2017 – The Year of Living Dangerously in the General Assembly
The Charleston Post and Courier reported at the beginning of this year that South Carolina was the 5th most popular destination for newcomers relocating to another state in 2016. We were 2nd in 2015.
Though the newspaper refrained from hanging a lantern in St. Philip’s steeple or racing a tourist carriage through the city while tossing out free newspapers carrying the headline “More Yankee Dollars Are Coming,” their point was heard loud and clear. Northerners along with a whole host of others are coming here to work or retire. Some may think it great news; some may not. I guess Yankee dollars are better than Yankee cannon but in either case, we are not prepared for the continued population growth.
Now, I’m not talking about prepared in the psychological, cultural or historical sense. We have centuries of experience and stubbornness to convert all manner of newcomers to our lovely, infatuating, infuriating, sometimes bitter, self-rising Southern existence. Blessedly, we have our music and our literature and our politics and our religion and our manners and our food and that indecipherable subliminal racial bond forged link by link over centuries of sweetness and brutal hardship to bind us together. I bet they don’t have those kind of cultural chains up in Ohio.
When I say prepared, I mean in a governmental revenue policy sense. After you stop laughing, consider this economic threat: South Carolina has two Trident ballistic missile-sized unfunded liabilities pointed at our General Fund. The countdown has begun and firing will commence shortly unless the General Assembly can soon find a way to diffuse them in an effective and orderly manner. I refer to the Tridents to remind us how many nuclear submarines used to be based around Charleston before we got our port back from the Feds, before we thought we could do any better than be a Cold War nuclear target, before BMW and Boeing happened – arguably the most visible cornerstones of our current economic success.
The largest unfunded liability is the deferred maintenance of our roads and bridges. Regardless of how much additional money you believe SCDOT requires for infrastructure repair and upgrades, our current gas tax does not produce enough annual revenue to pay the recommended annual maintenance.
The other unfunded liability is our state pension plan. We owe our public employees and retirees around $20 billion. Our current contribution rates and investment returns within the retirement system are not enough to pay off the accumulated liability even if we stretch it out over 30 years. That’s assuming a realistic investment return and not the wildly optimistic 7.5% currently used.
Some members of the General Assembly think that we can wait out the problems. They, like the Rolling Stones, believe that time is on their side. Mick Jagger might have attended the London School of Economics but he did not understand the time value of money. Time does nothing but increase our two unfunded liabilities. Time will never be on our side.
Population growth might be on our side if we can sort out our tax code to take advantage of it. The current infrastructure bill filed last week by the House GOP leadership takes advantage of South Carolina’s popularity. The bill contains a gas tax increase that not only draws revenue from those newcomers who settle here; it taxes those just passing through.
Finding a revenue stream to bolster the state pension plan will not be so easy. I do not support a tax increase to eliminate this threat. However, elimination of certain special interest exemptions and credits could create enough of a steady income stream to stabilize the pension plan in the long term.
Politicians understand that citizens do not trust them with tax revenue – and with good reason. Both of our ballistic missile-sized unfunded liabilities resulted from the failure of our past political leadership to address the ongoing revenue requirements of SCDOT and our state pension plan that occurred under their watch.
Now we come asking for the funds necessary to bail out 20 years of procrastination and myopia, funds to protect our public employees, protect our infrastructure, protect our bond rating and protect the economy that has proven to be such a popular attraction for newcomers. Nobody’s going to like it, especially those politicians caught between the past and the future. They will be living dangerously in 2017.