Five Principles of Freedom: Achieving Prosperity in South Carolina

TO UNDERSTAND THE CHALLENGES FACING SOUTH CAROLINA, WE SHOULD FIRST ASK: WHERE DO WE WANT TO GO?

In January, lawmakers will reconvene to debate solutions for the problems facing our state. But what exactly are those problems? That question can be best answered if we approach it in terms of aims. What kind of state should South Carolina be?

The answer, quite simply, is that South Carolina should be the freest state in the nation. The General Assembly’s policy proposals should be aimed at increasing personal freedom and choice for South Carolinians. And when we analyze proposed legislative solutions, we continue to ask: Will it advance or hinder citizens’ freedom? As we enter a new election season, this is the standard we should expect from candidates seeking votes.

But what does it look like to be the freest state? And how far are we from achieving that goal? Below are five practical benchmarks for a free state, and exactly how South Carolina measures up on each.

(1) South Carolina’s politicians should have less power and more accountability than the politicians of any other state.

Checks and balances are one of the strongest protections for individual liberty because they prevent any one branch of government from becoming too powerful. Unaccountability and lack of transparency breed corruption and tyranny. Unfortunately, both are typical of South Carolina government by design, as shown by the examples below.

Boards and commissions

While the governor’s proper role is to execute the laws and oversee state agencies and departments, the legislature routinely usurps executive jurisdiction. State lawmakers, and particularly a few legislative leaders, hold vast powers over the apparatus of state government. Specifically, the legislature directly controls 423 appointments to executive boards and commissions (over half of the 759 appointments made by the governor), and these appointments constitute some of the most significant areas of state government. Even when the governor is technically allowed to make appointments, the legislature often controls them through the screening and approval process.

Education

Education policy in South Carolina is shaped by the State Board of Education and the Education Oversight Committee (EOC). These agencies are almost entirely controlled by lawmakers. In fact, the legislature elects 16 of 17 members on the state board, and comprises or appoints 14 of the 18 members of the EOC.

The Department of Education (DOE) is the least powerful educational entity – and also the most accountable. Headed by the Superintendent of Education (an elected position), the DOE works in conjunction with the state board and the EOC, but has considerably less decision-making authority. In an ideal system, the most powerful entities would be directly accountable to the people.

Energy

The legislature controls virtually all areas of the energy industry through the Public Utility Review Committee (PURC). The PURC is a 10-member body selected by two legislative leaders and comprised mostly of lawmakers. The PURC’s duties include: overseeing and nominating members to Public Service Commission (the entity that sets utility rates), screening the board members that govern the state-owned utility Santee Cooper, and selecting the director for and overseeing the Office of Regulatory Staff (the body tasked with representing the interests of ratepayers).

Under this structure, it is impossible for citizens to hold accountable the authorities who control the state’s energy market.

Recently, lawmakers formed two special committees to investigate the V.C. Summer nuclear fiasco. However, those committees have refused to address the core issue: Lawmakers have too much power over energy.

Judiciary

South Carolina is one of only two states in the country where the legislature elects the state’s judges. This legislatively dominated process is used for appointments to the Supreme Court, court of appeals, circuit court, family court, and the administrative law judge divisions. Prior to the election of judges by the General Assembly, a ten-member panel (comprised mostly by legislators) – the Judicial Merit Selection Commission (JMSC) – narrows down a larger pool of applicants to three candidates who move on to the election process.

Though judges are elected in a joint session of the General Assembly, state law only requires that a candidate receive a simple majority of votes to win election. Given that House membership far outnumbers the Senate (124-46), it is possible that the House could elect a judge without a single vote from the other chamber.

Under this system, citizens cannot be confident in the independence and objectivity of the South Carolina court system, especially considering that many lawmakers are also attorneys who practice before the judges they elect.

Roads

Infrastructure projects are determined by the Department of Transportation (DOT) commission, and the State Transportation Infrastructure Bank (STIB). The governor technically appoints DOT commissioners, but most of his appointments must be approved by legislative congressional delegations. This makes it difficult for the governor to attempt to hold DOT commissioners accountable, as his appointments are dependent on legislative groups that are themselves nearly impossible to hold accountable. The legislative congressional delegations are not required by law to hold meetings to vote on the governor’s appointees, which means it can happen out of the public eye with no accountability whatsoever. The list of legislators in each congressional district is not even posted on the State House website and took a lot of work for The Nerve to uncover.

