BRADENTON, Fla. – South Carolina Gov. Henry McMaster proposed in his first executive budget a $2.2 billion state income tax cut plan, and vowed again to sell Santee Cooper, the state-owned utility.
McMaster recommended a $28.3 billion budget for fiscal 2019, a 2.32% increase over the current year. Of that, $8.06 billion is the general fund spending plan, a 1.43% increase.
The budget includes a $139 million decrease in the state’s income tax brackets.
“We can do this without cutting government services,” McMaster, a Republican, said in a cover letter accompanying the 2019 budget.
Over five years, his plan is to cut all tax brackets by 1%, or $2.2 billion annually, he said.
Nearly half of the general fund’s revenue, $4.3 billion or 49.1%, consists of individual income tax collections, according to the budget.
General fund revenues collections in fiscal 2019 are expected to range from $10.1 billion, a projection of the Board of Economic Advisors, to $12.4 billion, an estimate by the governor’s office.
In addressing the state’s energy supply, McMaster blasted Santee Cooper, whose board issued $4.3 billion in debt to finance a portion of the twin nuclear reactor project at V.C. Summer Nuclear Station that was canceled earlier this year.
The decision to abandon construction, he wrote, was “a jarring break of faith with the people of South Carolina.”
McMaster said Santee Cooper remains poised to pass on the nuclear-related debt to customers, a move that is “unconscionable and, from a budgetary perspective, highly undesirable.”
Calling the utility a failing state-owned asset, McMaster said his goal is to make ratepayers whole by selling it.
Santee Cooper, a public power agency formally known as the South Carolina Public Service Authority, has a total of $7.7 billion of outstanding debt.
In announcing a sweeping tax plan, McMaster said now is the time “to cut taxes and enact serious reform” because of the federal tax bill signed into law before Christmas by the president, which caps at $10,000 the amount of state and local income taxes that can be deducted from federal taxes.
South Carolina's top bracket income tax rate is 7%, the highest in the southeast and the 12th highest in the nation, according to McMaster.
“With new changes in the federal tax structure, we must move quickly to maintain our state’s superior ability to attract new jobs, capital investment, and economic opportunity,” he said. “The time has come to remove the burden of our high income tax rate.”
The governor’s budget also calls for permanently exempting military veterans and retired first responders, including state and federal law enforcement, firefighters, and peace officers, from paying state taxes on retirement income. It will cost the state $22 million in the first year.
The spending plan does not include any new debt service for borrowing in fiscal 2019, according to a statement from the South Carolina Treasurer’s Office.
Any excess debt service funds must be spent to pay down general obligation bond debt for which the state is paying the highest rate of interest, will achieve relief in constrained debt capacity or will reduce the amount of debt issued, the statement said.
Over the last three years, the treasurer’s office said, the General Assembly has funded state’s debt service at a level that has “significantly” exceeded actual need.
“Debt service has rapidly been decreasing due in part to the state’s not issuing capital improvement bonds in nearly two decades,” the statement said, adding that some excess debt service has been used to cash fund a state economic development project.
The spending proposal sets aside the required 5% of anticipated general fund revenues for reserves totaling $379.1 million. It also includes a $151.6 million capital reserve fund.
The budget will be a primary concern for the Republican-dominated Legislature, which began its annual session Jan. 2.
McMaster, the state’s former lieutenant governor, ascended to the governor’s office last year to finish the term of Nikki Haley who resigned to become U.S. Ambassador to the United Nations.
McMaster has announced plans to run for a full term as governor this year. He selected Greenville businesswoman Pamela Evette, a political newbie, to run on his ticket as lieutenant governor.
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Updated January 9, 2018 at 4:04PM: The story was updated to include a statement about the absence of new borrowing in the budget proposal.
Corrected January 10, 2018 at 11:18AM: A previous version misstated the number of years the treasurer's office said funding exceeded need.