THE STATUS OF CONFORMITY:
Two Conformity bills – one each from the House and Senate – may still be considered this year, as they were included in the Sine Die resolution. The General Assembly seems to be committed to resolving Conformity this year, and in a revenue neutral fashion. Straight conformity would result in a tax increase on individuals and businesses of more than $200 million.
A special subcommittee of the Senate Finance Committee was formed by Chairman Hugh Leatherman on July 3.
It remains possible that Conformity can be resolved by September. Failure to conform this year is likely to wreak havoc on tax filers moving forward.
For more details, read the Tax section below.
View from the Dome
REARVIEW: A Look Back at the 2018 Legislative Session
ISSUE: JULY 13, 2018
The second session of the 122nd General Assembly adjourned Sine Die on May 10, 2018. However, a Joint Resolution to allow the General Assembly to continue past the mandatory May 10 Sine Die deadline was adopted prior to adjournment to allow members to continue working on specified unfinished business, including the state budget, Tax Conformity and legislation dealing with the fallout of the failed V.C. Summer nuclear project.
The General Assembly returned to Columbia on June 27 for two days and adopted the budget and several outstanding conference reports. As this was the second year of the two-year legislative session, all bills that did not become law will have to be reintroduced next year and start the process from the beginning.
Here is a look back at this past legislative session:
After President Trump signed into law in December the first major revamp of the Federal tax code since the Reagan Administration, our state’s legislature must decide whether or not to conform with the multitude of changes.
In previous years, South Carolina has generally conformed to the Federal tax code changes but does have the ability to decouple from provisions if necessary. This year proved to be a major challenge as the new Federal tax laws added challenges to the process of Conformity.
As of this writing, the issue is alive for the calendar year since the General Assembly added Tax Conformity to its Sine Die resolution.
In May, the House adopted and sent to the Senate H. 5341 (Reps. Lucas, White, Simrill and Rutherford), which was their version of Tax Conformity. The bill, which passed unanimously, conforms to the Federal code and is revenue neutral since it restores the $1,525 personal exemption for taxpayers and dependents and adopts additional non-conforming items.
Historically, changes made to the Federal tax code are adopted by state law each year, usually starting in the Senate. During the final week of the session in May, Senate President Pro Tem and Finance Committee Chairman Hugh Leatherman (R-Florence) introduced the Senate version of tax conformity, the revenue-neutral “South Carolina Taxpayer Protection and Relief Act” (S. 1258).
In addition to conforming to the Federal Tax Code through Feb. 9, 2018, the bill offers a South Carolina standard deduction for taxpayers who claim the standard deduction on their Federal return in amounts of $7,570 for those single or married filing separately, $11,355 for head of household and $15,140 if married filing jointly or qualifying widow(er).
Failure to conform this year is likely to wreak havoc on tax filers moving forward.
The General Assembly seems to be committed to resolving Conformity this year, and in a revenue neutral fashion. Straight conformity would result in a tax increase on individuals and businesses of more than $200 million.
Both bills may still be considered this year, as they were included in the Sine Die resolution. A special subcommittee of the Senate Finance Committee was formed by Chairman Hugh Leatherman.
Hopefully, this committee will recommend a path forward so Conformity is resolved perhaps even by September.
Also on the tax front:
The House of Representatives Tax Policy Review Committee introduced legislation H. 5203 (Reps. Pope, Bowers, Jefferson, Erickson, and others) that enacts the “South Carolina Income Tax Act for Individuals, Trusts and Estates” and provides for a single flat rate income tax of 4.85%. This 14-member ad hoc committee was created in 2016 by Speaker of the House Jay Lucas and was responsible for reviewing South Carolina’s current tax code and submitting suggestions for reform to the Speaker.
The committee’s goal was to find ways to make our tax code lower, fairer and flatter. Committee Chairman Speaker Pro Tem Tommy Pope (R-Rock Hill) said he hoped introducing the legislation before adjourning this year would get the conversation started for action in the next legislative session.
While not included in the bill that was introduced, the committee also recommended removing all sales tax exemptions in place for all goods and services. This topic will be part of the larger discussion of reforming our state’s tax code moving forward.
ADDRESSING THE OPIOID CRISIS
Responding to our state’s opioid crisis, a number of bills were signed into law by the governor in May. Most of the bills were recommendations from the House Opioid Abuse Prevention Study Committee and the governor’s Opioid Task Force. The bills are listed above under “Healthcare”. Additionally, Governor Henry McMaster recently announced the South Carolina Opioid Emergency Response Plan, which details strategy and guidance developed to support state and local efforts to combat the opioid epidemic. The state Opioid Emergency Response Plan was developed as part of the ongoing collaboration of more than two dozen organizations that comprise the recently formed S.C. Opioid Emergency Response Team (SCOERT), which was created by Governor McMaster in December of 2017. The State Law Enforcement Division and the S.C. Department of Alcohol and Other Drug Abuse Services serve as the lead agencies of the SCOERT. The team has identified four focus areas to address the opioid problem, including: education and communication, prevention and response, treatment and recovery, and coordinated law enforcement strategies. View the plan here.
