MASSIVE $826 MILLION TAX HIKE LOOMS …
South Carolina lawmakers have found a way to “fix” the state’s pension fund problem. The only problem? It amounts to an $826 million annual tax hike on Palmetto State residents – who as we’ve previously noted can ill afford to come out of pocket to pay for any more government.
Seriously … haven’t we had enough of that in this state?
Unfortunately, things are about to get a lot worse …
Under legislation that overwhelmingly cleared the State Senate this week, taxpayer contributions to the chronically mismanaged state pension fund will climb from 11.56 percent of an employee’s aggregate salary to 18.56 percent over the next six years.
For those of you keeping score at home, each percentage point represents a $118 million obligation.
That means taxpayers – who are already pumping $1.3 billion into this system each year – will be paying another $826 million annually when this “fix” is fully implemented.
By contrast, government employees’ share of the increased cost of their own retirement will be only $40 million annually under the legislation, H. 3726.
That’s a 20-to-1 ratio, people.
Sadly, only a handful of “Republican” lawmakers had the courage to stand up to this insanity.
“I do not think it’s equitable to increase the taxpayers’ annual contribution to the pension by $826 million while requiring public employees to pay only an additional $40 million into their own retirement plan,” S.C. Senator Tom Davis said in a statement posted to the Senate journal this week.
(Click to view)
Davis was one of only seven State Senators who voted against the bill (.pdf). He was joined by Chip Campsen, Wes Climer, Tom Corbin, Harvey Peeler, Rex Rice and Tom Young.
In addition to criticizing the legislation’s inequitable financial structure, Davis noted the bill also “fails to mandate that newly hired public employees be placed in a defined-contribution plan as opposed to a defined-benefit plan.”
“In recent years, at least fifteen other states have shifted at least one of their state pension systems to a mandatory defined-contribution plan,” Davis said. “We are told that another bill to be filed at some later date will address this critical reform. If past is prelude, however, any subsequent legislative effort to require newly hired public employees to participate in a defined-contribution plan is doomed to fail.”
Davis is absolutely right. There will be no future reform. And everyone voting for this massive tax hike knows it.
As “Republican” lawmakers in South Carolina have done with government-run schools (and are proposing to do with the state’s roads), they are simply passing along an ever-escalating bill for their ongoing failure on to taxpayers and calling it “reform.”
We’ve been saying for years that this powder keg was about to explode … and now it has. We just had no idea the explosive force was going to be quite so intense.
Back in December, former governor Nikki Haley and other members of the S.C. State Fiscal Accountability Authority (SFAA) voted to raise employee and employer retirement contribution rates to the South Carolina public pension fund by 0.5 percent each.
We warned at the time that larger increases were on the horizon, although the $826 million annual obligation being forced on taxpayers via this legislation, H. 3726, is far greater than anything we could have imagined. We were calculating annual increases in the neighborhood of $500-600 million – to be distributed equally between taxpayers and state employees.
Turns out the tab is $226 million higher – with taxpayers on the hook for nearly every penny.
Who bears the blame for this debacle? Aside from state lawmakers, culpability falls on the political appointees of the S.C. Retirement System Investment Commission (SCRSIC) – and the politicians who appointed them.
Under the “leadership” of Haley’s appointee Ed Giobbe and Reynolds Williams – the appointee of powerful Senate president Hugh Leatherman – the state’s pension fund has seen its debt soar by more than $7 billion in recent years (while losing more than $3 billion of its value).
S.C. treasurer Curtis Loftis (below) has been sounding alarm bells on this issue ever since he was elected in 2010 – risking his own political career in the process. Not only did lawmakers ignore his warnings, though, earlier this year actually they voted to remove him from his oversight role.
(Click to view)
(Via SC Treasurer)
Loftis has consistently fought against the pension fund managers’ foolhardy “alternative investment” portfolio – advising them to follow a more conservative investment strategy, one that didn’t rely so heavily on exorbitant fees. He also objected to the SCRSIC doling out massive bonuses to the very bureaucrats who produced some of the worst results of any large pension fund in America (at the highest price, too).
“I believe if you’re going to tell a story, tell the truth and the whole truth,” he told us four years ago. “Leaving out important details like our fund is underperforming its peers and paying some of the highest fees in the country is simply unacceptable.”
Sadly, no one listened … and the media didn’t start reporting on this disaster until it was too late.
This entire saga is yet another sad and costly reminder of why South Carolina will never move forward. Connected elites receive appointments that they use to enrich themselves, while politicians and media are asleep at the wheel. And when the whole thing blows up, taxpayers get screwed over while absolutely nothing is done to fix the underlying problem.
And for what? So state government can continue doling out inflated salaries and benefits to hundreds of thousands of employees (the majority of whom aren’t even performing core functions of government)?
Again … this is why South Carolina will never move forward.
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