20110614_PAESCaseStatementWithEndnotes.pdf 15. Carnavale, et. al., p. 91. 16. Aguirre, Elisa, et.al., “A Cost-Benefit Analysis of Universally-Accessible PreKindergarten Education in Texas,” May 2006, p. 5. http://bush.tamu.edu/research/capstones/mpsa/projects/TECEC2006/ ExecutiveSummary-ACost-BenefitAnalysiofHigh-QualityUniversally-AccessiblePreKindergartenEducationInTexas.pdf 17. Belfield, Clive R. “An Economic Analysis of Pre-K in Arkansas,” from the Pre-K Now Research Series, November 2006. 18. “History of Georgia’s Pre-K Program,” http://decal.ga.gov/Pre-K/AboutPre-K.aspx 19. “Georgia’s Pre-K Program Public Bulletin, 2011-12,” http://decal.ga.gov/documents/attachments/Pre-KFactSheet2011.pdf 20. DECAL and Voices for Georgia’s Children Celebrate Georgia Pre-K Week and 20th Anniversary of Georgia’s Pre-K,” News release, “Bright from the Start”: Georgia Department of Early Care and Learning, Sept. 28, 2012. 21. “Paying later: The high costs of failing to invest in young children,” Partnership for America’s Economic Success, January 2011. http://www.readynation.org/uploads/20110124_02311PAESCrimeBriefweb3.pdf 22. “Paying later.” 23. Herriott, Don, “Investing in early childhood education will pay big dividends,” Florence Morning News, Dec. 7, 2012. 24. “About SEA Reporting – Government Accountability,” Government Accounting Standards Board. http://www.seagov.org/aboutpmg/gov_accountability.shtml
25. 19 SC Jur Constitutional Law § 27. 26. 19 SC Jur Constitutional Law § 27. 27. 19 SC Jur Constitutional Law § 27. 28. The Division is responsible for the implementation of a State Emergency Plan, conducting a statewide preparedness program and establishing and maintaining an Emergency Operations Center. 29. The State Guard is a military force that the Governor can call into duty if the National Guard is ordered into federal service and the governor is of the opinion that the State lacks proper defenses. 30. A program designed to intervene on behalf of at-risk youth. 31. See: http://www.scguard.army.mil/index.php 32. 19 SC Jur Constitutional Law § 27. 33. Underwood, James L. The Constitution of South Carolina. Volume 1: The Relationship of the Legislative, Executive and Judicial Branches, p. 132 (1992). 34. The Division of General Services is the prime example. Among the Division’s broad duties are the maintenance of state office buildings, the operation of a motor fleet and the disposition of surplus property. These are all clearly executive functions in which legislators should not be involved. 35. The Department of Health and Environmental Control operates the natural resources permitting programs. Geothermal resources are natural resources but are currently permitted by the Budget and Control Board. 36. The Confederate Relic Room is essentially a museum the operation of which falls within the orbit of the Budget and Control Board. Because the Relic Room focuses on a very narrow, but important, time period, it makes sense to vest its governance with a separate board that has subject matter expertise. 37. This number includes the Department of Transportation which operates under a hybrid governance model. The governor appoints the secretary of transportation who runs the day-to-day operations and the DOT commission is the policy making entity for the department.
