MY LAST NERVE: Why Is the Senate Calling a “Tax” a “Fee”?

April 4, 2014

Inside Insight

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tax for roads

THE ANSWER HAS EVERYTHING TO DO WITH BAD PRIORITIES

When lawmakers start playing games with the words, pay attention: there’s a good reason for it, and it almost certainly will affect you.

This week the Senate took up H.3412, a bill that, as passed by the House, would dedicate 50 percent of sales, use, and casual excise taxes collected from the sale of a motor vehicle in South Carolina in FY 2013-14 and FY 2014-15, and 100 percent thereafter, to the State Non-Federal Aid Highway Fund. Lawmakers quickly amended it on the Senate floor to take money from the state Department of Transportation – the agency tasked with maintaining the state’s infrastructure – and divert it to an agency that exists primarily to fund new expansionary construction projects rather than provide maintenance of the state’s existing roads: the State Transportation Infrastructure Bank (STIB).

In short, according to the author of the amendment, Sen. Ray Cleary (R- Georgetown), the amendment adopted on the Senate floor would divert roughly $41 million from the General Fund – the fund where tax revenue is remitted – to the Department of Transportation. From there, the DOT would transfer half the funds to the STIB, where it would be bonded. A list of proposed projects would have to be submitted to the legislatively controlled Joint Bond Review Committee (JBRC).

The vehicle license tax would remain, but it would be called a “fee” rather than a “tax.” The reason for that bit of linguistic sleight-of-hand is that the state constitution only permits the legislature to authorize the state to incur debt if that debt is paid with sources other than tax revenue. The revenue to be bonded can, however, come from fee revenue. Hence the word change.

The bill as amended was not considered for a vote this week, which is probably a good thing: the General Assembly needs a lesson in prioritizing statewide needs over those of pet projects in special counties.

Last year the General Assembly passed, and the governor signed, a bill that would transfer $50 million in non-tax revenue on an annual basis from the DOT to the STIB, which would then be bonded for up to $500 million in new debt to be spent on roads and bridges. At the time, many citizens, organizations, and even some legislators publicly said this was not the fix, and even expressed concern over the debt being generated on future generations.

Earlier this year, the head of the DOT told a legislative panel that the agency faced a $29 billion shortfall for repairs, and that the agency estimates that $48.3 billion is needed to repair the state’s roads over the next 20 years. Faced with that reality, legislators are still considering diverting funds from this agency to the STIB to incur new debt for the purpose of expansionary projects.

In 2013 South Carolina ranked third to last in debt service as a share of tax revenue, meaning our state pays a lot in interest and principle on bonds in comparison to how much money it takes in through taxation. At the end of 2013, according to a debt report issued by the state treasurer, the STIB owed more than $1.9 billion toward the principle of their bonds.

This raises the question, Why would the General Assembly neglect the maintenance of the state’s 41,000 miles of roads in order to prioritize new projects?

There are a number of alternatives the General Assembly can pursue that don’t include raising taxes or creating more debt. For example: the state could cede some of its roads to municipalities, making them responsible for more of the roads in their own area. SCDOT is currently responsible for 63 percent of all roads in South Carolina – the national average being 19 percent. Or the state could simply cut non-essential services. In a $24 billion budget, as last year’s was, that shouldn’t be too hard. This year’s House-passed budget was slightly more than $25 billion, and when accounting for inflation will weigh in at over $4 billion higher than the FY 2005-06 budget. That’s a 22.69 percent increase.

Any proposal that switches the word “tax” to “fee” deserves skepticism – as does any move to prioritize a few lawmakers’ expansionary projects over the dire maintenance needs of the whole state.