The STIB board (which bonds out and loans millions of dollars each year for eligible transportation projects) is comprised of seven members. The House speaker and Senate president pro tem wield the majority of the power over this board, with direct control over four of the appointments and indirect influence over a fifth member. STIB loans must be approved by the DOT commission, but this could hardly be called accountability since the DOT commission itself is largely unaccountable.

These two boards decide which roads get built, which roads get repaired, and which roads get ignored in South Carolina.

Ethics and corruption

The ethics laws governing lawmakers’ behavior are designed to shield elected officials rather than hold them accountable. Lawmakers have exempted themselves from the Freedom of Information Act, refused to disclose financial conflicts of interest, and codified the unconstitutional practice of dual office-holding.

The process of investigating and prosecuting corruption in the legislature is confusing and complicated – at best. At worst, it is specifically designed to shield lawmakers from legal scrutiny and consequences for unethical behavior. This is partially due to laws not taking ethical infractions seriously, and also that lawmakers police their own violations in an unaccountable process in which there can be no public confidence. Until this is changed, lawmakers will continue to consider themselves above the law that holds the rest of us accountable.

(2) South Carolina should offer more choice – in education, health care, and energy – than any other state.

Freedom of choice is a fundamental pillar of individual liberty. As with all goods and services, competition in education, healthcare and energy incentivizes innovation, lowered costs, and greater quality. But when the vast majority of citizens are limited to only one product, the producers have no incentive to improve it. In South Carolina, the state is heavily involved in choices that should be left to citizens. This is why education performance is poor, energy costs are high, and healthcare options are so detached from the needs of consumers.

Education

South Carolina’s K-12 education system is often regarded as one of the worst in the country. Lawmakers have sought to improve the condition of our schools through increased education funding and expanded preschool programs, but these reforms have failed to live up to their promise.

There are a few options for parents who wish for more educational flexibility. South Carolina’s charter school and magnet school programs provide options for parents in the counties where these schools have opened, and a tax scholarship program allows parents of special needs children a wider variety of educational choices. But in cases where none of these are feasible options, children are trapped in the existing school system regardless of the quality of the local school unless outside private resources allow parents to explore alternatives such as private education or homeschooling. For this reason, it is the low-income families in rural school districts that are hit hardest by the lack of meaningful school choice.

Energy

In South Carolina, there is no choice for the energy consumers. The energy industry is a regulated monopoly, which means that utilities serve captive customers who have no choice in their energy provider. Lawmakers govern the utilities through a plethora of boards and commissions which are technically supposed to guard the public and ratepayer interest.

As the recent nuclear construction fiasco has demonstrated, this system does not work. Aside from the high energy rates that result from lack of competition, this approach has in recent years led (along with special legislation to enable it) to a disastrous nuclear construction project that cost ratepayers billions of dollar before the project was abandoned by the utilities, leaving ratepayers saddled with billions in debt for plants that will never be completed.

Healthcare

Since implementing many of the key provisions of Obamacare, healthcare premiums have risen and choice has plummeted. At this point, only one company – out of the five original insurance companies – is still selling Obamacare plans in South Carolina, and it just announced a massive premium hike due at least in part to federal policy.

However, many of the barriers to options are products of the state. For instance, the state imposes 30 different coverage mandates on health insurance providers, guaranteeing that the cost of health insurance remains high and making it nearly impossible for smaller providers to compete. While South Carolina did not technically expand Medicaid, the state Department of Health and Human Services adopted many of the key elements of the Medicaid expansion.

The state also heavily regulates the medical profession and facilities, which suppresses the innovation and competition which could lead to lower costs and greater choice. Legislation filed in the 2017 session would have expanded podiatrists’ scope to include the ankle as well as the foot, allowed nurse practitioners to practice independently, and exempted an alternative healthcare payment model from regulation by the Department of Insurance. All of these would be minor reforms compared to the sheer amount of healthcare regulation imposed by South Carolina, but not one bill made it out of committee.

(3) South Carolina should protect the rights of its citizens more effectively than any other state.

The protection of individual rights are the foundation of the rule of law and the primary purpose of government. In a free society, the life, liberty and property of individuals cannot be taken except by due process. This security enables citizens to pursue prosperity. Unfortunately, South Carolina’s politicians are frequently more eager to violate rights than to protect them, and several egregious examples are built into state law.