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38. Most notably the Department of Health and Environmental Control and the Department of Natural Resources. 39. Treasurer, comptroller general, commissioner of agriculture. 40. Act 105 of 2012, R. 112, S. 258. 41. Section 1-6-20(B) of the South Carolina Code. 42. Of course, if the Inspector General uncovers criminal activity, he is must turn it over to the proper prosecutorial or law enforcement agency for investigation. 43. Section 72D, Part IA, H. 4813, General Appropriations Bill for Fiscal Year 2012-2013. 44. Executive Budget, Fiscal Year 2013-2014, pg. 249. 45. Young, Richard D. (2003) “Performance Based Budget Systems.” Public Policy and Practice. USC Institute for Public Service and Policy Research. Quoting Carter, K. (1994) The Performance Budget Revisited: A Report on State Budget Reform. Legislative Finance Paper No. 91. Denver, CO: National Conference of State Legislatures. 46. Young, Richard D. (2003) “Performance Based Budget Systems.” Public Policy and Practice. USC Institute for Public Service and Policy Research. 47. The last constitutional convention held in South Carolina was in 1895. Prior to that, the people of South Carolina had seen fit to meet together to perfect their form of government in 1776, 1778, 1865 and 1868. 48. There have been 149 separate constitutions in the various states. Louisiana has had the most, 11, with the most recent being the 1975 Louisiana Constitution. 49. In 2012, ballot questions in Alaska, New Hampshire and Ohio failed by an average of 67 percent to 33 percent. 50. “Sales and Use Tax Exemptions/Exclusions in FY2012-2013,” S.C. Budget and Control Board, Board of Economic Advisors, April 23, 2012. http://www.bcb.sc.gov/webfiles/BCB_BEA/Tax%20Reports/Sales_Tax_ Exemptions_-_FY2012-13.pdf
51. “Final Report of the South Carolina Taxation Realignment Commission, December 2010, p. 107. 52. Ulbrich, Holley H., “Taxation in South Carolina: Issues and Challenges,” Jim Self Center on the Future Policy Briefs, August 2010, p. 9. 53. Brack, Andy, “More understand need for tax reform,” Statehouse Report, April 8, 2011. http://www.StatehouseReport.com/CurrentIssue.aspx?ID=126#Commentary 54. “50 State Comparison, 2012 edition,” The Taxpayers Network, Table 7. http://taxpayersnetwork.org/DesktopDefault.aspx?tabindex=6&tabid=3402. NOTE: “Tax Freedom Day” is a registered trademark of the Tax Foundation. More: http://taxfoundation.org/tax-topics/tax-freedom-day 55. “Annual State-Local Tax Burden Ranking (2010),” Tax Foundation, Oct. 23, 2012. http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-2010-new-yorkcitizens-pay-most-alaska-least 56. “50 State Comparison,” Table 9. 57. “50 State Comparison,” Table 10. 58. “50 State Comparison,” Table 14. 59. “Monday Map: Changes in State Tax Collections Per Capita, 2001-2011,” Tax Foundation, Dec. 17, 2012. http://taxfoundation.org/blog/monday-map-changes-state-tax-collectionscapita-2001-2011 60. Ulbrich, p. 1. 61. For a general discussion on basic tax principles, see Ulbrich’s paper (above) or the introductory chapter material in Doing Better: Progressive Tax Reform for the American South by Sarah Beth Coffey, Center for a Better South, 2006. 62. Sheheen, Vincent A., “Tax Reform in South Carolina in 2006,” Public Policy & Practice, Volume 5, Number 2, November 2006. http://www.ipspr.sc.edu/ejournal/ejournal0611/tax%20reform%20in%202006.pdf
