The following issues are addressed in this fourth edition of our newsletter in 2005.
LEGISLATIVE & ISSUE UPDATE:
Senate Tax Reduction Plan Targets Small Businesses
Assessing Economic Impact of State Purchases: Follow the Money
Tort Reform Signed by Governor
Workers Comp Fraud Addressed by Senate Budget Subcommittee
Bill Filed to Reform Universal Service Fund, Telephone Customers Would Save Millions
SCE&G Electric Rate Increase
NEWS:
ETV Forum: The Rising Cost of Health Care in South Carolina
LEGISLATIVE & ISSUE UPDATE
Senate Tax Reduction Plan Targets Small Businesses
Five years ago, The SC Small Business Chamber of Commerce began championing the idea of creating a level playing field between big business and small business on state income tax. In February of 2000, the newly formed Chamber’s membership brochure read, “While most big businesses pay a corporate tax in South Carolina as low as 4%-5%, most small businesses—which are usually partnerships, sole proprietorships or S-corporations—pay 7%. The SC Small Business Chamber of Commerce will pursue tax relief and tax equity for small businesses.” That same year, Small Business Chamber chairman Tim Wilkes, then a member of the House, introduced the first in a series of legislative attempts by others to address this issue.
Now, this long campaign for tax parity with big business is close to success. Earlier this month, Senator Hugh Leatherman introduced S.593, which would lower the state income tax on small businesses to 5% over four years. Just the week before, a similar Senate bill was introduced by Senators Moore, Knotts, Reese and others phasing the tax reduction in over 6 years. Those Senators and many others quickly signed on to the Leatherman legislation making it a strong bipartisan bill with 37 co-sponsors. The cost of this plan is projected to be $129 million when fully implemented.
Last week, a Senate Finance Subcommittee moved Leatherman’s small business tax reduction proposal to the fast track for possible enactment this year after hearing testimony on the plan and House Bill 3007. H.3007, which has already passed the House, would reduce the state income tax on all personal filers to 4.8% over a 10-year period. Senators pointed to H.3007’s nearly $1 billion price tag when the tax reduction was fully implemented saying that the state would not be able to address other pressing needs such as road maintenance and Medicaid. The State Board of Economic Advisors (BEA) supported this contention projecting that because of H.3007’s high cost, the state could be $100 million short on revenue when it was fully implemented.
The BEA’s presentation to the Subcommittee also included a study showing that South Carolina compares very favorably with taxation in other states. Particularly striking was the comparison to Florida, which does not have an income tax. According to the BEA, Florida has higher overall taxes on its residents and visitors than does South Carolina.
Small Business Chamber chairman Tim Wilkes urged the Subcommittee members to support Leatherman’s plan saying that small businesses should not have to wait on the passage of larger tax reduction programs for the tax relief they deserve now. The Subcommittee unanimously voted to strike all the language in H.3007 and replace it with Leatherman’s proposal thus dramatically increasing the chances of the Senator’s plan passing this year.
The Senate Finance Committee will vote on the new Senate version of H.3007 this week. If it is successful there and in the full Senate, the bill will go back to the House where the new language will either be agreed to or the two different versions of H.3007 will be sent to a House/Senate Conference Committee for reconciliation.
Assessing Economic Impact of State Purchases:
Follow the Money
For the past two years, the Small Business Chamber has argued that not enough of our state procurement dollars are staying in South Carolina. With data in hand showing that about 1.3 billion of our procurement dollars goes out-of-state every year, the Small Business Chamber has been developing a new procurement policy for the state that encourages all contractors, regardless of where they are located, to purchase goods, services and labor from our state. This month, House Ways and Means Committee Chairman Bobby Harrell and Representative Mac Toole introduced the Small Business Chamber’s proposal to utilize “best value” economic impact assessments in the procurement decision process.
House Bill 3742, now with 22 co-sponsors including the House Majority and Minority leaders, also has the backing of respected University of South Carolina Research Economist Dr. Donald Schunk. Dr. Schunk has vast experience using economic impact models for the private sector. In a letter to Chairman Harrell, Schunk says that, “it makes sense to include an economic impact analysis when evaluating proposals or bids. While the estimated impact on the state economy of alternative proposals should not be the sole consideration, I think it deserves to be a part of the evaluation process.”
