2010 Best & Worst

S.C. Policy Council

Best/Worst of 2010
South Carolina Policy Council
1323 Pendleton St., Columbia, SC 29201 803-779-5022 [Link]

Introduction
This report is our second in an annual series dedicated to reviewing the best and worst legislation of the session. As youll see, this year was arguably worse than last. Among the worst of the worst passed in 2010: The largest budget in state history (H 4657) A 50-cent cigarette tax increase (H 3584) An omnibus economic development law, filled with special interest tax breaks (H 4478) A joint resolution capitulating to new federal standards regulating carbon dioxide emissions (H 4888)

While you can read more inside regarding specific legislation, we want to use this introduction to explain our methodology that is the standards we use in determining what bills are good or bad. To begin with, we are not so much focused on specific pieces of legislation, as we are on the ideas behind this legislation. That said, we limit our commentary to bills introduced in the 2010 session. For example, we believe school choice is a critical education reform, but we do not address it because the Legislature did not introduce a bill related to tax credits or scholarships this year. Similarly, there are a number of bad policy proposals being considered in other states or other venues, but we didnt look at these either. Our consideration of what is good and bad is limited to what happened in the General Assembly in 2010 what bills were actually introduced and passed. We distinguish a good bill from a bad one on the basis of one essential question: Does this bill make South Carolina more free? Does this bill promote or protect freedom? Does it further economic freedom or personal liberty? Does it guarantee fundamental rights in some fashion? If it does, its a good idea. If not, its a bad idea. So, why freedom? It is not necessary to justify here why we think freedom is a basic good. In short, human beings were created to be free. This freedom is not absolute. Rather, it is guided by reason and truth. It is what the Founders refer to as liberty, freedom exercised with responsibility, as opposed to license. Understood in this way, freedom is essential to being human. In turn, slavery, in all its forms, is dehumanizing because it limits the very faculties reason, conscience, the will that make human beings what they are. Granted, freedom can mean a great many things. But based on the definition above, we believe freedom requires limited government, equality of opportunity (very different from equality of results) and a respect for fundamental rights, such as the rights to life, liberty and property. Lets look at a few concrete examples to determine how this commitment to freedom informs our analysis of specific bills. S 168 is a law encouraging physicians to volunteer their services without fear of being sued. This law is a good idea because it widens the scope of human action specifically, charitable action, people helping other people. This is not to say well intentioned health care professionals should be immune from lawsuits. Rather, they should be immune from irrational lawsuits lawsuits not based on gross negligence or willful misconduct. At bottom, the idea here is that irrational fears limit freedom. If a law can mitigate such fears so as to encourage charity (and reduce health care costs, to boot), its a good law.

2010 Best & Worst

S.C. Policy Council

An example of a bad policy idea is H 4241, which would use taxpayer funds to benefit alternative energy providers and also develop renewable energy standards for government-run utilities. First, this bill violates private property rights because it takes property (via taxes) from certain taxpayers and redistributes it to others. By contrast, we believe a just tax code treats all taxpayers equally, with no one group being forced to subsidize the economic activities of another. Second, this bill hinders economic freedom, which is at the nexus of the right to property and the right to liberty. Economic freedom allows the unrestricted flow of labor and resources to entrepreneurial activities. This bill would give a preference to certain resources (alternative energy) over others (traditional energy sources). In doing so, it distorts the efficient allocation of these resources and subjects entrepreneurs and consumers to government intervention that will likely lead to negative unintended consequences: for instance and we dont joke raising the price of corn, which means higher food prices for families. Less freedom, higher taxes, higher prices more than enough to make this bill a bad idea. Having explained our methodology, we also want to say a word about how to best use this report. Best/Worst can be used as a quick reference guide for grassroots activists, the media, and lawmakers interested in a concise review of policy developments in specific areas, such as the state budget or small business. The guide is not meant to be comprehensive and some changes new to this years Best/Worst sacrifice breadth for readability. But it does provide a snapshot of what lawmakers are thinking, and for that reason also serves as an indicator of what bills might be introduced in 2011 and beyond. What Best/Worst does not do is provide real-time coverage of legislative actions or in depth analysis of specific legislation or potential reforms. For the first, we recommend readers visit our new website, [Link]. For the second, we direct you to one of the many reports on our main website, [Link]. Even better, we encourage you to visit our website to learn more about cutting edge reforms legislators are not talking about, but should be. In the end, South Carolinas future cant be limited to what lawmakers are thinking or what the government is planning. After all, the best counter to big government is limited government government limited by the initiative, creativity and freedom of the people it represents.

Chapter I Budget & Spending

We do not believe it is wise to raise taxes and fees to cover budget shortfalls for core governmental agencies. At the start of the next legislative session, policymakers will begin debating a budget that will essentially be $1 billion short as stimulus funds from Washington dry up. We simply cannot rely on backdoor tax increases to cover budget shortfalls. Governor Mark Sanford Despite all the rhetoric about budget cuts and employee furloughs, South Carolinas FY10-2011 budget was the largest in state history. The total state budget was $21.149 billion. This includes: $8.268 billion in Federal Funds; $7.766 billion in Other Funds; and $5.115 billion in General Funds. Thats an increase of $500 million or 2.19 percent over last year. The increase comes mostly from increased fine and fee revenue and one-time federal stimulus dollars. This years budget increases are not an isolated phenomenon. Over the past 10 years: The total state budget increased by 44.49 percent (FY2002 to FY2011).

2010 Best & Worst

S.C. Policy Council

The budget increased by 4.14 percent annually. The budget increased every year, except one (FY2010). In the five-year period (FY2003-FY2008) prior to the beginning of the current recession, the total budget increased 34.56 percent, going up by more than $5 billion.

According to the Mercatus Center, South Carolinas state and local government spending relative to personal income is 26 percent 5th highest in the country. In other words, local and state government spends 26 cents of every dollar earned by South Carolinas people. Similarly, government spending accounts for 23 cents of every dollar of Gross State Product (GSP) 4th highest in the country. Debt is another serious problem. South Carolina government is carrying $40 billion in debt, including state, local, and school district debt, as well as unfunded liabilities on public employee pensions and post-retirement health benefits. State and local governmental outstanding debt accounts for 22 percent of GSP again, 4th highest in the nation. So we have high spending and high debt relative to income and GSP. What does that get us? An unemployment rate of 11 percent 6th highest in the nation (as of September 2010) and a median household income of $42,442, which is 42nd lowest in the nation (as of 2009). It goes without saying that South Carolina is suffering from a budget and spending crisis. But the crisis is not new. It comes from years of fiscal mismanagement and poor budgetary practices. None of these problems were addressed during the 2010 session. And ideas that would have helped capping spending and zerobased budgeting died in committee. All in all, one thing is clear: high government spending is not making South Carolina prosperous. BEST IDEAS OF 2010 Budgeting responsibly H 4232: General Fund Budget Cap

Status: Referred to Ways & Means Committee

This bill, the South Carolina Taxpayer Protection Act, proposes limiting General Fund appropriations to the total amount of General Fund revenue estimated as of February 15th for FY2010-2011, increased annually and cumulatively by a formula tied to population, plus inflation. The bill would refund surplus revenue to taxpayers by means of temporary tax cuts. The measure would also institute zero-based budgeting. (Also see S 2, which provides for a much weaker spending cap with an optional taxpayer refund.) Our take: An effective spending cap must do two things: cap spending; and cap the source of such spending that is, taxes and fines and fees. Toward that end, we like this bill because it requires a mandatory temporary tax cut whenever there is surplus revenue. This serves as a de facto tax cap. This bill could be made better, though, by including Other Funds revenue. In turn, fines and fees should be reduced whenever such revenue exceeds a predetermined cap.

2010 Best & Worst

S.C. Policy Council

S 898: Zero-Based Budgeting

Status: Referred to Finance Committee

This bill would implement a zero-based budgeting system that builds the budget from the ground up each year, rather than simply adding to the previous years total. While this measure did not pass, a budget proviso (cf. 90.19) commissioned The Office of State Treasurer to make recommendations regarding zero-based budgeting. Our take: Its a long overdue idea, but this bill is short on specifics on how this reform would be implemented. In other states where zero-based budgeting has been tried, lawmakers found it necessary to mandate that specific performance measures be used to justify each program and spending item. Nationally, 17 states report using zero-based budgeting in some form, but its unclear whether any of them have taken full advantage of the concept. Another reform to consider in this context is expanding executive oversight over agency budgets. Eliminating ineffective agencies and programs H 4864: Office of Program Policy Analysis & Government Accountability

Status: Referred to Ways & Means Committee

This bill would create the Office of Program Policy Analysis & Government Accountability as a division of the Legislative Audit Council (LAC). The office would conduct program reviews aimed at measuring the effectiveness of state agencies. In effect, H 4864 would add more compliance requirements for state agencies in providing data for LAC audits. H 3192: Sunset Review Commission

Status: Passed House (without a recorded vote); referred to Judiciary Committee in the Senate
This bill would establish a legislative Sunset Commission, as well as a Sunset Review Division of the LAC, to evaluate state programs with the aim of determining whether they should be modified or eliminated. H 3192 would require every state agency be reauthorized every 12 years or less. Among other things, the bill would also create a review division to assess if agency regulations can be implemented in a less restrictive manner. Our take: These two bills go hand-to-hand. Currently, the LAC is limited to conducting performance audits, program evaluations, and policy analysis studies. But a review of best practices by the National Conference of State Legislatures indicates the LAC should also be performing sunset reviews, providing financial analysis of the state budget, drafting bills, and producing best practices advisories to state agencies and school districts. Likewise, the LAC should be promoting transparency policies aimed at keeping citizens informed about governmental activities. Even more basic, the LAC should be as independent as possible from legislative influence. Finally, as we pointed out in the 2009 Best/Worst, sunset commissions are difficult to implement in practice. One possible solution may be to implement a two-year budget cycle, with the first year devoted to drafting a budget using zero-based and strategic budgeting practices; and the second year devoted to evaluating sunset/privatization recommendations aimed at streamlining the next biennial budget. S 242: Eliminate Teacher and Employee Retention Incentive (TERI)

Status: Referred to Finance Committee; majority report favorable, minority report unfavorable
This bill would close the TERI program to new participants. Similarly, a proviso (89.41) in the House budget bill would have closed the program, effective July 1, 2010. The Senate deleted the proviso, the House added it back, and then the budget conference committee deleted it again.

2010 Best & Worst

S.C. Policy Council

Our take: TERI allows state workers to retire five years before they actually stop working and then collect a salary even as they accumulate retirement benefits in a tax-deferred account. The fact that state employees can enroll in TERI at a relatively young age (conceivably prior to turning 50) makes this early retirement benefit very generous. Its time to end this program and the fact that lawmakers failed to do so emphasizes even more why we need fundamental reforms aimed at forcing lawmakers to make targeted budget cuts. Privatizing government functions S 984: Council on Efficient Government

Status: Referred to Finance Committee

This bill would establish a Council on Efficient Government to conduct an ongoing review of whether goods or services provided by state agencies should be privatized. The bill would also allow state agencies to implement private sector accounting practices to identify actual cost related to activities conducted by the commercial sector (namely, contractors and subcontractors) in the agency financial statements. Also see S 897 (discussed in Restructuring Chapter) Our take: Privatization has proven especially effective in the transportation sector. Twenty-six states and numerous countries, for instance, have used public-private partnerships (see H 4033 below) to save money in building roads. Likewise, some states Maryland and Alabama, among others are considering a publicprivate model for seaports. Such a council could also prove a good complement to the sunset review efforts (H 3192) discussed above. H 4033: Transportation Public-Private Partnerships (PPPs)

Status: Passed House; referred to Transportation Committee in Senate

This bill would create a process for private entities to obtain authorization to build toll roads; it also establishes guidelines for partnership agreements between the state and private entities. Our take: PPPs would provide for a more efficient mechanism for building and maintaining roadways provided such reforms are carried out in a transparent manner that gives key stakeholders rather than the Budget & Control Board oversight over PPP projects. Another benefit offered by PPPs is that they give private investors and consumers essential input (via the free market) into setting road construction priorities thus helping ensure taxpayer dollars are used in the most efficient manner possible. Here we might add that the difference between a PPP and government-driven economic planning is that building roads is arguably a core governmental function while creating jobs is not. Increasing rainy day savings H 3396: Increase Reserve Fund

Status: Passed General Assembly; approved by voters; awaits ratification by General Assembly
This proposed constitutional amendment would increase the percentage amount deposited from the General Fund into the General Reserve Fund from 3 percent to 5 percent. The proposal also directs Capitol Reserve Funds to fulfill any shortage in the General Reserve Fund for years that the General Reserve Fund does not meet the percentage requirement. The positive impact of these two reforms, however, is partially mitigated by lengthening the timeframe for replenishing the fund from three years to five. Our take: As we observed in the 2009 Best/Worst, a robust Rainy Day Fund can be a useful means of postponing calls for tax increases when revenue collections decline during economic downturns. But such funds are also a tempting target for legislators looking for extra revenue, in both good times and bad. Several

2010 Best & Worst

S.C. Policy Council

reforms would be necessary to create an effective Rainy Day Fund: 1) a much larger reserve balance even 5 percent is too little to get the state through a recession; 2) strict deposit and withdrawal rules, including a supermajority vote to withdraw funds. Finally, Rainy Day Funds work best as a counterpart to strict spending limit requirements (cf. H 4232). WORST IDEAS OF 2010 Maintaining high spending and increasing debt H 4657: Agency Use of Restricted/Earmarked Funds