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63. Saltzman, Ellen W. and Ulbrich, Holley H., “Act 388 Revisited: A Self Center Report,” Jim Self Center on the Future, Clemson University, November 2012, pp. 29-30. 64. Hinshaw, Dawn. “SC businesses bear larger share of tax burden,” The State, Jan. 12, 2013. 65. “Sales and Use Tax Exemptions/Exclusions in FY2012-2013,” April 23, 2012. 66. Doing Better, p. 3. 67. TRAC report, p. 13. 68. “Individual income tax returns by tax liability, tax year 2010,” in “South Carolina Department of Revenue 2010-11 Annual Report,” p. 32. 69. For a fuller discussion on modernizing state income tax brackets, see Chapter 5 of the “Doing Better” book. http://www.bettersouth.org/wp-content/uploads/2006/06/Idea-5.pdf 70. Doing Better, p. 52. 71. For a somewhat dates but still relevant discussion of earned income tax credits, see Chapter 4 of the “Doing Better” book, pp. 39-50. http://www.bettersouth.org/wp-content/uploads/2006/06/Idea-4.pdf 72. “Individual income tax credits, calendar year 2010,” in “South Carolina Department of Revenue 2010-11 Annual Report,” p. 36. Senior figures based on author’s calculations from current tax law. 73. TRAC report, pp. 132-180. 74. U.S. Census Bureau, Table 1064, Statistical Abstract of the United States, 2009. 75. Ryan, Taylor. SC Roadway Death Rates Nearly Double the National Average. Midlands Connect.com 12/27/2012. 76. Data used to compile the study was collected from the National Highway Traffic Safety Administration, the U.S. Census Bureau, the Federal Highway Administration and the Insurance Institute for Highway Safety. http://www.carinsurancecomparison.com/which-states-have-the-most-dangeroushighways
77. The 5 percent Report is a federally mandated report to identify the areas of greatest need. http://safety.fhwa.dot.gov/hsip/fivepercent/2010/index.cfm?state=sc 78. This amount is approximately twice as much as the national average for other state Departments of Transportation. http://www.scdot.org/inside/HighwayPolicy/statefunding.aspx 79. See: http://www.scdot.org/inside/HighwayPolicy/federalfunding.aspx 80. Financial Statements and Independent Auditors’ Report, Year Ended June 30, 2012, S.C. Department of Transportation, p. 11. http://osa.sc.gov/stateengagements/transportation/Documents/Financial%20 Statements/U1212.pdf 81. The task force was created by the SC Department of Transportation Commission in August 2011 to identify and analyze potential new revenue streams for the department. 82. Transportation Infrastructure Task Force. Report to the South Carolina Department of Transportation Commission. Dec. 6, 2012. 83. Traffic engineers use a standard five tier index to measure road pavement conditions ranging from very good to very poor. According to an audit from the Department of Transportation’s Office of Internal Audit, when that index was applied to South Carolina’s roads in 2011, “20 percent of the Interstate system, 44 percent of the Primary system and 49 percent of the Secondary system” were rated as being in very poor to poor condition. 84. Shinkle, Douglas, Jamie Rall and Alice Wheet. On the Move—Strategies for the 21st Century. National Conference of State Legislatures. July 2012 85. Capitol Facts and Figures—Transportation. The Council of State Governments. April 2011. 86. As of April, 2010 in his State of the DOT presentation, DOT Secretary St. Onge reported that motor fuel user fee revenue has decreased by 4 percent between 2008 and 2009 and, in fiscal year 2010, revenues ware also 4 percent less than 2008 levels.
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87. Shinkle, Douglas, Jamie Rall and Alice Wheet. On the Move—Strategies for the 21st Century. National Conference of State Legislatures. July 2012. 88. South Carolina is not unique in this regard. Twelve states and Puerto Rico have not raised their motor fuel user fees in more than 20 years. While fifteen states have increased their motor fuel user fee, the increases still lag what would be necessary fulfill their transportation funding needs. (CSG) 89. Transportation Infrastructure Task Force. Report to the South Carolina Department of Transportation Commission. Dec. 6, 2012. 90. Wenger, Yvonne. “Lawmakers Asked to Raise S.C. Gas Tax,” Charleston Post and Courier. Oct. 5, 2010. 91. Street, Lindsay. “Senator Proposes Six Cent Gas Tax Increase,” The Summerville Patch. Nov. 18, 2011. 