Expect an increase in state spending—and likely taxes and fees—in the coming years as pressure increases to repair the state’s 41,000 miles of pitted roads and the $21 billion retirement system deficit.
State and federal leaders, and pension experts spoke to approximately 200 state lawmakers, lobbyists, and business leaders in Columbia on Tuesday about what policies they can expect in 2017.
Atop state leaders’ agenda is reducing the state retirement system’s debt and bringing roads and bridges up to par, they told attendees at an annual meeting for the South Carolina Business and Industry Political Education Committee.
A former Republican state senator from Utah, Dan Liljenquist said the retirement system is going to get worse unless officials stop putting new hires into the plan.
“If we have another crash like 2008, I don’t know what we’ll do,” he said.
Lijenquist is a board member at the Retirement Security Initiative, a pension advocacy group. While in the Utah Statehouse from 2009 to 2011, he led reforms that made the state’s pension fiscally sound long-term.
“It’s a solvable issue,” he said. “It’s just going to be very painful.” The pain will come from lawmakers finding a way to pay off the debt without continuously extending the debt repayment schedule, which is currently set at 30 years. A joint Statehouse committee approved recommendations on Tuesday to repay it in 20 years.
“What they’re going to have to do is spend more money,” Anthony Randazzo said. Randazzo is a national pension expert with the libertarian Reason Foundation. He said a set rate of return of five to six percent is more realistic, compared to the 7.5 percent rate the retirement plan is currently set at, or to the seven percent rate the committee agreed to.
He also said the employer contribution rate should be close to 25 percent.
An increase at that level could require an increase in revenues, budget cuts in other areas, or both.
Employers currently contribute 11.56 percent, while state workers contribute 8.66 percent. The State Fiscal Accountability Authority in December moved to require a .5 percent increase in pension contributions from both parties, set to take effect in July.
Funding roads is another legislative challenge this year.
“We have absolutely got to have a sustainable source of funding,” said Senate President Pro Tempore Hugh Leatherman, R-Florence.
The Transportation Department has said it needs at least $1.2 billion annually to bring state roads up to par.
House Speaker Jay Lucas said prospective revenues from tax and fee increases would bring in more than $600 million annually. Proposals before the Legislature include a $250 vehicle registration fee for new residents, and bills in both chambers to phase in a gas tax increase of 10 or 12 cents over the next several years.
Even with the added revenue, lawmakers may need to consider delegating some roads to local governments, said the Darlington Republican.
South Carolina’s is the fourth largest state-maintained highway system in the nation.
Lucas and Leatherman stopped short of saying exactly how much it will cost to stop the bleeding. They said after the event that they wouldn’t support funding roads improvements from the general fund.
Other priorities for the House and Senate leaders include—restructuring the tax code, education funding and workforce development.