Status: Passed General Assembly; proviso not subject to line-item veto

This budget proviso (89.87) authorizes agencies to use earmarked/restricted accounts (i.e., Other Funds) funded with fine and fee revenue to absorb General Fund cuts. Our take: General Fund revenue declined by $600 million from FY09-2010 to FY10-2011. This proviso insures, however, that agencies maintain spending at FY08-2009 levels (i.e., $6.736 billion). Thus, in theory, the proviso permits agencies to increase spending by $1.621 billion. This is one reason an effective spending cap must include Other Funds revenue. If it does not, lawmakers will raid Other Funds to supplement General Fund revenue cuts. H 3395: Across-the-Board Budget Cuts

Status: Governors veto overridden

This law increased General Reserve Fund requirements from 3 percent of prior year revenue to 5 percent, stipulating that withdrawals must be paid back within 5 years. The law also directs the Director of the Office of State Budget to make across-the-board cuts when such cuts are not made in a timely manner (seven days) by the Budget & Control Board. Also see S 1085, H 4325 Our take: As the governors veto observed, if this law had stopped at increasing Rainy Day Fund requirements (cf. H 3396 above), it would have been a good idea. But the law also cedes power to an unelected state employee to make across-the-board budget cuts. This is a bad idea for two reasons: 1) targeted cuts make a great deal more economic sense than across-the-board cuts; 2) legislators should take responsibility for making budget cuts, rather than handing this power over to a state employee unaccountable to voters. At the end of the day, across-the-board cuts will always lead to across-the-board increases once revenue estimates go up again. Targeted cuts, on the other hand, raise the prospect of eliminating inefficient agencies and programs. S 906: Increase Retirement System Obligations

Status: Governors veto overridden

This law allows judicial retirement system participants who do not qualify for a monthly benefit to transfer service credit to the S.C. Retirement System. Our take: Solicitors and judges have a separate retirement system from other state employees. This bill allows judges and solicitors who leave their retirement system before serving the requisite number of years to draw benefits to transfer their years of service to the standard state employee retirement system. Its a carve-out that doesnt exist for regular state employees, and it will add yet another burden to the states grossly underfunded retirement system. For related reasons, the governor vetoed a law (H 4172) related to local employee retirement policies. The General Assembly also overrode the veto.

2010 Best & Worst

S.C. Policy Council

Failing to reform the Other Funds budget and lower fines and fees S 1388: Other Funds Oversight Committee

Status: Referred to Finance Committee

This bill would have created the joint Other Funds Oversight Committee to examine the source of Other Funds and recommend the appropriate policy for the receipt, appropriation, expenditure, and reporting of such funds. The committee would be controlled by the legislative leadership. Our take: This bill is remarkable in that it acknowledges that: 1) Other Funds revenue is steadily increasing; 2) state agencies are increasingly using Other Funds for general operating purposes; and 3) other funds are very pervasive and require thorough review. But the bill is also remarkable because it seems to imply that the existing budget process in particular, the Ways & Means Committee in the House and the Finance Committee in the Senate seems unable to account for the Other Funds budget. As discussed in our 2010 report, Reform the Budget & Cut Spending: Start with Fine and Fee Revenue, we recommend: 1) imposing a moratorium on all fine and fee increases; 2) eliminating unnecessary funds and refunding excess fine and fee revenue; and 3) adopting uniform reporting requirements for both General Fund and Other Funds dollars. Most important, budget writers should treat fine and fee revenue in the same manner as general tax revenue. Finally, we should point out that the review contemplated by S 1388 would be conducted by the same legislative leadership that keeps raising fines and fees and using Other Funds dollars to supplement General Fund spending.

Chapter II Taxes
If you increase taxes now at any level, its going to make it harder to create jobs. And weve lost 2.5 million jobs since the stimulus package passed. Were at 9.6 percent unemployment [nationwide]. So I dont think we tax too little, I think we spend too much. U.S. Senator Lindsey Graham Are taxes too high in South Carolina? According to the Tax Foundation, the state ranks 37th in the nation in terms of overall tax burden. South Carolina also ranks 24th in terms of business tax climate. Look deeper, though, and youll find some disturbing trends: South Carolina ranks worst in the nation for state and local revenue from fees and fines relative to economic output, according to data from the Mercatus Center at George Mason University. We have the 2nd highest level of state and local alcohol tax revenue relative to personal income. In terms of sales taxes and property taxes relative to economic output, we rank 18th and 21st, respectively.

Is the tax burden lower in South Carolina than in Massachusetts (#23) or California (#6) or New York (#2)? Sure. But per capita income is much lower too. The question, then, becomes whether we are living within our means. With state spending at an all-time high, its clear we are not. The solution is simple: implement a spending cap, cut taxes, and get back to the core functions of governing.

2010 Best & Worst

S.C. Policy Council

BEST IDEAS OF 2010 Lowering compliance costs and streamlining the tax code S 902/S 942: Fair Tax

Status: Both referred to Finance Committee

This revenue-neutral proposal neither bill specifies a specific rate would eliminate state income taxes (personal, corporate, banking), estate taxes, and sales/use taxes and replace them with a single-rate personal consumption (or sales) tax. The bills provide for various exemptions i.e., the purchase of tangible personal property, services for business purposes, and purchases by nonprofits. Our take: Without getting into the details of either of these bills, a Fair Tax would simplify the tax code, reduce enforcement costs and make it easier for taxpayers to see what they are actually paying. The tax could be made less regressive by providing an exemption on the first $15,000 of consumption spending. One caveat: taxes are already too high so a revenue neutral Fair Tax reform is not enough. Moreover, exemptions must be kept at a minimum. At the end of the day, the mechanism for bringing about tax reform is less important than the fact that such reform must result in less spending and lower taxes. All in all, this is why we prefer a spending cap with a mandatory tax refund trigger (see Budget & Spending Chapter). S 999: Unemployment Benefits Not Taxed

Status: Referred to Finance Committee

This bill would provide that an individuals taxable gross income excludes unemployment benefits. Our take: Taxing unemployment benefits is foolish and inefficient. Another option is to tax such benefits only for persons whose earnings for the year exceed South Carolinas per capita income or a similar threshold. WORST IDEAS OF 2010 Raising excise and ad valorem taxes H 3584: Cigarette Tax

Status: Governors veto overridden

This law increased the cigarette tax from 7 cents to 57 cents a pack: a 700 percent tax hike. While $125 million of the new revenue will go to Medicaid, additional funds are also being funneled to the Medical University of South Carolina Hollings Cancer Center for research ($5 million); the Smoking Prevention and Cessation Trust Fund ($5 million); and agricultural marketing ($1 million). Also see H 4962 and House budget proviso 90.14 Our take: A cigarette tax increase is not only unnecessary; its a job killer in the current or, for that matter, any economy. Small retailers and border counties will suffer most from this tax increase, as will low-income smokers. H 4831: Sweetened Beverage Tax

Status: Referred to Ways & Means Committee

This bill would tax sweetened beverage manufacturers 1 cent for every 13.5 grams of sugar placed into a beverage. The tax is prorated for amounts less than 13.5 grams.

2010 Best & Worst

S.C. Policy Council

Our take: The myth behind sin taxes is that they only impact a small number of businesses and consumers. But the negative effects of such taxes ripple throughout the economy. This tax increase, for instance, would hurt small retailers and cost jobs, as consumers purchase fewer sweetened drinks. Moreover, sin taxes typically shift people from one sin to the next. Tax chocolate, and people will eat ice cream. Tax ice cream, and people will eat donuts. Tax bottled sweet tea, and people will drink fresh brewed. Creating more hidden taxes H 4832: Repeal Discount for Early Payment

Status: Referred to Ways & Means Committee

This bill would repeal the discount for timely full payment of sales and use taxes paid by business owners. Specifically, it repeals a 3 percent discount on timely tax payment of less than $100,000 and a 2 percent discount on timely tax payment of $100,000 or more. Our take: Time is money and money is time. If business owners pay their taxes before the due date, they should be compensated with the time-value loss of their money. Failing to compensate value lost is just another hidden tax. H 4657: Reduce Tax Refunds

Status: Passed by General Assembly; not subject to line-item budget veto by governor
Budget provisos 72.17 and 89.142 reduce interest payments on eligible taxpayer refunds by a combined 3 percent. (The previous rate was 4 percent, and so is now 1 percent.) Our take: All in all, this amounts to a $3 million hidden tax increase. Encouraging local tax increases H 4344: Local Option Tax Increase

Status: Passed House; referred to Finance Committee in Senate

This bill would allow select municipalities those in Beaufort County seem to be the only ones that qualify to impose a local option tourism development fee of 1 cent for not more than 10 years. Revenue from the fee shall be used to promote tourism and may be used to reduce municipal property taxes. Also see H 4229, H 4170 Our take: The worst thing about this bill is its attempt to cloak a sales tax increase as a tourism development fee. Two things: 1) this is a local option sales tax increase; and 2) imposed not just on tourists, but on every local resident. Expect more local option tax increases owing to cuts in the FY10-2011 budget to localities (specifically, Aid to Subdivisions). Its also worth noting that local budgets and local government hiring did not slow at all during the current economic downturn. Between December 2007 and May 2010, local government employment increased by almost 10 percent.

2010 Best & Worst

S.C. Policy Council

Chapter III Restructuring

The tyranny of the South Carolina Legislature is the core problem that prompted me to run for office. In my two years as a senator, I have seen powerful legislators fight attempts to return power to the people. One senator sits on the board that runs this state only because he has been in the Senate longer than anyone else. That makes no sense, and its time to change the rules and implement accountability. The public deserves that, and Im going to do everything I can to give it to them. Senator Tom Davis (R-Beaufort) In last years Best/Worst, we reminded readers that the only sure way to restructure government is to amend the constitution and that the only way of achieving this goal is to empower a grassroots movement focused on restructuring. By restructuring, we mean a more balanced distribution of power between the legislative, executive and judicial branches of government. This year we wish to emphasize that the goal of fundamental reform is one that must be achieved one step at a time through a combination of statutory and constitutional means, as well as through educating the public that many of South Carolinas ills stem from the monopoly of power held by the Legislature. With this end in mind, the Policy Council recently released a series of special reports that address the need for restructuring by calling for implementation of the following reforms: Eliminating the Budget & Control Board Limiting session length to 45 legislative days Requiring a recorded vote on every bill and joint resolution Reforming the Senate committee selection and chairman appointment process Reviewing all boards and commissions and increasing gubernatorial appointments to various agencies

Given the relative weakness of the executive and judicial branches in South Carolina, the best chance for reform must come from within the Legislature itself. In practice, this means reform-minded legislators being held accountable by the people they represent. In other words, the best chance for reform in South Carolina lies with the people of South Carolina themselves. BEST IDEAS OF 2010 Shortening the legislative session S 1003: Biennial Session

Status: Referred to Judiciary Committee

This joint resolution proposed amending the constitution so as to institute a six-month (January to June) biennial, or every-other-year, session. Last year, legislators also introduced a handful of bills that would have shortened the annual session to three months. Our take: Any way you measure it, South Carolina has one of the longest legislative sessions in the country. Legislators meet five months every year. This translates into 21 weeks a year or 143 calendar days or 63 legislative days. In terms of months, South Carolina has the longest session in the Southeast (tied for 1st with Tennessee) and the 6th longest in the country (tied with seven other states). Here in the Southeast, the

2010 Best & Worst

S.C. Policy Council

average legislature met for 94 days during the 2009 and 2010 sessions: translating into 47 actual days per year. Capping South Carolinas legislative session at 45 days should give legislators more than enough time to complete their duties. Streamlining agencies and reducing duplication H 3442: Department of Workforce

Status: Passed General Assembly (recorded vote in House; no recorded vote in Senate); signed by governor
This law creates an executive-level agency, the Department of Workforce, to take over the functions of the Employment Security Commission (ESC). Previously, the ESC operated under the oversight of three former legislators elected to the commission by the General Assembly. (The law passed the Senate without a roll call vote.) Our take: If this proposal had passed when originally put forward by the governor and other reformers, it might have saved taxpayers millions. According to a January 2010 report by the Legislative Audit Council, the ESC persistently mismanaged the state Unemployment Insurance Trust Fund, such that the fund currently has an $886.7 million liability. All told, bailing out the fund is going to cost taxpayers more than $2 billion. Placing the ESC under the governors direction provides for more accountability and transparency qualities lacking when the commission was under the thumb of the General Assembly. S 384: Department of Health & Environmental Control a Cabinet-Level Agency

Status: Favorably reported out of Medical Affairs Committee

This bill sought to make the Department of Health & Environmental Control (DHEC) a cabinet-level agency accountable to the governor. Currently, DHEC is controlled by the Board of Health & Environmental Control, which is appointed by the governor with the Senates consent. Our take: The Nerve, as well as other state media sources, has reported extensively on the problems at DHEC which range from improper disposal of medical records to civil rights violations at a state-run nursing home to mishandling water contamination problems near Myrtle Beach. Yet, this bipartisan bill (S 384) died in committee. An even better idea may be to create two cabinet-level agencies: one for health and one for environment, consolidating DHECs environmental functions with those of the Department of Natural Resources. S 897: Commission on Streamlining Government

Status: Passed Senate; passed House with amendments; recommitted to Judiciary Committee in Senate
This joint resolution would have created a commission to review all executive branch agencies and functions (excluding higher-ed) with the aim of eliminating, consolidating and privatizing such activities. Specific functions are not mentioned, but privatizing various Budget & Control Board services would be a good place to start. Our take: If combined with a concrete spending cap (see Budget & Spending chapter), this reform could have been a useful tool for recommending targeted budget cuts. The House essentially killed this legislation by adding language from another bill (H 3147) that had already died in the Senate. The additions would have: 1) created a Department of Administration; and 2) provided for legislative oversight of executive departments. The first idea is a good one; the second, less so. The amended bill died once it returned to the Senate.