South Carolina’s state constitution requires the General Assembly to pass a balanced budget every year. This year, as has been the case recently, the legislature needed additional time and adopted the budget in the last week of the state’s fiscal year. The budget plan includes an increase to the base student cost for K-12 and a 1% salary increase for school teachers. The plan does not include a state employee pay increase. The finalized budget H. 4950 also includes:
$4 million in recurring base funding;
$51 million Lottery Tuition Assistance;
$11 million for Workforce Scholarships/Grants;
$11 million for high demand skill training equipment
$9.85 million for one-time equipment needs;
$9.4 million ReadySC.
$26 million for DHHS for Medicaid Maintenance of Effort;
$11 million for opioid prevention and treatment;
$3.5 million increased funding for the Rural Health Initiative;
$1 million in recurring funding added to the Telehealth program.
The Capital Reserve Fund appropriations bill H. 4951 (Ways and Means Committee) was signed into law by the governor on May 7.
Budget Conference Committee information can be found here.
The governor’s Executive Budget recommendations can be found here.
On July 5 the Governor vetoed 42 items from the State Budget. The General Assembly has the authority to call themselves back into Session to override or sustain the vetoes. There is some thought that they may come back in Session in September to deal with the vetoes. The Governor’s Veto message can be found here.
STATE RETIREMENT SYSTEM
Last year, the legislature passed into law some of the recommendations from the Joint Pension Review Committee to address a $20 billion plus deficit in the retirement system for public employees in South Carolina. Both employers and employees saw increases in their contributions and state general fund revenue was shifted to ease the deficit. There was expected to be considerable debate on addressing the long term financial stability and viability of the State’s retirement systems including a date certain transition from the State’s defined benefit pension plans to a defined contribution retirement plan for new state employees. However, legislators never acted this past year. Expect to see further debate on this issue continue next year.
V.C. SUMMER NUCLEAR FACILITY FALLOUT
One of the most costly, complex and politically explosive issues to hit our state in decades erupted last July when state-owned utility Santee Cooper’s board voted to cease all construction on two new nuclear reactors being built at the V.C. Summer Nuclear Generating Station in Jenkinsville. That move forced their partner, SCANA Corporation to abandon the project as well when they could not find another partner to take their place. Those decisions, prompted by the bankruptcy of lead partner Westinghouse because of $9 billion of losses from its two U.S. nuclear construction projects, set off a political firestorm that is still raging. Ratepayers for both entities are being forced to pay billions for the project that may never be completed. Complicating the issue was legislation passed in 2007 that allowed both entities to begin collecting construction costs from ratepayers, relieving much of the risk from SCANA stockholders. Now, both entities are billions of dollars in debt and ratepayers are crying foul. Both the House and Senate immediately created study committees to seek solutions. Governor Henry McMaster went to work to find a buyer for the state-owned Santee Cooper. As a result of the study committees, numerous bills were pre-filed to try and address the issue. Legislators finally adopted a compromise plan to address the issue. The compromise plan:
Reduces the 18% nuclear surcharge for SCE&G ratepayers for the nuclear facilities to 3.19% (average of $22 per month for a home);
Repeals the Base Load Review Act for all future power plant projects;
Increases enforcement authority of the Office of Regulatory Staff which oversees utilities including giving it subpoena power over utilities;
Creates a consumer advocate’s office within state government to fight for S.C. ratepayers against utility rate hikes;
Establishes a new timeline of December 21, 2018 for the PSC to make a decision on the SCANA-Dominion merger;
The House had insisted on removing the full 18% nuclear surcharge from customers’ bills but the Senate insisted on cutting 13%, an amount they thought the state could defend in court based on when SCANA’s alleged mismanagement of the project began. They compromised by agreeing to cut nearly 15%. Governor McMaster followed through on his announced veto of the bill if the entire 18% surcharge is not eliminated. Hours later, both bodies overrode the governor’s veto allowing the legislation to become law.
The state budget also included a proviso to H. 4950 that creates a study committee regarding the possible sale of state-owned utility Santee Cooper. The committee will determine whether a sale is in the best interest of ratepayers and taxpayers and puts a transparent process in place to vet potential buyers. That committee is expected to meet soon.
LEGISLATION SIGNED INTO LAW
- 805 (Senators Shealy and Sheheen) that would create the Department of Children’s Advocacy. The department will be headed by the State Child Advocate and other staff and will be responsible for ensuring that children receive adequate protection and care from services or programs offered by all state agencies providing services to children.