Property rights

In South Carolina private property can be seized by a practice known as “eminent domain.” State law allows government to take private land for “public use”: for example, to build a road or government building. But the state constitution doesn’t define “public use,” which means government could ostensibly take land for almost any reason at all. Further, a state constitutional provision permits seizure under eminent domain if the property is “blighted” – in which case the land could be applied to private use. The General Assembly introduced legislation in both 2015 and 2016 that would have given eminent domain powers to a private company – an unprecedented step with enormous potential for abuse.

The past several years have seen an increasing number of similarly framed bills empowering the state to seize the property of private citizens in the name of rehabilitating run-down buildings. In these bills, typically, the owner of the property would be billed for the repairs or be forced to sell it. Absent in this legislation is any assumption that the owner of property has a right to it. The governor vetoed one such bill that passed in the 2017 session, although the General Assembly may override that veto when they reconvene in January.

Civil asset forfeiture

Civil asset forfeiture is another codified violation of property rights in South Carolina. The law allows law enforcement agencies to seize private assets judged to have any small connection to criminal activity and sell them off while keeping the proceeds – all without the accused party being found guilty or even charged.

Currently, the state must only show probable cause to seize property, and if citizens wish to reclaim their property, they must prove that the property was not forfeitable. This flips the traditional notion of justice on its head.  In essence, property seized by the state is automatically assumed to be justly taken; the owner must prove it was not.

Legislation filed in the 2017 session would begin reforming this abusive practice by requiring seized property to be returned after thirty days, if no criminal charges have been filed against the property owner. Unfortunately, this bill did not even receive a committee hearing, although it could move in 2018.

First amendment rights

Lawmakers have moved repeatedly to squelch South Carolinians’ free speech rights in a variety of ways. The most recent example – S.255, sponsored in the 2017 session by Sen. Hugh Leatherman – is a direct attack on free speech, particularly political speech, or the right to criticize government and politicians. This legislation would force groups engaging in “election communication” – broadly defined as communication that supports or opposes a candidate, ballot initiative, or influences an election – to disclose their top donors. Lawmakers have attempted to pass similar legislation for several years now, and will likely attempt to
pass this one next year.

That is only one example of legislative attacks on the first amendment. In recent years, lawmakers have also tried to put committee testimony under oath, force citizen activists to register as lobbyists, restrict protests on the State House grounds, require obscene content to be blocked on all internet devices before sale, and even force journalists to register with the government. These attempts have all failed – so far.

Second amendment rights

Despite the state’s reputation as a “pro-gun” state, lawmakers have shown a marked tendency in recent years to ride roughshod over second amendment rights. In fact, there was a strong push in the months leading up to the 2017 session to pass “common sense gun control” legislation, and numerous bills were filed to do just that. However, the only bills that actually moved would advance the right to keep and bear arms.

For example, the House passed a reciprocity bill that would have required South Carolina to recognize concealed weapons permits (CWPs) from all other states. Another bill that also passed the House would allow individuals to carry handguns in public without a permit, either openly or concealed. Both these bills could become law next year if the Senate passes them.

(4) South Carolina should offer the most opportunity to prosper.

Protecting the opportunity to prosper is one of the basic roles of government. It is not government’s job to ensure prosperity or create jobs, and government’s attempts to do so often result in less prosperity for many individuals. Government should, however, provide an even playing field by removing the barriers to prosperity. Citizens should be able to earn money, spend their money, and enjoy the fruits of their labor without the interference of government. However, this is not the case in South Carolina. Below are the three primary barriers to economic prosperity in this state.

Taxes

South Carolina has an unearned reputation for being a “low tax state.” That’s because South Carolinians are poor compared to the rest of the nation; and since we have less money, we send fewer dollars to government. That doesn’t mean our taxes are low. In fact, when you consider the per capita tax burden on each individual South Carolinian, we rank as a high tax state. Our effective state and local tax rate is 7.4 percent – the seventeenth highest in the nation.

But this is not the only problem. The tax code is also riddled with countless tax favors and credits, which places a greater burden on citizens who do not qualify for special treatment. In fact, we offer so many targeted tax breaks that the state exempts more sales tax than it collects, and all of that lost revenue is picked up by other citizens and businesses through increased taxes, fines and fees.

Unfortunately, lawmakers seem keen on continuing this practice. During the 2017 legislative session, lawmakers introduced even more tax favors. For example, one bill would benefit companies who hired workers near ports, and another would benefit farmers who bought more goods in the state. These policies certainly increase the opportunity for prosperity – but only for the individuals and businesses who qualify for special treatment.