2010 Best & Worst

S.C. Policy Council

H 3314: Director of Department of Disabilities & Special Needs

Status: passed House in 2009; Medical Affairs Committee amendment adopted in Senate
This bill would have given the governor authority to appoint a director of the department, which is currently administered by the S.C. Commission on Disabilities and Special Needs. See also H 3199 H 4826: Restructure Department of Corrections and Department of Probation, Parole & Pardon Services

Status: Referred to Judiciary Committee

This bill would have transformed the Department of Probation, Parole & Pardon Services into a division of the Department of Corrections. S 1234: Consolidate Department of Corrections and Department of Probation, Parole & Pardon Services

Status: Passed Senate; House passed amended bill (no recorded vote); and returned to Senate

This bill proposed studying whether the Department of Corrections and Department of Probation, Parole & Pardon Services should be consolidated. The bill also proposed studying consolidation of the State Law Enforcement Division, Department of Public Safety, and the Department of Natural Resources Enforcement Division into one cabinet-level department whose director is appointed by the governor. Our take: The study committee bill (S 1234) above would have become law, except the House effectively killed the bill by amending it to include the State Law Enforcement Division, Department of Public Safety, and the Department of Natural Resources Enforcement Division. For its part, the Senate killed the proposal (H 3314, above) to restructure the Department of Disabilities & Special Needs by deleting it and replacing it with another bill. Reducing the number of constitutionally elected officers H 3231: Joint Election of Governor and Lt. Governor

Status: Passed House in 2009; favorably reported out of Judiciary Committee in Senate
This joint resolution proposes amending the state constitution to permit the joint election of the governor and lt. governor beginning in 2014. Also see S 899 Our take: In spite of a favorable report from the Senate Judiciary Committee this resolution failed to receive a floor vote. This may have more to do with general opposition to the current governor than with opposition to the idea itself. At least 26 states jointly elect their governor and lt. governor, and 8 others have a joint nomination process. H 4475: Governor Appoints Sec. of State

Status: Passed House; referred to Judiciary Committee in Senate

This joint resolution proposed amending the state constitution to permit the governor to appoint the Secretary of State. Also see H 3279

2010 Best & Worst

S.C. Policy Council

H 3280: Governor Appoints Superintendent of Education

Status: Received a 72 to 36 vote in House, 10 votes shy of the two-thirds majority necessary for a proposed constitutional amendment
This joint resolution proposed amending the state constitution so as to permit the governor to appoint the Superintendent of Education. Our take: As we wrote last year, Currently, these positions are elected, which means each officeholder essentially functions as an independent agent and may choose to further the governors agenda or not. The result is that gubernatorial authority is weakened even as people expect the governor to effectively manage these areas of state government. In the end, the result is a loss of transparency and accountability. Making the judiciary more independent S 1186: 20-Year Waiting Period for Judicial Appointments

Status: Referred to Judiciary Committee

This bill would have extended from 1 year to 20 years the waiting period necessary before a former legislator is eligible to be elected to judicial office. Our take: The Legislature exercises significant control over the judicial branch through its exclusive control over upper-level judiciary appointments. In fact, South Carolina is the only state in the country that gives its legislature such power. (Virginias General Assembly also appoints judges, but the governor may fill unexpired terms.) In practice, this means the judiciary is subordinate to the Legislature. The states current Supreme Court chief justice is a former legislator, as are a handful of retired and current Supreme Court judges. Expanding the waiting period to 20 years would help break the close ties that currently exist between the General Assembly and the Judicial Branch. Giving voters more power S 1002: Initiative Petitions

Status: Referred to Judiciary Committee

This joint resolution would allow initiative petitions signed by at least 15 percent of registered voters to be used to propose and enact laws. Our take: Citizen initiative petitions could serve as a potent check to a legislature that enjoys a virtual monopoly of power in our state. Another benefit is that there seems to be a correlation between lower spending and the initiative/referendum process in the 24 states that currently allow citizen petitions. Governments in initiative jurisdictions produce services cheaper, spend less overall, and substitute user fees for broad-based taxes, observes Cal State University economist Robert Krol. With constraints on government spending, the private sector is more productive.

2010 Best & Worst

S.C. Policy Council

WORST IDEAS OF 2010 Co-opting executive appointments and agencies S 783: Patriots Point Development Authority

Status: Governors veto overridden

This law expands the Patriots Point Development Authority by three positions one appointed by the President Pro Tempore of the Senate, one by the Speaker of the House, and one by the State Adjutant General. Our take: As reported by The Nerve, the commission was expanded with the intention of appointing members friendly to the idea of creating a monument at Patriots Point commemorating the signing of the 1860 S.C. Ordinance of Secession. The current commission is deadlocked (tied 3 to 3) on the proposal. S 454: Pyrotechnic Board

Status: Governors veto overridden

This law adds an additional member to the State Board of Pyrotechnic Safety and stipulates that if the governor does not fill vacancies on the board within 60 days such openings may be filled by the chairman of the House Labor, Commerce and Industry Committee and the chairman of the Senate Labor, Commerce and Industry Committee. Our take: Given that Governor Sanford has neglected to fill longstanding vacancies on the Pyrotechnic Board, the immediate purpose of this law makes some sense. The legislation, however, sets a bad precedent because it gives even more control to the Legislature over gubernatorial appointments. Also, South Carolina already has more than 250 boards and commissions. Do we really need this one? H 4210: Director of Dept. of Insurance

Status: Referred to Judiciary Committee

The governor currently appoints the director of the Department of Insurance. This bill would have changed that position to an elected post and also eliminated the field qualifications requirement for the position. H 4657: Office of Small and Minority Business Assistance

Status: Budget proviso deleted by Senate

This proviso (89.108), which appeared in the original House budget, would have moved the Office of Small and Minority Business Assistance from under the governors office to the Budget & Control Board. Our take: In 2009, it was the Ports Authority, the Aeronautics Commission, and the S.C. Research Authority. In 2010, the Legislature set its sights on the Department of Insurance and the Office of Small and Minority Business Assistance. Such encroachments of legislative power over executive branch functions are going to continue until statutory and constitutional reforms bring about a more reasonable balance of power between South Carolinas legislative and executive branches.

2010 Best & Worst

S.C. Policy Council

Restricting executive independence S 900: Governor Cannot Decline Police Protection

Status: Passed on second reading (no recorded vote)

S 900 required that the S.C. Law Enforcement Division have exclusive authority to provide security and protection to the governor and lt. governor, and that such security cannot be declined. S 901: Succession Plan for Lt. Governor

Status: Passed House (recorded vote) and Senate (no recorded vote), but House did not agree to conference committee report
This bill would have required that if the governor is temporarily absent for more than 12 hours the lt. governor would be granted full authority to act in broadly defined emergencies. Our take: Both of these bills are arguably impulsive reactions to the governors disappearance in June 2009. S 900 is problematic because it does not define what must not be declined means. It also threatens the governor and lt. governors right to privacy. Moreover, are the governor and lt. governors lives in such danger that they need a full-time security detail? Likewise, S 901 would have imposed a very narrow window on the governors actions, requiring him to check in with his staff or the S.C. Law Enforcement Division twice a day. The final version of the bill also required the governor to notify the lt. governor whenever the former leaves the state. This idea met with little enthusiasm in the House, which rejected the conference committees amendments to the bill. Expanding legislative power H 3876: Extend House Terms to Four Years

Status: Referred to Judiciary Committee

This joint resolution sought to amend the state constitution to change the length of a House members term from two years to four. Our take: House members are elected every two years a check on their power that helps keep them accountable to the public. This accountability may explain why, for instance, the House sustained a gubernatorial veto of $24 million in new court fees proposed by the Senate. Likewise, the House sustained other gubernatorial vetoes on controversial items (such as funding for hydrogen research, nanotechnology research, and the Southeastern Wildlife Exposition) lawmakers may not have wanted to defend to a public concerned about overspending.

Chapter IV
Economic Development South Carolina has a sales tax of 6 percent but numerous exemptions have been written into the law over the years, reflecting the whims of state lawmakers. The exemptions are estimated to amount to $2.65 billion annually. The sense is that the current Byzantine system of exemptions amounts to a tax on the politically powerless. Jim Geraghty of National Review Online

2010 Best & Worst

S.C. Policy Council

The idea that government ought to drive the economy would have been completely foreign to the framers of the Constitution. In fact, the thinking behind such economic planning turns the Founding on its head. American government was specifically designed to secure and protect the natural rights of individuals to pursue prosperity and happiness not to create, or guarantee the result of, such rights. It is impossible for any true advocate of freedom and limited government to also be a supporter of government-driven economic development. The two ideas cannot coexist, and if we take each idea to its end, we find one leads to freedom and the other to socialism. More concretely, most taxpayers would not voluntarily choose to allow a handful of politicians to determine their economic future, particularly when much of the investment strategy is devised in secret and seems only to benefit a select few investors. A clear grasp of how the free market works makes it clear that governmentdriven economic development is a mirage. If a business idea such as a low-cost airline or a mall is profitable, there is no reason to subsidize it with taxpayer dollars. Private investors will be attracted to a lowrisk plan if there is a high likelihood of profit. Conversely, it is imprudent to invest taxpayer dollars on a highrisk endeavor incapable of attracting private investment. All this begs the question why offer tax breaks and incentives at all? The answer to this question eventually boils down to the acknowledgement that taxes are too high. This is also to admit that high taxes are a barrier to job creation and investment. If that is so and again, our elected officials tacitly concede that it is why not lower taxes for everyone? In 2010, South Carolina took a step back on the road to freedom. The backdrop for the 2010 session was the October 2009 passage (in special session) of an economic incentive package for Boeing estimated to be at least a half-billion dollars. The introduction of an omnibus economic planning bill (H 4478) also set the tone for the session, indicating that the General Assembly was not going to pursue fundamental tax reform, but targeted tax cuts instead. As if the flood gates had been opened, another high-profile bill (S 1054) sought to give a mall developer more than $100 million in sales tax incentives. This latter bill was defeated, but H 4478 became law, as did a score of other government-driven economic development proposals detailed below. BEST IDEAS OF 2010 Requiring transparency for economic development deals S 1229: Economic Incentive Transparency

Status: Referred to Finance Committee

This bill would have required targeted tax incentives/subsidies to be introduced as separate legislation subject to a recorded vote. The measure also provided for additional protections including independent review, as well as public notice and hearings on all taxpayer subsidized economic development deals. Our take: Last years Best/Worst could find no good ideas when it came to government-driven economic development. We still maintain that a government-planned economy (in all its forms and nuances) is antithetical to the free market and, thus, freedom. If we are going to have it, though, it ought to be transparent, informed by a clear articulation of job and investment targets and backed by substantive research and objective analysis. Such requirements would likely demonstrate that economic development deals are never a good investment for all taxpayers and, at best, benefit a select few. H 4804: Recipients of Targeted Tax Cuts

Status: Referred to Ways & Means Committee

2010 Best & Worst

S.C. Policy Council

This bill would require all legislation extending a tax credit, or any type of tax relief, to 15 or fewer taxpayers to be accompanied by a statement specifying which taxpayers will benefit from the cut, as well as details regarding specific communications with these persons or their representatives. Our take: This bill might further transparency regarding targeted tax incentives. But it also raises some questions. First of all, why limit such reporting to measures that affect 15 or fewer taxpayers? Second, why not also require the Board of Economic Advisors (or, even better, an objective economist, per S 1229 above) to stipulate how much each of these taxpayers stands to save? Finally, why not require annual reporting from the Department of Commerce and the Department of Revenue regarding job creation and investment generated by each recipient of the targeted credit? WORST IDEAS OF 2010 Increasing government control over the economy H 4478: Expand Economic Development Policies Status: Passed General Assembly (no recorded vote in Senate); signed by governor This law provides an array of targeted tax credits and subsidies to special interests. Of particular note are amendments to the tax code regarding job tax credits for Tier I, II, III, IV counties, as well as changes to the Enterprise Zone Act of 1995 and the Economic Impact Zone Community Development Act of 1995. An early version of the law would have eliminated the corporate income tax, but this reform was rejected by the Senate. Also see H 4936, S 690 Our take: Essentially, this legislation has its genesis in a run-of-the-mill pork/tax incentives bill (H 3722), otherwise known as the BAT bill, which failed to get through conference committee last year (see Best/Worst 2009). After the passage of the Boeing incentives deal, the idea of special-interest tax credits took on a quasimoral connotation, with lawmakers claiming they were duty bound to hand out more special exemptions in the name of job creation. The result was this legislation, which expands and institutionalizes many of the policies in the states economic development arsenal. The fate of the manufacturing property tax is illustrative. Instead of cutting the states highest-in-the-nation manufacturing property tax rate, lawmakers opted for a broad exemption. The message is clear: instead of tax cuts for everyone, the states official policy is targeted cuts for special interests. S 1323: I-95 Corridor Authority

Status: Passed Senate (no recorded vote); referred to Ways & Means Committee in House
This bill would have created an I-95 Corridor Authority empowered to carry out economic development and educational improvement activities aimed at improving the economy of any county within 30 miles of I-95. Also see S 1339 Our take: Last years Best/Worst alerted readers to a bill (H 3777) that would have designated legislators as economic development ambassadors empowered to perform all manner of activities aimed at creating jobs. S 1323 reminds us of that bill. After all, why stop at I-95? Why not an I-85 Corridor Authority (cf. S 1339)? Or an I-20 Authority? Or an I-26 Authority? More specifically, S 1323 is among the worst bills introduced all session: the authority lacks focus; would not be transparent; and would not be effective at creating jobs. Nevertheless, the Senate provided funding for the I-95 Corridor Authority via a budget proviso (89.143) using $3 million in nonrecurring dollars from the Healthcare Tobacco Settlement Trust Fund. The final version of this proviso directs the money to the S.C. Research Authority to promote health-related issues along the I-95 Corridor.