92. The Transportation Infrastructure Task Force projects that $450 million dollars in new revenue will be needed in 2014 to start the process of getting our roads to “Good” condition. That number steadily increases to more than $1.8 billion in 2033. 93. Beam, Adam. “SC Group Pushes for Gas Tax Increase to Repair State’s Roads,” The State, Dec. 27, 2012. 94. Beam, Adam. “Budget Surplus $15 Million Short, Cuts Needed.” The State, Aug. 30, 2012. 95. The Department of Transportation was appropriated approximately $1.4 billion. That money comes from the collection of motor fuel user fees, other funds and federal funds. 96. Final Report of the South Carolina Tax Realignment Commission, December 2010. 97. Final Report of the South Carolina Tax Realignment Commission, December 2010. 98. State of the Department of Transportation Presentation. April 2010
99. According to the Major Program Areas Chart, in The 2011-2012 South Carolina Department of Transportation Accountability Report, in Fiscal Year 20102011 only 20 percent of the department’s budget was spent on its highway maintenance program and 3 percent was spent on its non-federal aid highway program. Things got worse in Fiscal Year 2011-2012 when only 16 percent was allocated for highway maintenance and 1 percent to the non-federal aid highway program. During that same time the engineering and construction program accounted for 56 percent of the budget in Fiscal Year 2010-2011 and 66 percent of the budget in Fiscal Year 2011-2012. The purpose of the Highway Maintenance Program is to fund the maintenance of roads, bridges, buildings, rest areas and welcome centers. The purpose of the Non-Federal Aid Highway Fund is to fund maintenance projects on state primary and secondary roads. The purpose of the Engineering and Construction Program is to fund the construction of roads, bridges and rest areas. 100. South Carolina unemployment rate, seasonally adjusted, 1990-2012 from Google Public Data using data from the U.S. Bureau of Labor Statistics. http:// www.google.com/publicdata. 101. “Bloomberg Rankings: States of Misery,” Bloomberg.com, Oct. 9, 2012. http://www.bloomberg.com/slideshow/2012-10-08/bloomberg-rankings-states-ofmisery.html 102. American Community Survey information from the U.S. Census. http://www.census.gov/prod/2010pubs/acsbr09-2.pdf and http://www.census.gov/ prod/2012pubs/acsbr11-02.pdf 103. “Census report shows hard times for S.C.,” The State, Sept. 16, 2012. http:// www.thestate.om/2012/09/16/2443091/hard-times.html 104. 2012 Fortune 500 companies, CNN. http://money.cnn.com/magazines/fortune/fortune500/2012/states/SC.html 105. “South Carolina Capital Market Study,” Darla Moore School of Business, University of South Carolina, January 2013, p. 17. http://www.newcarolina.org/UserFiles/ncar/Documents/Capital%20Market%20 Study.pdf 106. “Economic Mobility of the States,” Pew Center on the States, May 10, 2012. http://www.pewstates.org/research/data-visualizations/economic-mobility-of-thestates-85899381539
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107. Vila, Adis Maria. “The role of states in attracting foreign direct investment: A case study of Florida, South Carolina, Indiana and Pennsylvania.” Law and Business Review of the Americas, Volume 16, Number 2, Spring 2010. http://studentorgs.law.smu.edu/getattachment/International-Law-ReviewAssociation/Resources/LBRA-Archive/16-2/SMB205.pdf.aspx 108. “Final Report of the S.C .Taxation Realignment Commission,” S.C. Taxation Realignment Commission, December 2010, page 182. 109. “South Carolina’s State and Local Tax Burden 1997-2010,” Tax Foundation. http://taxfoundation.org/article/south-carolinas-state-and-local-taxburden-1977-2010 110. “Final Report of the S.C .Taxation Realignment Commission,” S.C. Taxation Realignment Commission, December 2010, page 187. 