Senate leader rejects Haley’s ‘Band-Aid’ road fix

Traffic moves along a section of Interstate 26 that is being widened southwest of Columbia. A group of nine chambers of commerce along the South Carolina coast warned last week that deteriorating roads threaten the state’s $18 billion-a-year tourism industry.

COLUMBIA — Gov. Nikki Haley’s roads fix, unveiled last week in her State of the State speech, doesn’t entirely satisfy anyone.

Business groups, which wanted a larger increase in the state’s gas tax than what Haley proposed, said it was a step in the right direction, but that it won’t provide enough money to do anything but keep South Carolina’s crumbling roads and bridges from deteriorating further.

Haley’s anti-tax tea party base, meanwhile, accused her of betraying her pledge to veto any gas tax hike. Ashley Landess, president of the South Carolina Policy Council, called Haley’s plan “voodoo economics” that will ultimately lead to a net tax increase.

House minority leader, Democratic state Rep. Todd Rutherford labeled it “no plan at all” that would take the state backward.

More problematic for Haley is the lukewarm reaction from her own party’s leadership. Senate President Pro Tempore Hugh Leatherman, R-Florence, said he will not support a Band-Aid approach to fixing the state’s transportation system.

Haley’s long-anticipated roads plan, which she described as a win-win in her speech at the outset of her second term as governor, is a three-part effort to pump more money into roads by phasing in a 10-cent-a-gallon increase in the 16.75-cent gasoline tax over three years, offset by a 10-year reduction in the state income tax from 7 percent to 5 percent, and a restructuring of the state Department of Transportation.

Estimates for what the higher gas tax would raise range as high as $3.5 billion over 10 years, barely making a dent in DOT’s $15 billion shortfall over that time. Meanwhile, the state would lose $1.8 billion a year in general fund revenues once the full cut in income taxes takes effect.

Haley and other proponents insist the income tax cut will spur on the economy, resulting in more revenue even with a lower income tax.

But Leatherman — the state’s most powerful lawmaker — said the monetary loss to the general fund would force the General Assembly to look at cutting vital services such as education, mental health or public safety.

“All, a list of things that I think the state is obligated to do,” Leatherman said. “So, to me the numbers just don’t come together at this point in time.”

When he travels around South Carolina, Leatherman said he hears a common refrain: “Senator, fix our roads.”

Many are willing to pay higher gas taxes — which lawmakers and proponents have taken to calling a motorist user fee — if it will get the job done, he said.

“Now one thing that I will not support is a Band-Aid to fix our roads,” Leatherman said. “That’s what I see the governor’s proposal as.”

In the run-up to Haley’s State of the State speech, the Charleston Metro Chamber of Commerce endorsed a 25-cent-a-gallon increase in the state’s gas tax, which hasn’t been increased since 1987 and is among the lowest in the country.

The chamber acknowledged such a big increase would be painful, especially once gas prices, which have plummeted below $2 a gallon, go up again. But, the chamber argued, better to swallow the medicine all at once than try to dribble out half measures while bad roads cost motorists billions of dollars in repairs and risked driving businesses away.

Democratic lawmakers say offsetting a small increase in the gas tax with an income tax reduction leaves the state in a hole.

“In fact, everything would be harmed,” said Rutherford. “You can’t cut 25 percent of someone’s salary and not have their entire life affected, and the state budget is no different.”

Rutherford, of Columbia, said cutting income taxes mainly benefits the wealthy, while reducing government services hurts everyone.

“I have never seen something so incomprehensibly irresponsible,” Rutherford said.

The policy council, a South Carolina think tank promoting limited government, was not surprised when the governor announced her conditional support for an increase.

“The goal should be an across-the-board sales tax cut,” said Landess, the group’s president. “This little game of a revenue neutrality is a politicians’ trick. We always end up on the losing side of that.”

Two economists disagreed, though, saying Haley’s gamble could pay off if the income tax cut gets consumers spending more.

College of Charleston economics professor Doug Walker said South Carolina has a relatively high income tax, so lowering it could be an incentive for people to move where their dollars will go further.

“People change their behavior based on their tax,” Walker said. “The main argument is that people tend to decide how to spend their own money.”

Lowering the income tax also is an incentive to work more, said University of South Carolina research economist Joseph Von Nessen.

It’s like getting a raise, he said. People tend to save large reimbursement checks — like the federal stimulus checks during the economic crisis. But when it’s a few extra bucks in their weekly paychecks, people tend to spend it, Von Nessen said.

Both favored the gas tax to simply raising taxes.

“The people who are using the roads are the ones who are paying for its upkeep at a proportional level,” Von Nessen said. “So the more you drive, the more you use the roads, the more you’re contributing to road maintenance.”

Transportation advocates are still trying to decide if Haley’s plan is a good starting point or will ultimately lead to nothing with the Legislature and Haley unable to agree on a solution.

There are no easy answers when it comes to addressing the DOT’s budgetary woes, and tying a fix to the income tax certainly complicates the matter, said Bill Ross, executive director of South Carolina Alliance to Fix Our Roads.

“You’ve got to recognize that you start somewhere,” Ross said. “Now that her plan is out there, we’re hopeful that a bill will get passed in the not too distant future.”

Reach Cynthia Roldan at 708-5891.