2010 Best & Worst

S.C. Policy Council

S 915: Community Economic Development Act

Status: Passed General Assembly (no recorded vote in Senate); became law without governors signature
This law reauthorizes the S.C. Community Economic Development Act (CEDA) for another five years, until June 30, 2015. Also see H 3312 Our take: As we wrote in the 2009 Best/Worst: This is another well-intentioned idea helping fund nonprofit organizations that provide assistance in low-income communities that would be better left to the private sector. Letting CEDA sunset after 2010 would not only reduce the regulatory burden on nonprofits, but also save taxpayers money. Moreover, supporters would still receive tax credits for donations to these nonprofits under current federal parameters. H 4511: Rural Infrastructure Act

Status: Passed General Assembly (no recorded vote in Senate); governors veto overridden
This law creates the S.C. Rural Infrastructure Authority to distribute grants and loans to subsidize infrastructure projects in rural areas with the aim of promoting economic development. Also see S 135, H 4152 Our take: The governor vetoed this bill because the Rural Infrastructure Authority duplicates work being done by the Department of Commerce. The governor appoints the Secretary of Commerce while the legislative leadership controls this newly created authority. For our part, we believe the Rural Infrastructure Authority is just another way for the legislative leadership to dole out special favors. The aim of this law is to address the problem that traditional infrastructure financing methods in South Carolina cannot generate the resources necessary to fund the cost of rural infrastructure which are required for economic development. Why not instead allow the free market to address these needs using public-private partnerships? Or, is the problem that from a free-market perspective, these projects dont make sense? Targeted tax breaks for special interests S 1054: Incentives for a Mall Developer

Status: Passed Senate (no recorded vote); amended version passed House; Senate returned bill to House with additional amendments
As originally conceived, this bill would have extended approximately $100 million in sales tax breaks to a developer seeking to build a retail mall at Okatie Crossings in Jasper County. H 4200: Incentives for Big Box Retailers

Status: Failed on second reading in the House; recommitted to Ways & Means Committee
This bill would have allowed destination retailers to use the extraordinary retail provision in state law to apply for tourism-related tax breaks that small retailers are ineligible for. In other words, a tax break for a proposed Bass Pro Shops in Greenville. Our take: While other economic incentive deals talk about multipliers and job creation numbers that rarely seem to materialize, nearly everyone agrees retail incentives dont create new jobs. In fact, even the states Board of Economic Advisors concluded S 1054 widely known to be for The Sembler Company would not have created new jobs, but merely shifted jobs from other retail sites (likely Tanger Outlets in Hilton Head) to this one. (As an aside, Tanger seems to have done fine without any incentives not that it also

2010 Best & Worst

S.C. Policy Council

didnt try to obtain them.) Both bills S 1054 and H 4200 are also likely unconstitutional because they entail the use of public funds for what is primarily a private benefit. H 4343: Incentives for Airlines

Status: Passed House (no recorded vote); passed Senate on second reading (no recorded vote), but didnt receive third reading
This bill would have appropriated $15 million to the South Carolina Air Service Incentive and Development Fund to provide incentives to airlines. An accompanying budget proviso (89.112) would have paid for the subsidies by taking the money from the Insurance Reserve Fund. Our take: We can dispense with this bill using four words: Air South vs. Southwest. Air South received $17 million in taxpayer incentives and went bankrupt in 1997. Southwest recently agreed to expand service to Charleston and Greenville regardless of whether they receive incentives or not. The logic is simple: any business model based on taxpayer subsidies is likely to fail because there are not more compelling reasons, such as consumer demand, to sustain the business. Two other reasons to dislike this bill: 1) no recorded vote; and 2) the S.C. Aeronautics Commission that would have controlled the fund is itself controlled by the Legislature. S 1066: Incentives for Small Manufacturers

Status: Passed Senate (no recorded vote); House voted to carry the bill forward to next session, ending debate
S 1066 would have granted a 100 percent income tax credit for donations made to the Small Manufacturers Retention and Growth Fund, which would be used by the S.C. Manufacturing Partnership Extension to subsidize manufacturers that employ less than 250 persons. A 50 percent credit was included in H 4478 (above), but was stripped out in conference committee. Our take: Again, why not just lower the states 10.5 percent manufacturing property tax which according to Unleashing Capitalism is the highest in the nation? H 4514: Incentives for an S Corporation

Status: Passed General Assembly; became law without governors signature

This law would allocate one-half of income taxes paid by an S Corp. engaged in manufacturing with a new $500 million capital investment at a single site and 400 new employees, for a period of five years to a fund to be used by the Coordinating Council for Economic Development to distribute for public infrastructure improvements. Our take: This law seems to have been written with a very specific S Corp. in mind perhaps one located in Greenville. But we couldnt confirm whether that is the case. Another unanswered question is whether the S Corp. will be the direct beneficiary of the public infrastructure improvements anticipated by this law. It would seem so. Laws such as these confirm why we need economic incentive transparency so that it is clear which companies are receiving incentives and what jobs will be created as a result.

2010 Best & Worst

S.C. Policy Council

Chapter V
Education Education spending will be most effective if it relies on parental choice & private initiative the building blocks of success throughout our society. Milton Freidman In spite of funding cuts and furloughs in some districts, the total K-12 budget (federal, state and local revenue sources) increased over last year, hitting almost $8 billion for FY10-2011. Overall, K-12 spending has increased by nearly 20 percent since the beginning of the recession in 2007. Also of note is that administrative expenses and facility construction costs have increased at a faster pace than instructional spending over the past several years. Yet education outcomes are still among the worst in the nation. South Carolinas high school graduation rate is 54.9 percent 48th out of 50 states. Low-income 4th and 8th graders who took the National Assessment of Educational Progress (NAEP) test ranked 49th in the country in terms of a combined measurement of both overall scores in math and reading and improvement over the last six years. South Carolina college-bound seniors have the lowest SAT scores in the South and rank 49th in the nation. Likewise, South Carolinas ACT scores are 44th in the nation. As measured by ACT performance, only 18 percent of South Carolina college-bound seniors are ready for college-level coursework in English composition, algebra, social science and biology.

Fundamental education initiatives, such as school choice and weighted student funding, made no progress in the General Assembly in 2010. A few relatively good bills did pass, such as a law (H 4248) requiring criminal background checks on all newly hired school district employees. In a modest gesture toward streamlining education funding, budget writers also collapsed several of the 100+ separate revenue codes. Lawmakers also introduced a handful of proposals aimed at reducing administrative costs in particular, a bill (H 4618) regarding the consolidation of school districts and another (H 4866) that would have capped administrative expenses at 35 percent. Another bill worth mentioning is H 3095, which would have increased teacher induction contracts from one year to five years. All in all, though, 2010 represents another lost opportunity for education reform reforms based on a parent-driven school choice model. These include: student-centered (or weighted-student) funding; more public charter schools; and school choice scholarships for low-income, disabled and other high-risk students. These are reforms that have proven successful in other states and localities most notably Florida, where statewide student achievement has risen dramatically and race-correlated achievement gaps have shrunk. They are reforms we will likely hear about in 2011. But, at the end of the day, the time for talk is long past. South Carolinas children need real education reform now.

2010 Best & Worst

S.C. Policy Council

BEST IDEAS OF 2010 Empowering individual schools H 4247: Student-Centered Funding

Status: Referred to Ways & Means Committee

This bill would have allocated education dollars according to specific student needs, thus resulting in a fairer and more streamlined mechanism for funding schools. Our take: Student-centered, or weighted student, funding would revolutionize public education in South Carolina. To begin with, student-centered funding reduces administrative costs in some localities by as much as 40 percent. By eliminating categorical funding restrictions, student-centered funding also allows schools to provide educational offerings tailored to specific student needs and could help devolve decision making from district administrators to local school personnel. Finally, this reform would help resolve resource disparities between local public school districts as well as at schools within the same district. And while funding reform does not address the core issues of instructional quality and student assignment to schools, it does represent a significant step in the right direction. Reducing administrative costs H 4197: Eliminate Education Oversight Committee

Status: Referred to Education & Public Works Committee

This bill would have abolished the Education Oversight Committee, delegating its responsibilities to the Department of Education and other entities. It also would have required the reporting of graduation rates by race and ethnicity so as to better measure the achievement gap in South Carolina. Our take: This reform would promote transparency, as well as reduce administrative costs, by transferring responsibilities for the Education Oversight Committee to the Department of Education. The move would reportedly save $2 million annually and possibly bring some accountability to the very procedures (district report cards, statewide testing, etc.) aimed at holding schools accountable themselves. The Oversight Committee was created to serve as a watchdog over student achievement standards, but critics argue it has done the opposite by promoting the use of subpar standardized tests and failing to report results in a timely or transparent manner. Moreover, reporting graduation rates aggregated by race would put South Carolina in line with the national norm and give lawmakers and parents more information to make better policy decisions. H 4866: Classroom Instructional Expenditures

Status: Referred to Education & Public Works Committee

This bill would mandate that at least 65 percent of school district operational expenditures be used for instructional class expenditures. Our take: This bill is a heavy-handed way of capping administrative costs. A much better alternative would be student-centered funding, as discussed above. That said, administrative costs in South Carolina are too high. As of FY07-2008, 70 out of 100 of the largest school districts in the nation spent more than 65 percent of their budget on instruction and instructional support. The only South Carolina district included in this list Greenville County School District allocated only 63.7 percent of its total budget on instruction and instructional support. If large districts, such as the New York City School District (76.5 percent) and the Los Angeles Unified School District (68.2 percent), can allocate more than 65 percent of their budget to

2010 Best & Worst

S.C. Policy Council

instruction, there is no reason why all school districts in South Carolina cant follow suit. Like other educational funding issues, the devil is in the details, and any move toward capping administrative costs should do more than make cosmetic adjustments to the spending codes employed by school budget writers. H 4618: Consolidate School Districts

Status: Referred to Education & Public Works Committee

This bill would consolidate all school districts into one per county by July 1, 2012. Counties would not be able to have more than one school district unless the county created and funded another by ordinance. Our take: Studies show mixed results as to whether consolidating school districts results in reduced administrative costs. The ongoing experience in Sumter County highlights the fact that district consolidation efforts could easily end up costing tens of millions in transitional expenses. Thats all the more reason why the goals sought by this bill would be better accomplished through student-centered funding, as well as school choice. Increasing the pool of high-quality teachers S 1253: Alternative Teacher Certification

Status: Referred to Education Committee

This bill would amend current law to allow persons from nationally accredited universities to obtain alternative teacher certification. Currently, only graduates of regionally accredited institutions are eligible. Our take: This low-impact bill would essentially allow graduates of online universities to obtain alternative teacher certification. Studies have shown that teaching credentials and test scores are not consistently or strongly correlated with teaching skill. The larger issue here is the need to streamline the states alternative teacher certification rules. However this is done, it should seek to lower barriers to entry, focus on outputbased recruitment strategies, and follow-up with reliable measures of teacher quality gauged against student outcomes. H 4376: Performance Pay Incentives

Status: Referred to Ways & Means Committee

This bill would create a five-member study committee to make recommendations regarding the creation of a performance pay incentive program for highly qualified/exceptional teachers in the public school system. Our take: At the heart of retaining high quality teachers is a fair performance pay system. Merely studying the issue, of course, is not enough. Moreover, performance pay incentives need to be correlated with student achievement and other measureable outcomes, not just inputs, like degrees earned or years spent in the classroom. WORST IDEAS OF 2010 Pay raises not directly tied to student performance S 1363: National Board Teaching Standards

Status: Governors veto overridden

This law grants a pay increase to teachers certified by the National Board of Professional Teaching Standards prior to July 1, 2010. Currently, National Board Certified Teachers (NBCT) receive a $7,500 annual incentive

2010 Best & Worst

S.C. Policy Council

for 10 years that is, $75,000. This bill would extend this payment for another 10 years. Other budget provisos (1.89 and 1A.47) offered similar incentives to national board certified special education teachers. Our take: National Board certification is not a bad idea in itself. Except numerous studies have shown that NBCTs do not outperform their peers, after adjusting for other variables. In one such study, which looked at teachers in Florida and North Carolina, researchers found no correlation between national board certification and improved student outcomes. Moreover, as the governors veto pointed out, extending National Board incentives at a cost of $60 million for FY2010 seems imprudent given that some localities are cutting classroom positions. Instead of correlating pay with credentials, the state should provide incentives for highstudent achievement. Under a student-centered merit pay system, it would soon become apparent whether National Board certification actually makes for better teachers. Using long-term debt to cover short-term expenses H 4923: General Obligation Bonds for Instructional Costs

Status: Governors veto overridden by local delegation

This law allows the Orangeburg County School District to issue general obligation bonds to cover anticipated operating deficits arising from cuts in Education Finance Act funding. Other districts throughout the state benefitted from similar laws (cf. H 4728, H 4755 and S 1372). In every case, the governor vetoed the bills, only to have a local delegation consisting of a handful of legislators override his veto. Our take: Californias state government has already gone down the road of using long-term bond debt to fund short-term expenditures. The results have been disastrous. Cutting administrative costs is a better option. Fundamental reforms like student-centered funding and school choice would also help struggling districts.