111. “Entrepreneur Friendly Initiative,” Georgia Department of Commerce. http://www.georgia.org/business-resources/small-business-development/Pages/ EntrepreneurFriendlyInitiative.aspx 112. Bartleme, Tony, “Insurance lobbyists have lots of muscle in South Carolina,” The Post and Courier, Dec. 23, 2012. http://www.postandcourier.com/article/20121223/PC16/121229682/1209/ insurance-lobbyists-have-lots-of-muscle-in-south-carolina 113. “Tuition and Required Fees Public Four-Year Colleges, Full-Time, In-state Undergraduates, 2009-10, South Carolina Featured Facts from the SREB Fact Book on Higher Education, Southern Regional Education Board, 2011, p. 25. http://publications.sreb.org/2011/SC.pdf
4-year-old kindergarten: 13, 14, 16, 19, 111
ABC rating system: 21 Achievement: 10 Act 388: 61, 62, 63, 88, 118 adjutant general: 32, 34, 48 Alternative fuel revenue: 81 American Dream: xiii, 87 Arkansas: 17, 114 attorney general: 32, 34 Austin: 7, 130
Below standards: 10 Bernanke, Ben: 14 Bonding: 78 bonds: 78, 79 BRE: 96 Briggs v. Elliott: 11 Bright from the Start: 18, 114 Brown, James: viii Budget and Control Board: 28, 29, 30, 36, 37, 38, 55, 61, 115, 116 Business Retention and Expansion programs (BRE): 96
Campbell, Carroll: x, 109 Child Development Education Pilot Program (CDEPP): 13, 14 Chamber of Commerce: 15, 62 Chesnut, Mary Boykin: viii Child Care Services Division: 21 Cigarette tax: 57 Colbert, Stephen: viii college tuition: ix, xiii, 1, 107, 108, 111 commissioner of agriculture: xiii, 32, 48
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comptroller general: 32, 33, 36, 48 constitutional convention: 3, 5, 31, 46, 48, 49, 50, 51, 116 Cooper, Thomas: 12 Corporate income tax: 70 Corridor of Shame: 12
Daniel, Charlie: x Deal, Gov. Nathan: 18 Department of Administration: 30, 37, 38 Department of Commerce: 39, 95, 99, 122 Department of Education: 22 Department of Employment and Workforce: 39, 40, 92 Department of Health and Environmental Control: 29, 115, 116 Department of Health and Human Services: 39 Department of Insurance: 106 Department of Mental Health: 39 Department of Natural Resources: 29, 116 Department of Parks, Recreation and Tourism: 39 Department of Public Safety: 105 Department of Social Services: xi, 21 Department of Transportation: xi, 29, 74, 75, 76, 79, 80, 81, 82, 83, 84, 115, 119, 120, 121 desegregation: 11 Division of Child Care Services: 21 DOT Commission: 84, 115
Earned income tax credit: 69 Education audits: 25 Education Oversight Committee: 22 Education rank: 10 Employment Security Commission: 29 energy efficiency: 106 Entrepreneur-Friendly Initiative: 99 executive branch: 4, 28, 30, 31, 32, 44, 48 exemptions: 54, 56, 66, 70
failing: ix, 10, 35, 36, 80, 114 Fanning, Michael W.: 56 fee in lieu of tax (FILOT): 89, 90 Fix it First: 82
Gasoline tax: 57 Georgia: ix, 18, 19, 50, 55, 57, 58, 77, 99, 114, 122 Gillespie, Dizzy: viii graduates: 8, 9, 14, 93
higher education: 107, 108 Hipp, Francis: x Hollings, Fritz: ix, x, 87, 109 Home Rule Act of 1976: 29
income tax: 54, 55, 60, 67, 68, 69, 70, 71, 91, 118 income tax breaks: 70 industrial property tax: 63, 88, 89, 100 industrial tax rate: 63, 88 insurance: 106, 107 Internet sales: 71
Jefferson, Thomas: 46 Job Retraining Credit: 97 jobs: 8, 9, 15, 17, 24, 39, 66, 71, 85, 86, 87, 88, 89, 91, 93, 94, 95, 96, 97, 100, 101, 103, 105, 106
Kirkland, Richard: viii
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law enforcement: xii, 58, 104, 105, 116, 129 leadership: x, xiv, 1, 2, 13, 28, 30, 32, 33, 35, 51, 70, 73, 109, 110 legislative branch: 48 lieutenant governor: 32, 48 Lynch, Robert G.: 16
McNair, Robert: x Mickel, Buck: x Misery Index: 86 motor fuel user fee: 75, 77, 78, 120
Office of Inspector General: 30, 40, 41
paperwork: 22, 23 Performance-based budgeting: 42, 43 Petigru, James: vii Poverty: 10 private schools: 11, 13 property tax: 54, 60, 61, 62, 63, 64, 87, 88, 89, 97, 100 Proverbs: 71 Public Employee Benefits Authority: 29
