The Palmetto Insider

If you’re anything like me, you’re at the point where you wish the federal health care “debate” would just go away for a while. First things first, though: there is no real debate and there hasn’t been for a long time, if ever – only a power play by desperate congressional leaders and their president.

If there had been a real debate on health care, we would have heard how free market reforms could lower the price of health care for everyone.

The single most important reform South Carolina could enact would be lifting insurance coverage mandates and allowing the purchase of out-of-state policies. We have written about that in detail in our Best & Worst legislative guide.

Unfortunately, the S.C. General Assembly seems intent on expanding, rather than lifting, coverage mandates.

But what about Governor Sanford? The governor has consistently advocated free market health care reform, especially in relation to Medicaid.

And if federal health care legislation has all but made state-based Medicaid reform impossible for now, the governor could take a cue from his neighbor to the south – Gov. Sonny Perdue of Georgia.

Georgia Public Policy Foundation Senior Fellow Ronald Bachman commends Perdue for taking the lead in trying to create a voluntary multi-state market for health insurance consumers.

Writes Bachman:

The cross-state concept has been accepted by Republicans and Democrats as a good starting point for national bipartisan reform. Studies have shown that up to 12 million Americans would become insured with effective national legislation for cross-state selling. While Congress debates, however, Governor Perdue innovates.  His push for free-market insurance reform is embodied in bills making their way through Georgia’s House and Senate. The slight differences will likely be ironed out when the two bills are merged.

Georgia’s legislation has two major components. First, it promotes a unilateral acceptance of comprehensive individual health policies from other states. As a show of good faith, Georgia would accept individual health policies approved in other selected states without the requirement that they accept policies approved here. There are, of course, minimum standards and consumer protections governing the acceptance of such policies.

Second, the real power and value of the cross-state selling concept is to establish a coalition of states with a combined large consumer base that will encourage insurers to develop and bring new, low-cost and affordable plans to Georgia. Currently, the 50 state-specific state filing processes take insurers years and millions of dollars in development costs, administrative mandates, filing requirements and fees.

Clearly, South Carolina could further Georgia’s efforts by also recognizing health policies approved in that state. Whether this could be done by executive order alone is unlikely, but the governor could at least become part of the dialogue by working with the Legislature and the Department of Insurance to replicate the reforms being pursued in Georgia.

The State posted an interesting article today in which Boeing CEO Jim Albaugh acknowledged that the real reason Boeing chose to expand operations in South Carolina, instead of Washington state, had to do with the cost of its union commitments – in particular, “the cost of the strike at its Puget Sound operations in fall 2008.”

Continues the article: “Boeing didn’t pick South Carolina for expansion last year because of Washington’s tax rates or regulatory system. Nor was it a question of chasing low wages. ‘The overriding factor was not the business climate. And it was not the wages we are paying today. It was that we can’t afford to have a work stoppage every three years. And we can’t afford to continue the rate of escalation of wages.’”

In other words, Albaugh is admitting that the tax incentive package the company received from South Carolina is not what really convinced Boeing to expand in North Charleston. But this is what SCPC has been saying from the very beginning.

Thus we wrote in October 2009:

“What lawmakers in South Carolina have not told us is that Boeing was thinking of expanding its current operation in Charleston anyway. This past summer, Boeing purchased a 787 components plant that already employs 900 workers. The cost: $1 billion. Boeing also owns half of a neighboring plant that employs 1,600 workers. In addition, talks between Boeing and union representatives at its Everett plant in Washington state have stalled. A 52-day strike last summer cost the company billions, with analysts projecting the cost of the work stoppage at $100 million a day or $5.2 billion in deferred revenue. Meanwhile, employees in Charleston voted in early September of this year to disband their union.

“Thus when we describe this incentives package as a bailout what we really mean is not so much a financial one, as a bailout from Boeing’s union commitments in Washington state. Add to this that Boeing has long wanted to expand its operations on the east coast and it becomes clear the company was already very interested in building a second assembly line in South Carolina.”

Do the math. If strikes are costing Boeing $100 million a day, they are going to be looking to relocate to a non-union state. Add the fact that Boeing was already in Charleston and wanted to expand its east coast presence, and you see why Boeing came to South Carolina.

Note that Boeing admits that tax rates had little to do with its decision. But that also means the General Assembly’s multimillion dollar tax break for Boeing had little to do with the decision. To paraphrase Senators Glenn McConnell and Hugh Leatherman, the reason Boeing actually came to South Carolina can be quickly and decisively dismissed in a single elegant phrase – “right to work.”

This is to say, of course, that reforming general business conditions – especially as they relate to fundamental free market principles, such as the right to work – are far more important to growing South Carolina’s economy than are targeted tax breaks and backroom deals.

But, of course, that’s what we’ve also been saying from the very beginning as well.

High wages. Creative. Hollywood stars. What’s not to like about the film industry?