Chapter VI
Health Care The alternative approach is for governors and state legislators to define the terms and conditions of health care reform within the borders of their states and force the federal officials implementing Congresss misguided, poorly designed, and badly written health legislation to respond to new facts on the ground. State lawmakers who take this alternative approach will likely be able to protect more of their constituents from the numerous adverse effects of Obamacare. Gregg Girvan of the Heritage Foundation All eyes were on Washington, D.C., this past year as Congress passed legislation that allows the government to dictate the sale and provision of health care in effect, taking control over 1/6 of the U.S. economy. As a result, the prevailing mentality among state lawmakers was largely a wait-and-see attitude that ignored anything that might have been done at the state level to promote free market health care reform. The one bright spot was the passage by the House of a comprehensive tort reform bill (H 3489) that would have enacted a variety of caps on punitive and noneconomic damages. The measure died in the Senate after reportedly being blocked by the trial lawyers industry. Another good idea that failed to pass was the Freedom of Choice in Health Care Act, which would have guaranteed the right of South Carolinians to purchase health care on the free market. Eight states have passed the measure into law or as a constitutional amendment, among them Virginia, Georgia and Louisiana.

2010 Best & Worst

S.C. Policy Council

Lawmakers also neglected to even seriously consider free market reforms that would have allowed consumers to purchase health insurance across state lines. The auto insurance market allows for such competition, and there is no reason the health insurance market cant do the same. Likewise, legislation requiring a comprehensive review of coverage mandates failed to emerge from committee. On the flip side, the General Assembly approved an additional coverage mandate for the State Health Plan and introduced a handful of others. Even worse, the General Assembly increased certificate of need fees on health care providers and also introduced two pieces of legislation S 1220 and S 937 that would dictate where and when doctors may purchase pharmaceuticals and also dictate what patients doctors may see. Thus, while other state legislatures are looking for ways to counter the federal takeover of health care, lawmakers in South Carolina are pursuing policies aimed at increasing health care costs and regulating providers. BEST IDEAS OF 2010 Lowering health care costs through free market reform S 986: Purchase Out-of-State Insurance

Status: Referred to Banking & Insurance Committee

This bill would have allowed consumers to purchase insurance from out-of-state insurers authorized by the state Department of Insurance. Our take: By opening the insurance market to companies across the country, legislators could have ended the effective monopoly enjoyed by S.C. providers. This reform could also lower insurance costs by as much as 30 percent by indirectly eliminating coverage mandates. S 988: Coverage Mandate Review

Status: Referred to Banking & Insurance Committee

This bill would have required an independent review of proposed insurance coverage mandates in terms of medical efficacy and fiscal impact. The bill would also have required ongoing review and reauthorization of existing mandates. Our take: Mandates are one of the primary reasons health insurance is so expensive, especially in the individual market. (Firms that self-insure are exempt from state mandates.) The more mandates, the higher the cost of insurance. And, like nearly all government regulations, once a mandate is passed it rarely goes away. This bill would have initiated a process by which unnecessary and expensive mandates could be eliminated. S 987: Freedom of Choice in Health Care

Status: Referred to Judiciary Committee; majority report favorable, minority report unfavorable
This bill would protect the right to purchase health care, countering any federal or state health insurance mandates. It safeguards the right not to purchase health insurance and to pay out-of-pocket for health care. The bill would also protect against attempts to impose one form of coverage over another. Also see S 980, S 1010, S 1366, H 4181, H 4240, H 4602, H 4767, H 4825 Our take: Passing this bill would have aided efforts to challenge the constitutionality of select aspects of Obamacare namely, those provisions that violate the Commerce Clause, the 10th Amendment and the 14th Amendment. Thirty-eight other states introduced similar legislation in 2010. Eight states enacted the measure.

2010 Best & Worst

S.C. Policy Council

S 168: Encouraging Free Health Care

Status: Passed General Assembly (no recorded vote in either chamber); signed by governor
This bill broadens the Good Samaritan Law to encourage physicians to volunteer their services without fear of being sued unless there is an act of gross negligence or willful misconduct. Also see S 1001, S 1226 Our take: One of the best ways to bring quality health care to individuals without insurance is through free health care clinics staffed by volunteers in particular, retirees looking to give back to their communities. But many doctors choose not to volunteer, for fear of being sued. This law should ease that concern and allow clinics to more easily recruit doctors. The next step is to allow physicians licensed in other states to do volunteer work here in South Carolina. S 998: Health Savings Accounts

Status: Referred to Banking & Insurance Committee

Among other things, this bill would allow a 100 percent tax deduction for Health Savings Account (HSA) premiums and also create a fast track approval process for HSA insurance plans already approved under S.C. law or by other states. Our take: This bill would encourage the use of HSAs in particular, by allowing a 100 percent tax deduction for Health Savings Account (HSA) premiums. Currently, such a deduction only applies to employersponsored insurance an inequity that has long hindered free market health care reform. Some of the other aspects of this bill such as regarding provider and non-provider relationships need to be fleshed out; but overall this bill would help promote the use of HSAs. Tort reform and lifting regulations on providers H 3489: Tort Reform

Status: Passed House; read twice in Senate and placed back on special order
This bill would have enacted comprehensive tort reform, capping punitive damages and noneconomic damages. The Senate replaced the bulk of the bill with a watered-down amendment and then let the measure die. Our take: Estimates of the cost of medical malpractice civil cases range from $252 billion to $865 billion. By contrast, tort reform could reduce health care costs by as much as 10 percent. While not specific to health care, this bill would have improved the legal climate for all businesses, including health care providers. According to a recent U.S. Chamber of Commerce survey, South Carolina has the 7th worst lawsuit climate in the country. H 3489 would have helped change that, but was reportedly torpedoed by the trial lawyers industry and their representatives in the Senate. H 4405: Allow FQHC to Dispense Drugs

Status: Passed General Assembly (no recorded vote in Senate); signed by governor
This law allows federally qualified health centers (FQHC) to dispense drugs and operate a retail pharmacy. A state licensed pharmacist would serve as a consultant in the process. Also see S 1088, H 4216 Our take: We are not fans of the concept of federally qualified health centers because it is not the business of government to subsidize or provide health care. Still, if we are going to have FQHCs, the state should do all it can to help them operate in a more efficient manner. This law does that, raising the question of why the state shouldnt deregulate health care in other ways as well?

2010 Best & Worst

S.C. Policy Council

S 965: Acupuncture Exemption

Status: Passed Senate; Referred to Medical, Military, Public & Municipal Affairs Committee in the House
This bill would have exempted physicians trained in acupuncture from certain requirements stemming from the state Acupuncture Act. Our take: One of the best ways to lower health care costs is to eliminate burdensome licensing requirements for medical professionals. Acupuncture is just a small subset of the health care sector, yet the act governing this industry is 3,359 words. Although the overall impact of this bill would have been minimal, the practice of reducing barriers to entry would lower health care costs for all and likely lead to better care. H 4894: Dentist Fees

Status: Referred to Medical, Military, Public & Municipal Affairs Committee

This bill would have allowed dentists to set their own prices for services not covered by insurance companies. Our take: Insurance companies should not be able to set prices for services they dont even cover. Allowing dentists to set their own prices would increase competition and lead to better care. It would also discourage dentists from blaming the insurance industry for expensive rates. WORST IDEAS OF 2010 Enacting more coverage mandates S 952: Obesity Coverage

Status: Referred to Finance Committee; passed as part of budget

This bill would have created an obesity treatment plan that would entail forming a Bariatric Advisory Board (appointed by the legislative leadership); and also require the State Health Plan (as administered by the Budget & Control Board) to implement a program covering morbid obesity treatments, including bariatric surgery. The bill failed to emerge from committee, but a pared down version passed as a proviso (80A.55) in the state budget. S 1378: Smoking Cessation Coverage

Status: Failed on second reading in Senate (no recorded vote)

This bill would have required insurance plans to include coverage for smoking cessation treatment. H 4298: Dependent Coverage

Status: Referred to Labor, Commerce & Industry Committee

This bill would have required insurance plans to cover a dependent child on a medically necessary leave of absence from a postsecondary institution a proposal otherwise known as Michelles Law. In addition, the bill would have amended state law regarding the privacy of genetic information and prohibited underwriting decisions based on genetic information. H 4909: Sickle Cell Testing

Status: Failed in House by vote of 46 to 56

This bill would have required sickle cell testing for all students who want to participate in school athletics.

2010 Best & Worst

S.C. Policy Council

Our take: All of the above bills would have increased the price of health insurance in South Carolina by shifting costs for coverage/testing for a select group to all policy holders/taxpayers. According to the Council for Affordable Health Insurance, each additional mandate can increase insurance costs by 1 percent to 10 percent. Moreover, with the passage of federal health care legislation, the federal government is now authorized to add new mandates and likely will do so at a rapid pace. (Already, federal law requires dependent coverage up to age 26, making Michelles Law obsolete.) S 997: Credit History and Insurance Coverage

Status: Referred to Committee on Banking & Insurance

This bill would prohibit insurance companies from using a persons credit history as a factor in determining whether to issue a policy or in setting premiums and fees. Our take: In effect, this bill is suggesting that credit worthiness shouldnt be a factor in obtaining insurance. To begin with, preventing insurance companies from using credit history as a tool to gauge risk will result in higher prices for all policy holders. But a larger objection is that its not the role of government to dictate such policies. A similar strategy was tried in the housing market beginning with the Community Reinvestment Act and continuing with the push for affordable housing as subsidized by government lenders. The end result was the subprime mortgage crisis and the Great Recession. H 4446: Immunization Registry

Status: Passed by General Assembly (no recorded vote in either chamber); became law without governors signature
This law authorizes the Department of Health & Environmental Control to establish a statewide immunization registry. Also see H 3170 Our take: Every state, including South Carolina, mandates that children enrolled in day care/school be vaccinated against an ever growing list of infections. In the absence of a public health emergency (cf. Jacobson v. Massachusetts (1905)), there is some question as to whether such requirements are constitutional. Moreover, many parents have safety concerns about vaccines, not to mention religious and ethical objections. Establishing a statewide immunization registry could be used to hinder the ability to obtain exemptions and may pose privacy concerns. Along those lines, H 3170 creates a legislative study committee to look at issues related to health information technology and electronic personal health records. Regulating providers/interfering in the free market S 1220: Prohibiting Pharmaceutical Sales at Hospitals

Status: Referred to Medical Affairs Committee

This bill would have prohibited pharmaceutical sales representatives from selling or marketing products at hospitals. Our take: As we note in the chapter on common sense legislation, this bill takes a paternalistic approach to the market and citizens. Moreover, given the busy schedule of most physicians, its just plain dumb. S 937: Physician Hospital Rotations

Status: Referred to Medical Affairs Committee

This bill would dictate policy regarding physician rotations at hospitals that receive any kind of public funding, including Medicare and Medicaid.

2010 Best & Worst

S.C. Policy Council

Our take: In effect, this bill requires physicians to treat patients who receive Medicare/Medicaid. Although the measure permits doctors to opt out, the real problem is government telling hospitals how to operate and doctors what patients they can see. This will become more of an issue, owing to federal health care mandates that will cause Medicaid enrollment in South Carolina to increase by almost half a million persons over the next several years. S 337: Certificate of Need Policies

Status: Governors veto overridden

This law streamlines the Certificate of Need (CON) process, but creates an additional application fee of $100. Our take: The governor vetoed this bill because it increases fees without providing new services. And while streamlining the CON process is a welcome reform, a much better idea is to eliminate CONs altogether. A CON is essentially designed to prevent the needless duplication of health care services by requiring government approval for the creation and expansion of health care facilities. As might be expected, CONs dont work, leading to higher costs and less choice. Thats one reason the federal government repealed CON requirements in 1987; since then, 14 other states have followed suit. S 1004: Loan Forgiveness

Status: Referred to Education Committee

This bill would extend up to $20,000 in student loan forgiveness to geriatric nurses who work in South Carolina for at least five years upon graduation. Another bill (H 4195) would offer similar incentives to physicians who commit to practice in rural areas. Our take: Now that Obamacare has passed, we can expect many more such enticements, as the medical profession becomes less and less attractive to students. In short, this bill forces all taxpayers to subsidize the needs of select groups (the elderly, rural residents, etc.). More troubling is that such policies are a subtle economic planning tool antithetical to free market principles. H 3179: Farm to School Nutritional Program

Status: Passed House; favorably reported out of Education Committee in Senate

This bill aims to create the South Carolina Farm to School Program to facilitate the use of South Carolina agricultural products in school lunches and other food offerings. Our take: There is nothing wrong with this idea in itself. But the private sector, rather than the Department of Agriculture, should be coordinating these efforts. If local farmers want to sell their produce to local schools, so be it. Why does the state need to step in? Another concern we have is that subsidies will follow, not to mention more invasive policies (such as Body Mass Index testing) ostensibly aimed at improving kids health.