Rawl, Otis: 62 ReadySC: 92, 94, 97 Research Triangle: ix rest areas: 81, 121 restructuring: 27, 29, 30, 31, 39, 46, 82 Riley, Dick: x, 109 rural S.C.: 12, 13, 23, 60, 73, 74, 100, 103, 104
sales tax: 54, 55, 57, 60, 61, 64, 65, 66, 67, 70, 71 S.C. Chamber of Commerce: 62 S.C. Department of Public Safety: 105 S.C. Highway Patrol: xii S.C. Taxation Realignment Commission: 55, 88, 122 Secretary of State: 32, 34 Self, Jim: x, 113, 117, 118 Sheheen, Amy: 7, 130 Sheheen, Anthony: 7, 113, 130 Sheheen, Austin: 7 Sheheen, Joseph: 7 South Carolina Constitution: 4, 32, 48, 49 Southeast: xiii, 1, 74, 88, 107 Special Source Revenue Credit (SSRC): 89 State Infrastructure Bank: 84 state treasurer: xiii, 32, 33 STEM education: 24 sunset provisions: 71 superintendent of education: 32, 36, 48
tax brackets: 69, 118 tax cheats: 64 Tax Foundation: 56, 57, 117, 122 Tax Freedom Day: 56, 117 Taxpayers Network: 56, 117 technical colleges: 92, 93, 94, 107 Texas: 17, 114 TRAC: 66, 70, 118 truck tax: 81 Truman, President Harry: 27 tuition: ix, xiii, 1, 107, 108, 111
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United States Constitution: 47 U.S. Constitution: 67 U.S. Supreme Court: 5, 11
vouchers: 9, 14
About Vincent Sheheen
Vincent Sheheen’s South Carolina roots run deep. He was born and raised in Camden, where his family has lived for well over a century. His father, Fred, ran a print shop and served as South Carolina’s Commissioner of Higher Education. His mother, Rose, was an elementary school teacher in the Kershaw County public schools and later served as principal of Blaney Elementary School. Vincent has made improvement of South Carolina’s public schools a cornerstone of his legislative efforts. Before his election to the South Carolina Senate in 2004, Vincent served as a city prosecutor and a state representative. Now in his second full term, he represents Chesterfield, Kershaw and Lancaster counties. Vincent has earned a reputation as a leader in the struggle to fix our dysfunctional state government. Vincent has pushed to overhaul our tax and budgeting systems. He was the lead sponsor of a bill to set up the Office of Inspector General to root out waste, fraud and corruption. He has won the respect of colleagues on both sides of the aisle for his innovative ideas for streamlining state government and making it more accountable. Vincent is an active member of Our Lady of Perpetual Help Church. He volunteers in local elementary schools, reading to young students. The Recreation and Parks Association named him “Legislator of the Year” for his work on behalf of South Carolina’s children. He has been honored by the South Carolina Solicitors’ Association for his work on behalf of law enforcement and the state’s police officers, and by the Wild 127
The Right Way Turkey Federation for his efforts to safeguard our natural resources. Protection of South Carolina’s precious outdoors, from the coastal marshes to the foothills of the Blue Ridge, is central to his vision of responsible government. In 2011, the Conservation Voters of South Carolina named Vincent as Senate Conservation Leader. Vincent and his wife Amy are the proud parents of three boys: twins Austin and Joseph and their younger brother Anthony. All three attend the same public schools that their dad did more than 25 years ago. Vincent and Amy met when they were students at Clemson. They married when Vincent was in law school at the University of South Carolina.
This book is about South Carolina — a South Carolina we know can exist if we join together in a common vision with leaders who actually care about our state. We are better than what our government has looked like in recent history. We have been better before. We deserve better now. It’s up to us to engage and change. We must do it again…the right way.
S.C. Sen. Vincent Sheheen surrounded by his family (l-r): Austin, Anthony, Amy and Joseph Sheheen.
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