Nothing, if film productions choose to come to South Carolina of their own accord. But when government gets into the business of incentivizing the film industry, there’s plenty not to like.

And it gets worse the deeper you dig.

From 2006 to 2007 $8 million in wages were paid to South Carolina residents for work in the film industry.

That sounds great … until you realize that the state paid these productions $8.4 million in rebates.

Bear in mind, too, that these are not simply incentives in the form of tax credits. This is cold, hard cash paid to the movie industry to film in our state.

As the Policy Council details in Unleashing Capitalism, film credits actually “generate a net loss in revenue equal to 81 percent of expenditures on rebates.” In addition, when government subsidizes a targeted industry, the relative tax burden to other individuals and businesses increases.

What about spending on goods and services? There, the state spent $7.3 million in rebates to generate $14.4 million in supplies and service sales for in-state vendors. Sounds like a productive activity – until you realize the state was subsidizing about half of the business expenses for these productions, a sweetheart deal that no one else in the private sector receives.

These videos from the Mackinac Center for Public Policy detail the perverse incentives that are common in Michigan – and reasons why South Carolina should avoid similar policies.

Tuesday’s release of the Legislative Audit Council report on mismanagement and negligence by the S.C. Employment Security Commission was big news in our state. The report lays blame squarely at the commission’s feet for taking the state’s once-healthy unemployment insurance fund to nearly $750 million in federal debt and climbing. (Keep your calculator handy, because the debt is increasing by about $2 million a day.)

Now, let’s be clear about this story. The report by the LAC is news, and The Nerve was first to release a comprehensive story on the findings. But the fact that the ESC has managed to take a once solvent unemployment fund and run it into the ground is not news—at least not new news.

In 2000, the fund had a balance of $800 million. On Jan. 15, 2010, the fund was in debt to the U.S. Department of Labor in the amount of $723.7 million; on Jan. 26, the last time the Labor Department updated its web site, South Carolina’s debt had risen to $747,889,544.00.

Ten years and a swing, from being in the black to drowning in red ink, of more than $1.5 billion.

Eleven days, and another $24 million in the hole.

Thank goodness our legislature was here to alert us to this gargantuan failure.

But the timing could have been better. Perhaps a Tuesday in 2001 when the fund had fallen below its required reserves? How about a Tuesday in 2004 when the unemployment fund had fallen to about half of its required reserves? Or perhaps a Tuesday in 2008, when the recession caused an already tanking trust fund to really go into free fall.

Again, just to be clear, the Legislative Audit Council is a government watchdog working for the General Assembly, and the S.C. Employment Security Commission operates under the direction of – not the executive branch – but the General Assembly. So it should come as no surprise that the second bullet in the LAC’s condemnation of the ESC gives the legislature political cover.  Here’s what it says:

“ESC’s annual assessment reports to the General Assembly did not provide adequate information about the declining trust fund balance. Nor did ESC make recommendations to prevent the trust fund’s decline as required by … the S.C. Code of Laws.”

Our legislators are busy, what with all the hundreds of millions of dollars in taxpayer funded special interest giveaways they’re working on. So maybe it’s understandable that they didn’t see the problem in 2000. At that time the fund reserve was just a smidge under what’s required. Neither did the legislature act in 2003, when the fund reserves had fallen from more than $800 million to around $400 million, nor in 2008 when South Carolina first had to borrow from the Department of Labor.

This is precisely why the people who write the laws and control the purse strings aren’t supposed to be the same people who enforce the laws and write the checks. The General Assembly has taken upon itself the roles of both the legislative and executive branch, in this case and many others in South Carolina.

Yes, ESC deserves blame for mismanaging of the fund and, yes, the commission needs the top-to-bottom overhaul lawmakers say is going to happen. But the “top” of the ESC is the General Assembly, and it’s disingenuous for South Carolina lawmakers to pretend they don’t share responsibility or say they were given inadequate information.

To its credit, or perhaps because the General Assembly wants to distance itself from the whole mess, the LAC’s first recommendation is to make the ESC a cabinet agency. That’s a good first step, especially since the General Assembly hasn’t done its job in managing the commission. But the long-term solution is to allow free market reforms suggested in the Policy Council’s Fast Facts on ESC posted yesterday to reduce the staggering rate – and cost – of unemployment in South Carolina.

The Tax Foundation recently released a study detailing why film industry tax credits and incentives are bad state policy.

The report lists 7 different types of film incentives. South Carolina is one of 7 states to offer 5 of the 7 incentives. These are:

• Movie Production Incentives
• Cash Rebates
• Sales Tax Exemptions
• Lodging Exemptions
• Fee-free locations

As the Tax Foundation study demonstrates, film incentives can easily get out of control. In Iowa, for instance, documents released by the governor showed the following “tax credits” given to movie companies:

• A Mercedes and Range Rover for producers to keep
• Contracts amended after completion to increase credits
• Large state-funded payments to relatives of filmmakers

Although this is an extreme example, it represents what can happen if politicians convince themselves that film credits are an unlimited bounty to the state.