Chapter VII

Property Rights The true foundation of republican government is the equal right of every citizen in his person and property and in their management. Thomas Jefferson (1816)

2010 Best & Worst

S.C. Policy Council

The concept of property rights is not well understood today. At the federal level, the government tends to act as if it has final say over how all property is used. This is because the government perceives itself as the source of, rather than the protector or guarantor, of property rights. By contrast, the Founders believed the right to private property to be an unalienable right granted to all persons by the laws of nature and God. The right to private property, in other words, is inherent to personhood and not dependent on government action. The big-government view of property rights has, unfortunately, trickled down to the state and local level. In 2010, the S.C. General Assembly enacted and proposed legislation in a variety of areas that undermines property rights. One law, for instance, requires all homeowners to install fire sprinkler systems. Another allows municipalities to tax property owners without their consent. An additional measure, which did not pass, would have billed property owners, without their consent, for public employees to clean their property. The key to both Americas and South Carolinas prosperity has been and will remain a firm respect for private property rights. Yet, as Jefferson also reminds us, the price of such liberty is eternal vigilance. BEST IDEAS OF 2010 Protecting private property rights H 4663: Fire Sprinkler Study

Status: Passed General Assembly; signed by governor

This law prevents the S.C. Building Codes Council from mandating the installation of residential fire sprinkler systems before January 1, 2014. The law also creates a study committee to investigate how to increase participation in a tax credit program for the installation of smoke alarms. Our take: There has been a growing trend nationwide to require fire sprinkler systems be installed in any new home. The regulation comes from a 2008 International Code Council (ICC) vote and is set to take effect in 2011. The ICC publishes the International Residential Code a document used by 46 states, including South Carolina, to regulate new home construction. Some states, such as California, have followed suit. Others have moved to block the new mandate. This law postpones the mandate until 2014 but the original House version postponed the requirement indefinitely. Allowing this mandate to go into effect will ultimately increase the price of new homes (and likely lead to additional licensing requirements for fire sprinkler contractors). But what right does government have to determine what amenities an individual should install in his home? H 4827: 60-Day Public Hearing for Zoning Changes

Status: Referred to Judiciary Committee

This bill would change the time required before a planning commission submits a report regarding a zoning change from 30 days to 60 days. Our take: Zoning changes can have a huge impact on how existing owners may use their property. More transparency in this area is a good thing. S 1118: Property Liability

Status: Favorably reported out of Fish, Game & Forestry Committee

This bill would protect individuals from liability for state-prescribed fires on their property.

2010 Best & Worst

S.C. Policy Council

Our take: Under current law, property owners can be held liable if a state-prescribed fire causes damage that is not the direct fault of the person acting on behalf of the government. In other words, a government official tells a property owner that he is required to burn something. But then the wind blows and a neighbors house catches fire. That fire would not have been started without the states intervention. Thus, the government, not the property owner, should be held liable. H 4274: Respect Property Owner Covenants

Status: Referred to Labor, Commerce & Industry Committee

This bill would have required electrical utilities to comply with local covenants when installing power lines. Our take: When communities establish covenants, property owners are essentially saying, This is our property and we want there to be certain rules that apply to our land. This bill would have provided more protection to these property owners. When governments and electrical utilities have unilateral authority to violate such covenants, it dis-incentivizes the property owners desire to pay for valuable additions that can be wiped out through rights of way. Crafting better annexation policies S 982: Annexation Transparency

Status: Referred to Judiciary Committee

This bill requires municipalities to submit plans of services and provide a 30-day notice to the public before proceeding with any annexation. Our take: Annexation can be, and often is, a mixed bag. It can bring public services to citizens who didnt previously receive them for instance, public water and sewerage but it also brings new taxes and regulations. Transparency has been the theme of reform at the state level and this bill would have brought a measure of transparency to annexation plans. S 936: Exemption from Local Sewer Fees

Status: Referred to Finance Committee

This bill would exempt private property owners who dont use a local sewer system from paying sewer service and connection fees. Our take: In the market, you only pay for services or goods you actually receive. The same rule should apply to government services. If there are user fees for the sewer system, individuals should not be forced to pay them if they dont actually use the service. WORST IDEAS OF 2010 Taxing/taking private property without consent S 950: Taxation Without Owners Consent

Status: Governors veto overridden

This law amends the Municipal Improvement District Act so as to allow Tax Increment Financing bonds to be backed by the full faith, credit, and taxing power of the municipality.

2010 Best & Worst

S.C. Policy Council

Our take: This law makes taxpayers who do not live in a Municipal Improvement District liable for subsidizing improvements in these districts. As the governors veto explained: The original improvement district legislation states that local governments may not place any assessment, revenue or debt service on bonds that are used to fund municipal improvements on property that is located outside the improvement district. S. 950 changes that commonsense arrangement. S 976: County Fines for Unsightly Property

Status: Passed second reading in Senate (no recorded vote)

This bill would permit counties to impose tax payments to cover the cost for public employees to clean properties that are considered unclean or are thought to constitute a public nuisance. Our take: These two bills would allow municipalities to unilaterally impose fees on property owners without their consent. As the governors veto of S 950 reminds us, The Founding Fathers believed that, at its core, government should protect life, liberty and personal property. Both of these bills chip away at the right to personal property, with S 976, in particular, having the potential to result in Kelo-like takings of private property. S 917: Making Private Piers Public

Status: Referred to Fish, Game & Forestry Committee

All piers extending into the Atlantic even private ones would be made public under this proposal. Our take: Beach-related policy has always been controversial in South Carolina, but this bill goes too far. Lucas v. South Carolina established the total takings test in 1992. In that case, David Lucas purchased beachfront property on the Isle of Palms for $975,000. Subsequently, the Isle of Palms government rezoned the land preventing Lucas from building a home on the site he had purchased. Lucas contended that this was in effect a taking the government had decreased his property value and should compensate him accordingly. The case went all the way to the U.S. Supreme Court where Lucas won and established the takings clause. In light of Lucas, wouldnt taking private piers be unconstitutional? Restricting sale/rental of property S 1056: Regulate Mobile Home Park Prices

Status: Referred to Judiciary Committee

This bill would require mobile home parks to charge the market rental rate, otherwise known as the fair market price, to renters. Our take: What is a fair market price? It is impossible for government to know the fair market price of a mobile home/lot, or anything else for that matter. When rent controls were established in New York City, the quality of housing diminished. This bill could lead to similar results. Moreover, this bill threatens the freedom of contract, which is essential to the free market. H 3354: Home Improvements Subject to Building Codes

Status: Passed House; referred to Labor, Commerce & Industry Committee in Senate
If a property owner makes improvements to his property and eventually sells it, he must follow the same regulations as a licensed contractor in order to be exempt from various state regulations (as specified in statute 40-11-360).

2010 Best & Worst

S.C. Policy Council

Our take: The idea behind this legislation has some merit. A homebuyer should know what he is getting. Instead of requiring self-home improvements to adhere to code, a better solution is to require notification as to the nature of these improvements and then let potential homebuyers decide for themselves whether to purchase the property.

Chapter VIII
Environment In order to deter challenges to your plan for centralized control of industrial development through the issuance of permits for greenhouse gases, you have called upon each state to declare its allegiance to the Environmental Protection Agencys recently enacted greenhouse gas regulations regulations that are plainly contrary to United States law. On behalf of the State of Texas, we write to inform you that Texas has neither the authority nor the intention of interpreting, ignoring or amending its laws in order to compel the permitting of greenhouse gas emissions. Attorney General Greg Abbott and Dr. Bryan Shaw of the Texas Commission on Environmental Quality in an August 2, 2010 letter to the EPA Not unlike last year, legislators in South Carolina did virtually nothing to forward free market reforms that would have protected both the environment, as well as private property rights. This is unfortunate because, second to federal health care mandates, federal environmental mandates constitute one of the most urgent threats to liberty today. Last years review of state environmental legislation was written under the shadow of possible passage of the 1400-page Waxman-Markey cap-and-trade bill. But then three things happened: 1) Climategate in November 2009, which raised serious questions about the science being used to advance the global warming/climate change agenda; 2) federal health care legislation, which did not pass until March 2010 and sapped much of Congress political capital; and 3) the BP oil spill in April 2010, which led the Obama administration to withdraw support for offshore drilling. And so things stand for now. Except the Obama administration is looking to pass a comprehensive energy bill in 2011. Renewable energy standard (RES) legislation could also pass during Congress lame duck period. One such bill would require 15 percent of U.S. electricity to be generated from renewable energy sources. In the meantime, the Environmental Protection Agency (EPA) is moving forward with aggressive plans to use the Clean Air Act to regulate the release of carbon dioxide and other greenhouse gases. New rules from the agency would apply to biomass producers of carbon dioxide (think: forests), leading to what even the EPA acknowledges are absurd results. In response, Texas as alluded to in the quote above informed the EPA the Lone Star State would not be complying. Likewise, Florida is dragging its feet. As for South Carolina, there is good news and bad. The good news is that Attorney General Henry McMaster joined eight other states in filing suit against the EPA. The bad news is that the General Assembly passed a joint resolution (H 4888), subsequently signed by the governor, that requires implementation of the new EPA standards once they should go into effect. The reason? to prevent regulatory uncertainty.

2010 Best & Worst

S.C. Policy Council

BEST IDEAS OF 2010 Public-private partnerships and industry cooperation S 1096: Home Energy Efficiency Improvements

Status: Passed General Assembly; signed by governor

This law permits utility providers to contract with consumers to finance and install various energy efficient home improvements. Our take: Insofar as these agreements are voluntary, they are a free-market-like approach to energy efficiency that could be emulated by other government entities. In short, the agreements allow consumers who prize energy efficiency to pay more to obtain it. The real beneficiaries of this law, however, seem to be landlords who can now pass on the costs of energy efficiency improvements to tenants on a more consistent basis. H 4093: Electronics Recycling

Status: Passed General Assembly; signed by governor

This law creates an industry-run recycling program for manufacturers and consumers of electronic goods, including computers, televisions, phones, microwaves, etc. The law also forbids landfills from accepting most electronic goods. Our take: This law is not all that great. But its better than the alternative. The law requires electronics manufacturers to offer to dispose of/recycle goods they have manufactured. Will costs be passed on to consumers? Of course, but manufacturers and consumers of electronic goods are actually the ones who should pay for their disposal (thus avoiding the classic tragedy of the commons scenario that occurs when responsibility rights are not clear). The likely alternative to this system was a bill (H 3200) introduced last year that would have imposed a $5,000 annual fee on manufacturers to establish a statewide e-scrap recycling program. H 4093 still permits the imposition of annual fees, but they will presumably be less than the $5,000 fee foreseen by H 3200. It is tempting to praise lawmakers for proposing a handful of concurrent resolutions urging Congress to resist or overturn federal environmental policies. Then again, resolutions are no substitute for action, or even creative thinking. The best (and worst) of these resolutions was S 944, which urged South Carolinas congressional delegation to oppose cap-and-trade. Instead, the measure encouraged Congress to support commonsense renewable energy portfolio standards a bad idea we address herein and in last years Best/Worst. The better alternative is freedom of choice when it comes to energy use, as opposed to more regulations that will cost jobs and lead to more centralized control of the economy. While S 944 failed to emerge from committee, the General Assembly did pass a concurrent resolution (S 1192) asking Congress to permit offshore exploration and production of natural gas off the South Carolina coast. (Except experts believe there are few such reserves off the South Carolina coast, fueling the notion that such resolutions are all talk.) The House (but not the Senate) also passed a concurrent resolution (H 4318) registering disapproval of the federal governments decision to cease using Yucca Mountain in Nevada as a depository for nuclear waste including waste generated at South Carolinas Savannah River Site.

2010 Best & Worst

S.C. Policy Council

WORST IDEAS OF 2010 New regulatory bodies H 4746: South Carolina Environmental Justice Equitable Redevelopment Commission

Status: Passed House (no recorded vote); referred to Judiciary Committee in Senate

This bill would create the South Carolina Environmental Justice Equitable Redevelopment Commission, ostensibly tasked with insuring fair treatment and meaningful involvement of all people with respect to the development, adoption, implementation, and enforcement of environmental laws, regulations, and policies and working toward increasing prosperity of all South Carolinians. Our take: This is one of the worst bills of the session. To begin with, the apparent reason we need such a commission is because many citizens lack an awareness and understanding of environmental justice issues. Thanks to this bill, the state is going to educate them in these matters. Second, the commission is controlled by the Legislature, which holds 6 appointments and directly appoints 16 more. Third, part of the commissions mission is to foster economic development and revitalization in distressed areas across the State. Ah, so thats what environmental justice is government-driven economic development. H 4373: State Department of Energy

Status: Referred to Judiciary Committee

This bill proposes establishing a state Department of Energy charged with creating and implementing a state energy plan. The plan would include the promotion of alternative energy, as well as supporting energy research and development programs. With the advice and consent of the Senate, the director of the department would be appointed by the governor. Our take: A new agency devoted to restricting energy choice, as well as promoting government-driven economic development schemes, like hydrogen-fueled cars. More regulations and fees H 4241: Mandating Renewable Energy

Status: Referred to Labor, Commerce & Industry Committee

This bill is similar to another (H 3628) introduced last year and would essentially use taxpayer funds to benefit energy providers who qualify as low greenhouse gas emitters. In addition, the bill would require government-run utilities to develop standards for the promotion, encouragement, and expansion of the use of renewable energy resources in their service territories. Our take: As we wrote last year, this bill is a first step toward mandating a renewable portfolio standard that would require a certain amount of electricity be generated from alternative energy sources, such as windmills and solar power. The bad news is that anything the state does or does not do may soon be pre-empted by federal legislation that currently has bipartisan support in Congress (see introduction above). H 3707: Raising Gasoline Prices

Status: Governors veto overridden

This law requires that suppliers of raw gasoline offer all grades of fuel that has not already been preblended and/or can be blended with ethanol. The law is aimed at preventing wholesalers from selling blended fuel so that retailers can take advantage of federal tax credits offered for ethanol blending.