Regulation

South Carolina state government has 43 licensing boards, ranging from the Barber Examiner Board to the Funeral Services Board, with our state ranking as the 14th most extensively and onerously licensed state in the nation. That number could rise if lawmakers continue to push for such legislation. In the 2017 session alone, lawmakers moved to license alcohol serving, electrology teaching and practice, locksmiths, and mobile barber shops – and these are only a few examples.

Economic development

“Economic development” is the practice of spending taxpayer dollars on research, targeted tax breaks and special incentives to private entities, all for the purpose of creating jobs. South Carolina’s economic development officials often boast about how many jobs the state has “recruited,” but they rarely – if ever – discuss how many jobs have left the state, nor is any process in place for evaluating the success of these programs. This has not stopped government officials from doling out “incentives” to the tune of $40 million in grants and $291 million in tax credits in fiscal year 2016 alone. This practice is a major barrier to prosperity in two ways: 1. These “investments” are taxpayer-funded, and 2. Economic development incentives create an uneven playing field between businesses.

(5) South Carolina should be more independent – from state debt, from dependency on federal financing of government services – than any other state.

A free state is not simply one in which individuals are able to prosper; it is also a state that controls its own policies under the direction of its citizens. Two things hinder this in South Carolina: the billions of dollars of debt owed by many state agencies, and lawmakers’
reliance on federal dollars, both of which wield a disproportionate amount of influence in state policy decisions.

Bond debt

South Carolina lawmakers rarely talk about the total state debt, but the state is now so far in debt that any form of tax reduction is out of the question. Currently, taxpayers are on the hook for the state’s $277 million in general obligation bond debt, and this doesn’t even include the billions of dollars in revenue bond debt accumulated by various state agencies. State-owned utility Santee Cooper alone owes $8.2 billion, higher education owes $1.5 billion, the State Infrastructure Bank owes $1.7 billion, etc. That’s just the principal and doesn’t include interest. Even worse: If the legislature ever fails to pay the debt service on its general obligation bond debt, the state constitution directs the comptroller general to levy a statewide property tax. Technically, revenue bond debt is not backed by the taxpayers, but in reality it is unlikely that the General Assembly would allow a state agency to default on its bond debt instead of passing a taxpayer-funded bailout.

Pension deficit

South Carolina’s pension liability (how much the state is obligated to pay in benefits to current and retired employees) is estimated at roughly $50 billion dollars, dwarfing all of the state’s combined debt obligations. Currently, we only have the funds to pay for half of it – and that’s a conservative estimate. This level of debt, if left unaddressed, can virtually cripple a state’s economy.

A key reason our pension deficit is so high is the unrealistic expected rate of return that it relies upon. The pension reform law passed earlier this year by the General Assembly only slightly modified that rate, and its other provisions completely missed the fundamental issue at hand: The system is unsustainable. Until lawmakers address the state’s pension structure itself, our pension debt will continue to rise.

Federal dependency

Roughly a third of South Carolina’s $27.42 billion budget comes from the federal government. However, this does not include federal funding for the Supplemental Nutrition Assistance Program (SNAP), which equaled an additional $1 billion in 2016. In 2013, SNAP funding was moved “offline” into an unbudgeted account and has been unreported in state budget documents since then.

South Carolina’s reliance on federal dollars has influenced – and in some cases dictated – state policy on education, transportation, second amendment rights, entitlements, and many other areas. South Carolina lawmakers have even altered state law in order to keep the money flowing from a federal government that’s $20 trillion in debt. South Carolina ranks as the sixth most federally-dependent state,  receiving $7.87 back from Washington for every $1 its citizens pay in federal tax.

For all the anti-DC rhetoric coming out of the Statehouse, South Carolina is not free to chart its own course. As long as state lawmakers are dependent on federal funding, the federal priorities attached to those funds will necessarily influence state priorities.

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South Carolina is currently far from being the freest state in the nation. But the solutions aren’t complicated. Our state government is not perfect, but it is a representative government. It is shaped by representatives and senators who are elected/re-elected every two or four years, respectively.

And with that, there is reason for hope: Citizens are the ones who hold the power, and reform will come when they demand it from their lawmakers. As the next legislative session starts in January, and as the next election cycle begins, citizens should remember that the power belongs to them – and they have the ability to take it back.