- 5156 (Regulations and Administrative Procedures Committee) a Joint Resolution to approve regulations of the Department of Social Services relating to licensing of child care centers.
- 4375 (Reps. McCoy, Ott, Lucas, and others) repeals the Base Load Review Act prospectively and guarantees that no future projects can recover costs under the existing law.
- 954 (Senators Leatherman, Setzler) which would temporarily lower utility rates for customers of SCE&G.
- 1101 (Senators Young, Hutto and Massey) extends the sunset provision to November 30, 2020 on exemptions for private, for-profit pipeline companies.
- 4875 (Rep. Ott). The bill enacts the “South Carolina Solar Habitat Act” which establishes voluntary best-management practices for commercial solar energy generators.
- 345(Senator Davis) expands the role of Advanced Practice Registered Nurses (APRN’s) which would, among other things, allow prescribing of schedule II drugs pursuant to a practice agreement in certain circumstances, including hospice and palliative care settings.
- 918(Senators Peeler, Malloy, Hembree and M. B. Matthews) establishes certain prescribing limitations when prescribing narcotics to minors and requires DHEC to provide prescription reports to practitioners.
- 3622(Reps. Ryhal, Burns, Duckworth and others) relating to podiatric surgery.
- 3819 (Reps. Bedingfield, Fry, Henderson and others) which establishes requirements for prescribing opioid analgesics to minors.
- 4116(Reps. Ridgeway, Douglas, Spires, G. M. Smith and others) which prohibits hospitals and insurance companies from enjoining physicians to secure a maintenance of certification as a condition for licensure or admitting privileges at a hospital in this state. The bill was amended by the Senate to include Federally Qualified Health Centers.
- 4117 (Reps. Henderson, Bedingfield and Fry) would add an exception to the confidentiality of data in the prescription monitoring program for drug courts.
- 4698(Rep. G. M. Smith) waive’s state examination requirements for physicians who practice administrative medicine relating to Social Security disability determinations within a state agency.
- 4935 (Reps. Felder, Douglas, Ridgeway and Bryant) a Joint Resolution that creates the “South Carolina Palliative Care and Quality of Life Study Committee.”
- 5159 (Regulations and Administrative Procedures Committee) a Joint Resolution to approve regulations of the Department of Health and Environmental Control relating to standards for licensing Hospices.
- 4931 (Reps. Elliott, Alexander, Simrill and many others) would authorize an applied baccalaureate in manufacturing if approved first by the State Board for Technical and Comprehensive Education and the Commission on Higher Education.
- 648 (Senators Scott, Setzler, McLeod, Jackson and McElveen) relating to the disposal of surplus properties by the Midlands Technical College Enterprise Campus Authority.
- 937 (Senators Hutto and M. B. Matthews) relating to the devolution of powers of the Denmark Technical College Commission. The bill extends the authority of the State Board for Technical and Comprehensive Education from November 1, 2018 to January 1, 2019.
- 5153 (Rep. Delleney) requires worker’s compensation hearings concerning compensation payable must be held in the districts in which the injuries occurred instead of the cities or counties.
- 3209 (Reps Pope, Robinson-Simpson and others) relating to the expungement of criminal records for certain criminal offenses (Governor’s veto overridden).
- 4962 (Reps Sandifer and Spires) fixes an unfair application of the retaliatory tax laws as they are applied to domesticated title insurance companies.
- 4675 (Reps. Sandifer and Spires) establishes reporting requirements and removes certain provisions for captive insurance companies
BILLS OF INTEREST THAT FAILED TO BECOME LAW
- 3722 (Ways and Means Committee) the bond bill for higher education maintenance and Renovations.
- 3053 (Reps. Putnam and Long) the bill would prohibit an increase in tuition by public colleges and universities on an undergraduate in-state student during their four-year time period as a student.
- 3427 (Reps. Lucas, Loftis, Allison, and others) the “South Carolina Computer Science Education Initiative” requires the State Board of Education to adopt and ensure implementation of grade-appropriate standards of computer science and computational thinking and to provide requirements to the office of the governor to establish criteria and processes for designating science, technology, engineering and math (STEM) communities and regions and to provide requirements for those regions.
- 212 (Sens. Davis, Hutto, Campbell and other) known as the “South Carolina Compassionate Care Act” (medical marijuana).
- 4480(Reps. Taylor, Allison, Jefferson, Cogswell, and others). Driving under the influence of an electronic device, or DUI-E (texting while driving).
- 4811 (Reps. S. Rivers, G. M. Smith, Elliott, and others) that would require magistrates to be a licensed attorney.
Copper Dome Strategies, LLC hopes you have a safe and enjoyable summer. We will keep you apprised of any activity by the General Assembly during the interim. The 123rd legislative session will commence in January 2019.