2010 Best & Worst

S.C. Policy Council

Our take: Federal tax credits for ethanol are a bad idea. While ethanol in itself is not necessarily more expensive than gasoline, it is 20 percent to 30 percent less efficient which means it drastically reduces fuel efficiency. What is even more troubling is the General Assemblys claim that it passed this legislation to protect a basic societal interest that of reducing dependence on foreign oil. As the governors veto noted, however, such protection comes at the expense of property rights and the freedom to contract. H 4503: Dishwashing Detergent Ban

Status: Passed House (no recorded vote); referred to Medical Affairs Committee in Senate
This bill would have banned the use and sale of dishwashing detergent that contains phosphates. Our take: Have you tried some of the new green dishwashing detergents? If not, you may soon be forced to. Similar legislation is making the rounds across the nation as of 2010, 16 states had instituted such a ban. As of July 1, 2010, members of the industry-run American Cleaning Institute (ACI) also agreed to cease using phosphates. No doubt, they would like their competitors to follow suit. All in all, the question of whether to regulate dishwashing detergent might be a good test case for encouraging the use of nongovernmental mechanisms to address potential pollutants. S 1340: Fishing Fees and Water Regulations

Status: Passed General Assembly (no recorded vote in either chamber); signed by governor
This law establishes regulations, licensing and fees pertaining to fishing in particular, commercial fishing; it also provides for regulations regarding bodies of water. Our take: Among the fees imposed by this legislation are a $50 annual fee for a freshwater commercial fishing license for residents and a $1,000 annual fee for nonresidents. The law also mandates tag fees for a wide variety of fish. These represent more hidden taxes and could also discourage out-of-state fishermen (read: tourists) from coming to South Carolina. Targeted tax credits and subsidies for special interests H 4657: Tax Credits for Alternative Energy

Status: Partially vetoed by governor; sustained by General Assembly

The FY10-2011 budget contained several targeted tax credits for environmental special interests. These include a 30 percent tax credit (up from 25 percent) for solar energy systems (proviso 89.96); and $7 million for Clemsons Drive-Train (windmill) Test Facility (proviso 90.17). Proviso 89.96 was vetoed by the governor; the veto was sustained by the House. H 4272: Income Tax Credit for Hybrids

Status: Referred to Ways & Means Committee

This bill makes permanent the current income tax credit for plug-in hybrid vehicles. The credit is offered on a first-come, first-serve basis and cannot exceed a cumulative $500,000 per year. S 918: Geothermal Heat Pump Tax Credit

Status: Referred to Finance Committee

This bill would have created an income tax credit of 25 percent of the purchase price and installation of a geothermal heat pump system.

2010 Best & Worst

S.C. Policy Council

S 1131: FILOT for Nuclear Plants

Status: Passed General Assembly (no recorded vote); signed by governor

This law extends fee-in-lieu of property tax (FILOT) breaks to qualifying nuclear facilities that require a minimum investment of $1 billion. Investors have 15 years to meet the threshold. Also see H 4622 H 4283: Green Jobs Grant Program

Status: Referred to Ways & Means Committee

This bill aims to facilitate the transition of certain small businesses to a green economy by granting loans and subsidies to various businesses. Funding for the program would be derived from fines/fees imposed under the Pollution Control Act. The University of South Carolina Small Business Development Center would administer the loans and subsidies. Also see H 4638 H 4472: Local Loans for Energy Efficient Home Improvements

Status: Referred to Medical, Military, Public & Municipal Affairs Committee

This bill would have required municipalities to develop an Energy Independence Plan offering loans to residents who want to make their homes or businesses more energy efficient. Also see H 4683 Our take: The market already provides sufficient incentives for consumers to adopt energy efficiency measures they think will save them money in the long run. Using taxpayer dollars to support such causes is not only inefficient, it prevents lowering the tax rate for everyone. Moreover, jumping on the green jobs bandwagon is bad public policy. A recent report from the Institute for Energy Research found green job programs in Europe have been an utter failure: destroying 2.2 private sector jobs for every 1 green job, at a cost of $874,413 for every green job created.

Chapter IX

Common Sense & Personal Liberty Society in every state is a blessing, but government, even in its best state, is but a necessary evil; in its worst state an intolerable one; for when we suffer or are exposed to the same miseries by a government, which we might expect in a country without government, our calamity is heightened by reflecting that we furnish the means by which we suffer. Thomas Paines Common Sense (1776) The role of government in a free society is to provide core services to citizens without interfering with their liberty. The U.S. Constitution suggests the scope of these services, which include providing for the national defense and public safety and establishing the conditions for free trade among the states. But not everything can or should be spelled out in a constitution. Thus, lawmakers need common sense especially when determining how government should react to some perceived injustice. In 2010, the Legislature demonstrated very little common sense. In spite of claiming that they did not have time to record every vote, lawmakers introduced bills that were either frivolous (cf. H 4068) or dangerous (cf. H 4112) or both (cf. H 5042). While some good ideas did get introduced as legislation, none of these bills made it past committee.

2010 Best & Worst

S.C. Policy Council

BEST IDEAS OF 2010 Removing restrictions on charities H 4273: Restaurant Regulations

Status: Referred to Judiciary Committee

This bill would allow restaurants to donate surplus food to charitable organizations without fear of being sued or violating the health code. Our take: The 1996 federal Bill Emerson Good Samaritan Food Donation Act already provides legal protection to restaurants and grocery stores that make good faith donations of surplus food to charities. This law goes slightly beyond that protection by granting an exemption from the state health code. In any event, thousands of tons of apparently wholesome food is dumped each year in South Carolina, owing to fears of legal liability. H 4889/H 4245: Charitable Fundraising

Status: Referred to Ways & Means Committee

This bill would allow charitable organizations to conduct raffles and other games for fundraising. Our take: The state runs a lottery for the purpose of raising funds for education. Why shouldnt nonprofit organizations be able to do the same on a smaller scale? Or does the state fear the competition? Allowing the free exchange of goods H 4223: Resale of Tickets

Status: Referred to Judiciary Committee

This bill would remove the price ceiling of a $1 profit on the resale of tickets Our take: If an individual sells a house, there is no stipulation that he cannot sell it for more than he paid. Why should a different rule apply to someone wanting to sell tickets to the Clemson-USC game? Government should not be in the business of price setting. Preventing identity theft H 4470: Limit Use of Social Security Number

Status: Referred to Judiciary Committee

Apart from tax forms, this bill would have prohibited state agencies from requiring the use of Social Security numbers on any form. Our take: Identity theft cost U.S. citizens an estimated $54 billion in 2009. This is a simple fix that could also prompt private firms, such as insurance companies, to stop using social security numbers for ID purposes.

2010 Best & Worst

S.C. Policy Council

WORST IDEAS OF 2010 Restricting free speech H 4607: Restrictions on Automotive Advertising

Status: Governors veto overridden

This law regulates automobile advertising, dictating that written advertisements must be a certain size font and that oral advertisements must be a certain volume. Our take: As the governors veto of this bill cautioned, this law has a cost both in the commercial market and on individual liberty. Possible unintended consequences include higher advertising costs, which could shut out smaller dealers and raise prices for car buyers. The law also raises free speech concerns. H 4189: Cell Phone Texting Ban

Status: Referred to Education & Public Works Committee

This bill would make it illegal to text while driving. Also see H 4190, S 970, S 971 Our take: Generally, it is imprudent to text while driving. That said, it should not be illegal. This law would be difficult to enforce and raises important constitutional questions. In fact, recent findings presented at the September 2010 Governors Highway Safety Association meeting suggest texting bans might actually increase traffic accidents. One reason cited people still text regardless of such laws, but the bans cause them to attempt to hide their cell phone, resulting in further distractions. A better solution is to use tort law to address situations in which an accident occurs, perhaps giving plaintiffs the option to subpoena text messages at or near the time of the accident. Restricting free trade S 1220: Prohibiting Pharmaceutical Sales at Hospitals

Status: Referred to Medical Affairs Committee

This bill would have prohibited pharmaceutical sales representatives from selling or marketing products at hospitals. Our take: This bill takes a paternalistic approach to the market and citizens. It implies that doctors are not capable of resisting the advances of pharmaceutical reps. The bill also overlooks that doctors work long hours and that pharmaceutical reps visit hospitals because otherwise doctors have little time to meet. H 4451: Restricting Alcohol Sales on Thanksgiving and Christmas

Status: Referred to Judiciary Committee

State law forbids the sale of liquor on Sundays. This bill would have extended that ban to Thanksgiving and Christmas. Our take: It might seem that this bill has a religious motive except Thanksgiving is not a religious holiday. Rather, state liquor store operators dont want to have to remain open on Thanksgiving and Christmas. But why not leave the decision up to each store?

2010 Best & Worst

S.C. Policy Council

Expanding the states police power S 19: Expand Police Jurisdiction on Campuses

Status: Vetoed by Governor; sustained by Senate

This bill would have expanded the jurisdiction of campus police officers beyond school property. Our take: Universities employ campus police, in part, because the campus itself might have differing rules from surrounding vicinities. This falls in line with private property rights if people want to attend the university, they must agree to follow that universitys rules. But this bill extends university police jurisdiction beyond the property boundaries of the university and so would apply university rules to property owners and others who merely happen to be near the university. S 836: Allow Riverbanks Parks Commission to Establish Criminal Laws

Status: Governors veto overridden

As the governors veto noted, this law makes the Riverbanks Parks Commission the only special purpose district to have its own laws criminalizing certain conduct. Our take: This bill sets a dangerous precedent of allowing special purpose districts to criminalize activity that is not otherwise against state or local law. The legislation also creates unnecessary duplication of services between the Parks police force and Columbia local police. S 288: Violent Crime Offender Stamp on Licenses

Status: Governors veto overridden

This law requires that if a person convicted of a violent crime wishes to obtain a drivers license or ID card, the card must identify its holder as a violent criminal. Our take: Defenders of this legislation argue that its primary purpose is to make routine traffic stops safer for law enforcement instead of having to run a name through a database, theyll know immediately who they are dealing with. Yet, this law seems to make it more difficult for ex-convicts to transition back into society. The law also charges a $50 fee for affixing the identifying code.

Chapter X

Transparency The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first. Attributed to Thomas Jefferson It is telling that every politician in South Carolina will claim to support transparency, yet the General Assembly refuses to pass legislation that would provide for transparency regarding recorded votes, economic incentives, higher education spending, and government contracts. The first recorded votes is most important. There is simply no defense for not recording votes. Not doing so undermines representative government and fosters a lack of accountability and transparency. In turn, these problems facilitate corruption, self-aggrandizement, and the abuse of power.

2010 Best & Worst

S.C. Policy Council

Legislators also failed to pass several other transparency measures that represent commonsense reforms most citizens would be shocked are not already in place. These include: prohibiting the appointment of family members to board positions (S 1254); prohibiting lawmakers from entering into contracts with the jurisdictions they serve (H 4271); capping Freedom of Information Act fees at an objective rate (H 4704); and providing whistleblower protection for public employees who testify before the General Assembly (S 1177). Long gone are the days when lawmakers and other public officials could avoid transparency by claiming it is too costly, time consuming or irrelevant. Modern technology has made for a more informed citizenry that is demanding full disclosure of government spending and lawmaker activities. This is an age of transparency and its time for South Carolina to catch up. BEST IDEAS OF 2010 Recording all votes H 3047: Roll Call Voting

Status: Passed House; recalled from Judiciary Committee in Senate

This bill would have required roll call votes on all bills and resolutions having the force of law by requiring a recorded vote be taken on: each section of the budget; the second reading of every bill and joint resolution; the third reading of amended bills and joint resolutions; concurrence with an amended bill from the other chamber; conference committee reports. It could be improved upon, though, by also requiring a recorded vote on third reading. Our take: The first step toward holding the legislative leadership accountable for their actions is holding legislators accountable for their votes. Yet, the Senate and House combined voted on the record less than 25 percent of the time in 2009 and 2010. By contrast, 45 other states require a recorded vote on every bill that becomes law. Although the House passed this bill, the Senate leadership claimed such a law would be an unconstitutional infringement of the chambers rule-making authority. Constitutional scholars think otherwise, arguing that legislation requiring recorded votes may be considered a fundamental right. Promoting spending transparency H 4723: Transparency Portal

Status: Referred to Ways & Means Committee

This bill sought to create a transparency website providing detailed financial information on every transaction of every state agency. The law also provided for a plan for adding local government expenditures to the portal. S789/H 4615: Higher-Ed Transaction Registers

Status: S 789 favorably reported out of Senate Education Committee; H 4615 referred to Education & Public Works Committee
This bill would have required public higher educational institutions to create an online transaction register from whatever source for whatever purpose for all transactions exceeding $100. Likewise, a proviso (6.30) passed as part of the Senate budget would have required higher educational institutions to create an online transaction register. The House stripped the proviso out of the budget. Our take: There is no excuse for not passing either of these bills. Taxpayers have a right to know how their money is spent.

