● Bill would raise revenue by creating debt

● Senators seemingly unaware of state’s debt problem

● Plan would expand highways, do little about repair/maintenance of roads

So far in this year’s legislative session, lawmakers have been unable to pass a tax increase for roads repair. Rather than giving up on the effort and sending existing revenue to roads, however, Senate President Pro Tem Hugh Leatherman is attempting to accomplish the same goal – raising revenue – by raising debt against future generations.

The “seed money” would come from car taxes (estimated at $130 million) and numerous DMV fees (estimated at $71 million). These two revenue streams would be directed to the Department of Transportation (DOT), which would then transfer an equal amount of non-tax revenue to the State Transportation Infrastructure Bank (STIB), and that money would be used to issue bonds for around $2.2 billion of debt-financed additional revenue.

Leatherman’s original plan met with some opposition, but in the legislation’s present form it’s essentially the same idea. According to a plan developed by DOT at the request of Senators, (a) $1.5 billion from bond revenue plus $200 million from the existing interstate program would be used to finish uncompleted interstate projects; and (b) the remaining $700 million of bond revenue would be used to eliminate structurally deficient bridges on interstates.

Repair vs. expansions

However, while the bill requires that DOT transfer to STIB only the money needed for DOT-developed project list, nothing in the bill mandates that the bond revenue be spent on those projects. According to the bill the entire $2.2 billion could be spent on interstate expansion.

Given STIB’s history of spending money for expansion instead of repair, this seems more than likely.

In 2013 the legislature passed Act 98, requiring an annual transfer of $50 million from the DOT to STIB, which the latter agency could in turn bond, creating $500 million of new debt. These funds were explicitly not to be used for maintenance and repair, but instead for interstate expansions projects. And so, according to the DOT plan, more than two-thirds of this new bond revenue would go exclusively to finish off the expansions Act 98 began (and other expansion projects), not to maintenance and repair.

In other words, the legislature borrowed money to begin new road projects, and we now have to borrow more money to finish them – all while our existing roads are crumbling.

Raising taxes now vs. raising them later

The bigger problem with this plan, however – a problem that went unmentioned in all the hearings on it – is the fact that, in reality, all this new revenue would be borrowed and thus have to be paid back with interest. So while lawmakers may no longer be debating raising the gas tax, they are contemplating raising taxes – on future generations when all this bond debt has to be paid back with actual money.

And the reality is that South Carolina has a very real debt problem. According to the 2015 annual state debt report from the treasurer’s office, the state’s total general obligation bond debt is $326.6 million, and non-general obligation bond debt is as follows:

State Transportation Infrastructure Bank (STIB): $1.8 billion

Revenue bonds and notes for institutions of higher learning: $1.1 billion

State Ports Authority: $162.5 million

State Education Assistance Authority: $51.3 million

MUSC hospital: $386.4 million

Public Service Authority: $6.7 billion

State Housing Finance and Development Authority: $485.9 million

Educational Facilities Authority: $186.6 million

Heritage Trust: $10.9 million

Tobacco Settlement Revenue Management Authority lease revenue: $6.6 million

These are pretty substantial sums to be paid back, with interest, by taxpayers. And yet it’s only a fraction of the total amount state taxpayers owe.

A 2014 report by State Budget Solutions estimated the state’s outstanding debt at $71.1 billion when outstanding unemployment trust fund loans, debt, and pension liabilities are included. $53.16 billion of this is unfunded public pension liabilities. A Legislative Audit Council report completed in December of 2015 showed a $20 billion shortfall in the state pension system, which is predicted to remain underfunded for more than 30 years.

Where does it all end?

At a time when state taxpayers are already on the hook for billions, creating more debt to pay for core services – all while continuing to neglect basic maintenance and repair needs – would seem deeply misguided.

Yet according to the Senate, this legislation is only the beginning. Judging by the statements of several members, they fully intend to come back next year and pass a “long-term fix” for roads – meaning raise taxes. This trend toward borrowing money and raising taxes to pay for core services is entirely unsustainable and will end in an overwhelming tax burden for ourselves and future generations.

The main roads bill, H.3579, is in conference committee. A number of lawmakers have suggested that this roads bill and the bond bill should either be combined or passed in tandem. The Senate passed S.1258 without much debate. It’s now in the House Ways and Means committee.

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