Under H.3742, procurement officers would have two important pieces of information to evaluate bids—price and economic impact—and the authorization to use both in the purchasing decision. Consequently, all would-be contractors will not only have to get “sharp with their pencils”, but they will also have to be concerned that their competition will utilize more in-state goods, services and labor than they do and thus potentially they might lose the bid based on “best value”.
Tort Reform Signed by Governor
Governor Sanford has signed Tort Reform legislation supported by the Small Business Chamber. The new law limits where a civil suit can be filed to the county (1) where the cause of action arose, (2) where the defendant resides or has its principle place of business or, (3) in cases where the defendant is out-of-state, where the plaintiff resides or has its principle place of business. The new law also reduces the time a civil suit can be filed regarding improvements to real property to 8 years after substantial completion of the improvements.
Joint and several liability was also changed by the new law. Defendants now deemed responsible for less than 50% of the total fault for damages compared to the total fault attributable to all defendants will only be liable for their percentage of the damages.
The new law also tightens and strengthens current rules and sanctions against filing frivolous lawsuits as well as requires the Department of Insurance to assess whether any savings to insurance companies as a result of the new law are being passed on to the consumers.
Workers Comp Fraud Addressed
By Senate Budget Subcommittee
One of the Small Business Chamber’s proposed reforms for Workers Comp is to establish a Fraud Unit in the Attorney General’s Office. The new Unit would cost approximately $400,000 and would consist of a prosecutor, SLED agent and paralegal. Its purpose would be to investigate and prosecute both Workers Comp claimant and premium fraud, the latter conservatively estimated to be $41 million a year.
Senator David Thomas, chairman of a Senate Finance Budget Subcommittee, has committed himself to creating a self-supporting Insurance Fraud Unit in the Attorney General’s Office via a proviso in the state budget. The Attorney General’s Office would be given the power to assess an insurance company a certain percentage of any recovered funds from a fraud investigation requested by the company. All the funds secured in this way would be used to continue the operation of the Fraud Unit.
Bill Filed to Reform Universal Service Fund
Telephone Customers Would Save Millions
Capitalizing on a Legislative Audit Council report that severely criticized the universal service fund (USF), a 2.9% surcharge on every telephone bill purportedly to subsidize local telephone companies for providing affordable rural basic phone service, Senators Scott Richardson and Jim Ritchie have filed a bill (S.652) to implement the report’s recommendations.
The report, requested this past May by Senators at the urging of the Small Business Chamber, declared that the USF (1) “should be scaled back to include only supplements for low-income subscribers and support for those lines for which companies can provide evidence that costs are excessive” and (2) should have far more effective administrative oversight to prevent what some critics have called “a multi-million dollar big piggy bank for local telephone companies.”
The Small Business Chamber, which fought against the USF when it was created in 2001, strongly supports S.652 and encourages the Office of Regulatory Staff to quickly implement the Legislative Audit Council’s recommendations for effective administrative oversight of the fund. The Legislative Audit Council report makes it quite clear that without immediate reform, small business and residential customers are paying up to $4 million or more a month in unnecessary fees to local telephone companies.
SCE&G Electric Rate Increase
South Carolina Electric & Gas has announced that it is seeking an electric rate hike to cover the increased cost of fuel, primarily coal. Just this past January, the Public Service Commission granted SCE&G a 2.89% increase in electric rates after a contentious public hearing in which the President of the Small Business Chamber, Frank Knapp, intervened to challenge the company’s original 5.66% rate increase request.
However, because the law allows for regulated power companies to recover the actual cost of fuel, there appears to be little hope that intervening in this rate hearing would yield a significant savings to small business consumers. The Small Business Chamber does support the recommendation by the Office of Regulatory Staff for SCE&G to recover its fuel cost losses over a two-year period in order decrease the amount of the rate increase.
NEWS
ETV Forum: The Rising Cost of Health Care in SC
SC ETV will air a program on “The Rising Cost of Health Care in South Carolina” this Wednesday, March 30, from 7-8 p.m. This program was taped live last week and includes the views of physicians, hospital administrators, consumer advocates, attorneys, legislators and businesses—the latter represented by Frank Knapp, president of the Small Business Chamber.