2010 Best & Worst

S.C. Policy Council

Discouraging nepotism and other abuses S 1254: Prohibit Appointment of Family Members

Status: Referred to Judiciary Committee

This bill would have prohibited family members of legislators from being appointed to positions elected by the General Assembly. H 4271: Limiting Conflicts of Interest on Contracts

Status: Referred to Judiciary Committee

This bill would forbid all state and local officials (as well as their families and businesses) from having any contracts with the jurisdiction they serve. The bill also requires legislators to submit economic interest statements that include all sources of earned income. S 1305: State Plane Use Records

Status: Referred to Transportation Committee

This bill would have required state-owned aircraft to keep a record of each flight, detailing passenger names and origin/destination; and requiring a sworn statement that the flight was for official business. S 989: Competitive Bids

Status: Referred to Finance Committee

This bill would require state agencies that enter into a legal contract worth more than $1 million to submit the contract to a competitive sealed bidding process. Our take: It is troubling that current state law does not forbid blatant nepotism, such as that prohibited by H 4271 and S 1254. It is just as troubling that all four of these bills failed to emerge from committee. Prohibiting taxpayer-funded lobbying S 335: Ban on Taxpayer-Funded Lobbying

Status: Referred to Judiciary Committee

This bill would have prohibited state agencies, departments and other entities from using public funds to employ or contract with a lobbyist. Our take: In 2003, Governor Mark Sanford issued an executive order banning cabinet agencies from hiring contract lobbyists. This policy should be codified in state law and extended to include regular employees. Several other states including Virginia, North Carolina and Florida have partially banned taxpayer-funded lobbying. S 1255: Legislative Votes Affecting Employer

Status: Referred to Judiciary Committee

This bill would prohibit legislators from voting on the budget for an agency for which they are employed. The bill would also have required a two-thirds vote on any pay/benefit increases for legislators.

2010 Best & Worst

S.C. Policy Council

Our take: S 1255 contains two good ideas that really should have been introduced as separate pieces of legislation. The first idea would have prohibited legislators who are state employees from voting on agency budgets that would directly affect their employer. For instance, a lawmaker who is also a social worker employed by the S.C. Department of Social Services would be prohibited from voting on the agencys budget. (The law, though, should also be revised to specifically include K-12 teachers.) The second idea included in this bill would have required a two-thirds vote (and thus, apparently, a recorded vote) on pay increases. Strengthening state FOIA laws and encouraging transparency H 4704: Cap FOIA Fees

Status: Referred to Judiciary Committee

This bill would have capped Freedom of Information Act (FOIA) request fees charged by public entities at $7.50 an hour for research and 7 cents a page for copies. Our take: The states current FOIA law prohibits public bodies from charging fees that exceed the actual cost of searching for or making copies of records. This actual cost, however, is sometimes incredibly high. When the Policy Council requested identical documentation on spending from each of South Carolinas 85 public school districts, charges for actual costs ranged from $0 to more than $200,000. All in all, 12 districts demanded reimbursement exceeding $10,000. Double-counting staff time (i.e., billing an hourly rate for salaried employees) to respond to FOIA requests also remains a significant problem. H 4542: Make Ethics Commission Findings Public

Status: Governors veto overridden by House; veto carried over by Senate, so legislation may be considered in 2011
This bill would make public findings from ethics investigations/hearings conducted by the State Ethics Commission upon a finding of probable cause or dismissal. Our take: The governor vetoed this bill because the General Assembly declined to apply the same standard to investigations before the General Assemblys own ethics committees. As the governor argued, the Legislature should not be left to police itself and so what is needed is a fundamental reform of how ethics complaints against state officials, including legislators, are handled. That said, this bill would have been an improvement over the current system. As reported by The Nerve, neither the State Ethics Commission nor the House and Senate ethics committees have publicly reported any of their activities during the past twenty years. Also see S 1243, S 1290 S 1177: Whistleblower Protection

Status: Passed Senate (no recorded vote); referred to Judiciary Committee in House
This bill would have provided whistleblower protection to public employees who provide testimony before any of the various General Assembly committees. Our take: Another bill that should have easily passed but didnt.

2010 Best & Worst

S.C. Policy Council

WORST IDEAS OF 2010 Delaying roll call voting reform S 1437: Change Senate Rules

Status: Set for special order

This resolution would have amended the Senate rules to allow that a voice vote would automatically be recorded as an aye vote, unless a senator specifically requested that he be recorded as voting no. Also see SR 1365 Were going to go out on a limb and predict that legislation requiring recorded votes is going to pass during the 119th General Assembly. The Senate, though, was able to delay the inevitable for another (election) year. Recording votes is not only essential for transparency, its vital if voters are going to hold lawmakers accountable. Weakening FOIA laws H 4287: Exempt S.C. Law Enforcement Division from FOIA

Status: Referred to Judiciary Committee

This bill would have allowed the South Carolina Law Enforcement Division (SLED) to withhold any information pertaining to homeland security. The law would also have mandated fines and jail time for violations. Our take: It seems plausible that everything SLED does could be categorized as pertaining to homeland security a worrisomely broad loophole. We would recommend clarifying just what communications are actually vital to homeland security and which are not. In particular, citizens have a right to know how SLED is spending taxpayer dollars, even if the division must keep legitimate security information confidential. H 4457: Exempt Personal Email from FOIA

Status: Referred to Judiciary Committee

This bill would exempt the personal emails of elected officials and employees of a public body from state FOIA laws and make it illegal to disclose the personal emails of elected officials and public employees. Our take: The goal of protecting private email from public disclosure is laudable and it is worthwhile to consider whether the state should pass legislation preventing the disclosure of private emails for all citizens, and not just public officials. Nonetheless, FOIA laws should apply to all email that in any way relates to public business. In fairness, this law seems to do that, not making any distinction between email sent from a government or private account, but rather, defining such email as entirely personal in nature. We include it here because we would clarify that even personal email sent from a state-owned computer and/or account should be FOIA-able.

2010 Best & Worst

S.C. Policy Council

Chapter XI

Independent/Small Business Its a well-known statistic, but one worth repeating that 95 percent of employed citizens in South Carolina work for small businesses. In other words, encouraging small business creation is the backbone of a successful economy. Its where the jobs are particularly in South Carolina. Thus, its important to recognize how government intervention can help or, more likely, hurt small business. At one extreme are many third-world economies, where there is an estimated $10 trillion in dead capital, according to economist Hernando de Soto. In these countries, entrepreneurs are stifled by lengthy processes to legally start a business (more than one year in some instances) and the threat of asset seizure by the government. At the other end of the spectrum is Hong Kong, where businesses are required to file one simple sheet of paper for their tax return, and compliance costs are generally low. South Carolina lies somewhere in the middle. If it doesnt take a year to start a business, companies must still pay business licensing taxes that speak of the privilege of doing business in South Carolina. Barriers to entry are also high in many sectors such as requiring hundreds of hours of training to open a nail salon or become a masseuse. Given that 95 percent of employed workers in South Carolina work for small businesses, one would think lawmakers would devote more resources to growing this sector of the states economy through across-theboard tax cuts and deregulation. Instead, legislators seem preoccupied with extending incentives funded by the rest of the tax base to those large firms that employ only 5 percent of workers. This strategy is likely influenced by the well-paid lobbyists, lawyers and consultants who represent these firms. Unfortunately, as documented by economists in Unleashing Capitalism, the strategy of incentives has not proven effective at generating prosperity or creating jobs. Thus, in spite of handing out more than $1.5 billion in economic incentives over the past several years, South Carolinas unemployment rate remains among the highest in the nation and per capita income among the lowest. BEST IDEAS OF 2010 Lifting regulations on business H 4572: Beer Tastings

Status: Passed by General Assembly (no recorded vote in Senate); signed by governor
This law allows breweries, as well as retailers, to offer beer tastings, provided certain conditions are met. For example, only four brands of beer are allowed to be offered, and the sample size must be no bigger than two ounces. Each violation brings a fine of $100. Our take: Government should not be picking winners and deciding that some entities can offer tastings while others cannot is exactly that. To that end, this law is a step in the right direction. However, the law also restricts the number of tastings a retailer may hold only 24 a year. Why not just lift restrictions on tastings altogether? H 4204: Wine Production and Sales

Status: Referred to Agriculture, Natural Resources & Environmental Affairs Committee

This bill would have allowed wineries in South Carolina to sell their product outside of the state and to import grapes from outside the state.

2010 Best & Worst

S.C. Policy Council

Our take: This archaic regulation would destroy the states economy if applied on a uniform basis. Suppose Boeing were denied the right to sell its airplanes outside of South Carolina? No doubt, the company would move elsewhere. Its not only bad business, but unfair, to apply such regulations to the wine industry. S 929: Posting of Labor Law

Status: Ratified by General Assembly (no recorded vote); signed by governor

Previously, businesses were required to post all licenses in any room where at least five employees work. This law allows firms to post one notice for their entire establishment. H 4822: Use of Pesticides

Status: Referred to Agriculture, Natural Resources & Environmental Affairs Committee

This bill would have exempted commercial pesticide applicators from obtaining a license if the only form of pesticide they use is glyphosphate (think: Roundup). Our take: These two pieces of legislation are common sense ideas that would decrease compliance costs for businesses. When business compliance costs are lowered, more people are willing to start a business. The more businesses, the healthier the economy. H 4483: Car Dealer Plates

Status: Referred to Education & Public Works Committee

This bill would have reduced the required number of sales a dealer must make in order to obtain dealer license plates. Our take: Currently, a dealer must make 20 sales to obtain dealer plates. This bill would have lowered the threshold to one sale in the preceding year. Dealer plates essentially allow consumers to legally test drive cars. Requiring a large number of sales to obtain dealer plates only benefits large dealers at the expense of smaller competitors. Reducing tax compliance costs H 4428: Business License Fee Deadline

Status: Referred to Ways & Means Committee

This bill would have prohibited local governments from setting fee deadlines for business licenses before October 15 of the year the fee is due. Our take: Many municipalities require businesses to estimate their anticipated tax burden for a business license and then pay an additional fee if their receipts are higher than expected. Wouldnt it make sense to simply ask them to pay once? Better yet, reduce compliance costs by imposing a flat fee specific to each sector, or eliminate such fees altogether.

2010 Best & Worst

S.C. Policy Council

WORST IDEAS OF 2010 More regulations and hidden taxes/fees H 4413: Licensing for In-Home Care Providers

Status: Passed House (recorded vote) and Senate (no recorded vote); House non-concurrence with Senate amendments
This bill would have required in-home care providers to be licensed, leaving the Department of Health & Environmental Control free to determine what it will charge to process applications. Our take: This bill would impose new licensing requirements on adult care companies namely, that all inhome care providers complete minimum training and continuing education requirements, along with a criminal background check and screening for drugs and communicable diseases. On the surface, such requirements may sound like a good idea. But the law exempts several classes of providers from the new rules nurses, hospice care, persons hired directly by clients, etc. so that it seems to be about imposing higher compliance costs on one type of business to the benefit of others likely, those that employ nurses. All in all, lowering barriers to entry for all health care providers would lead to higher quality services at a lower cost. S 955: All Contractors Must Carry Workers Compensation Insurance

Status: Referred to Labor, Commerce & Industry Committee

This bill would require all licensed contractors to carry workers compensation insurance. Our take: This bill raises a host of interesting questions we hope would be debated fully if this legislation is introduced again. Essentially, we dont like the idea because it increases compliance costs for contractors. A valid question, though, is whether those contractors who dont carry workers comp. insurance assume Emergency Medicaid will pick up the tab if an employee is injured. If that tends to be the case, this bill may have some merit. Still, its an instance of using a bad small business policy to redress problems created by bad health care policy.

Status: Referred to Judiciary Committee

This bill would maintain the current ban on selling beer and wine on Sundays, but allow for a special license, subject to a $400 biennial permit fee, to sell beer and wine on Sundays. Our take: If its wrong to sell alcohol on Sundays, retailers shouldnt be able to buy off the law. If its not wrong, the ban should be lifted. This law would most hurt small businesses that dont anticipate brisk Sunday sales. Its also worth noting that several counties Aiken, Beaufort, Charleston, Colleton, Greenville, Horry, Richland and Spartanburg already permit Sunday sales. We advise getting the state out of the alcohol business altogether and letting every county decide for itself whether to permit Sunday sales. Interfering in the free market H 4469: Limitations on Class C Taxi Certificate

H 4327: Sunday Alcohol Sales

Status: Referred to Labor, Commerce & Industry Committee

This bill would require all taxi drivers in a county with a population of 200,000 plus to maintain a physical office, available for inspection 24 hours a day. The bill also requires potential drivers to demonstrate a public need for their services.

2010 Best & Worst

S.C. Policy Council

Our take: One can imagine why it would be more convenient, or even safer, for consumers to use taxi services that maintain a physical office. On the other hand, requiring cab drivers to do so would drive many small carriers out of business and raise prices for consumers. This bill, though, only applies to a very select group of counties (and so is not about consumer safety) and also requires that applicants seeking a class C taxi certificate demonstrate that the public convenience and necessity is not already being served by the existing certificate holder in the intended area of operation. In other words, this bill is about one thing: limiting competition to the benefit of large taxi services. H 4660: Prohibiting Arbitrary Limits on Repair Estimates

Status: Referred to Labor, Commerce & Industry Committee

This bill would prohibit insurance companies from setting arbitrary limits in auto repair estimates. Additionally, it would have banned insurers from owning an auto repair facility and from recommending a specific repair shop. Our take: This bills use of such phrases as fair profit and arbitrary limit is extraordinarily vague. At the very least, the legislation should seek to define these terms the problem being, of course, that the market should be left to define these things. The intent of this bill would seem to be to discourage lawsuits against insurers who refuse to pay what are thought to be reasonable claims against them. We suggest going back to the drawing board and rethinking how the free market might be able to address this problem. H 4667: Fees for Public Benefits

Status: Referred to Judiciary Committee

This bill would make it illegal and establish penalties for charging an unreasonable price to help individuals apply for and receive public benefits. Our take: While this bill attempts to define unreasonable fee, it nonetheless creates uncertainty for businesses that provide this service. Additionally, the bill would mandate that any violation warrants an award three times the damages sustained. Finally, the bill exempts attorneys, raising questions as to whether the real aim here is to limit competition.

Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2010 South Carolina Policy Council