As the Policy Council details in Unleashing Capitalism, film credits actually “generate a net loss in revenue equal to 81 percent of expenditures on rebates.” Additionally, “When government spends taxpayer dollars to subsidize a targeted industry the relative tax burden to individuals and businesses will increase.”

Despite research showing why film credits are detrimental to state economies, the growing trend has been toward more incentives. In 2002, 5 states offered movie production incentives – today, 44 states are doing so.

Needless to say, film incentives offered by states have created a boon to the film industry, as rent-seeking increases by parlaying one state against another. According to the Tax Foundation report, states have been offering “bigger and better” packages.

In reality, a film credit indirectly takes money from other taxpayers and redistributes it to the film industry – which is often doing little more than creating temporary jobs.

To see a list of films that have received S.C. incentives, click here.

Last month, the Policy Council reported that phantom districts were listed on the recovery.gov website as having received stimulus funds.

That story, first broken by Watchdog.org, has now taken another twist – phantom ZIP codes. In West Virginia, for example, $28 million is going to imaginary ZIP codes that do not exist.

Upon closer examination of the South Carolina ZIP code report, every ZIP code does indeed exist. But there are 2 data listings that do not belong. Two listed ZIP codes on the South Carolina report are not in our state – 30033 is Decatur, Ga., and 23111 is Mechanicsville, Va. A total of 8 jobs and $1,429,904 are attributed to ZIP code 30033 and 0 jobs and $17,694 to 23111.

Clearly, someone didn’t do their fact checking on the recovery.gov website.

Susette Kelo, a homeowner in Connecticut, lost the now infamous Kelo v. New London court case in 2002 — where the city seized her house through eminent domain.

Typically, eminent domain is reserved for public use — building a public road for example. But New London was handing Kelo’s property (among others) to a private company, Pfizer, under the premise of a “public use.”

The city sold-out its citizens to appease one special interest group. But now, it seems the story has come to an unfortunate close.

Pfizer announced in November that it is pulling out of New London — all that remains on Kelo’s property is some grass and dirt.

Check out the Policy Council’s update on property rights legislation here in South Carolina.

Over the past few days, prominent state leaders have called for the creation of a commission to streamline government and reduce waste.

Typically, when you think about federal government work and “public service,” the generally accepted rule is you will be paid less than in the private sector.

After all, that’s what I was told when I took classes for my Masters in Public Administration. Public servants aren’t in it “for the money,” we were instructed. They’re in it for the public service.

Funny how things change.

A recent analysis by USA Today show’s a shocking new trend. The average federal worker earns $71,206 – compared to the private sector average of $40,331.

One of the more astonishing results is how the salaries have been affected by the recession. Mainly, through a dramatic increase.

Prior to the recession, there was one Transportation Department employee earning more than $170,000 per year. Only 18 months later, there are now 1,690 employees earning over $170,000.

So to be clear – private sector entities are being forced to lay off workers and trim their budgets. But the government is expanding and adding jobs at an exponential rate.

As the Policy Council has previously reported, this trend is evident here in South Carolina. At the South Carolina Research Authority, for instance, 37 employees earn more than $100,000 per year.

As the private sector copes with the recession by trimming budgets, shouldn’t the government follow suit?

From what the leadership of the U.S. Senate is saying we are supposed to believe new healthcare legislation will be a bargain. Argues Sen. Max Baucus (D-Mont.), the bill represents a “commonsense, balanced solution.”

While the Congressional Budget Office (CBO) estimates the bill before the Senate will cost $829 billion, other experts have shown that the CBO score is highly suspect and likely grossly underestimates the true costs, which could be as high as $6 trillion.

And just how will these bills be paid? Unfortunately, according to a recent op-ed by the Georgia Public Policy Foundation, a redistribution of wealth will pay the tab. The four methods detailed are:

1) Lower government funding for Medicare
2) Add taxes and fees on private insurance and medical supplies
3) Implement price controls on premiums
4) Mandate costly coverage

The result is an increase in premiums and perverse incentives for individuals – and still leaving at least 25 million uninsured by the year 2019.

[A PricewaterhouseCoopers study] expects that by 2019, small group premiums would increase by an additional $2,100[8] for single coverage and $5,400[9] for family coverage.  Eight in 10 uninsured individuals work mainly in small businesses; hiking premium costs for individual and small group plans will only increase the number of uninsureds. It is no wonder that the CBO estimates that by 2019, there will still be 25 million uninsured individuals.[10]

Healthy Americans would be disadvantaged for their efforts at prevention, early intervention, wellness, and improved eating and exercise habits. The H.E.L.P. Committee proposal would make it illegal for insurers and employers to reward and incentivize good healthy habits to control blood pressure and cholesterol.  Responsible citizens would pay for the lack of personal responsibility in others.