- Associated Press - Wednesday, January 21, 2015

COLUMBIA, S.C. (AP) - Gov. Nikki Haley said Wednesday that she will support a gas-tax increase, but only if the Legislature cuts South Carolina’s income taxes and restructures the Department of Transportation.

Haley used her fifth annual State of the State address to lay out her much-anticipated plan to fund road and bridge work - shockingly, by raising gas taxes, an idea she’s repeatedly promised to veto.

In her 40-minute speech, the Republican governor initially seemed to repeat that pledge. But she offered a twist, saying she’ll veto a “straight-up increase.”

She then offered legislators a deal: Reduce the state’s top income tax bracket from 7 percent to 5 percent over a decade, get rid of the DOT’s elected commissioners, and she’ll support raising the gas tax by 10 cents over three years.

The current 16-cents-per-gallon tax has not changed since 1987. At 26 cents, the tax would still be below neighboring North Carolina’s 37.5 cents and in line with Georgia’s current 26.5 cents.

Haley, who every year has called for lowering personal income taxes, said her proposal still provides an overall tax decrease.

“Now, I hope everyone listened carefully to what I said. This is a three-part package deal,” she said.

The DOT has said it needs an additional $1.5 billion yearly for the next two decades just to bring roads to good condition. The 41,500-mile system is the nation’s fourth largest, funded largely by one of the nation’s lowest gas taxes. Last year, Haley told legislators to invest more in infrastructure but added, “I will veto any bill that reaches my desk that raises taxes on gasoline.”

That promise stymied legislators’ efforts. In the past few months, business and tourism groups around the state have increased their pressure on lawmakers to address the crumbling infrastructure. Legislators have been awaiting the governor’s proposal, noting anything they come up with must get past Haley’s veto pen.

House Minority Leader Todd Rutherford said Haley’s plan still doesn’t address the infrastructure problem, as it cuts state revenue for other programs by hundreds of millions of dollars.

According to state economic advisers, each penny added to the gas tax provides an additional $34 million. So 10 cents, when fully phased in, would provide $340 million yearly. Her budget, released last week, also proposes diverting $61 million from the state sales tax on vehicles to the DOT. That’s roughly the $400 million yearly that DOT Director Janet Oakley told a business group last week it would take just to stop the system from deteriorating further, to basically keep it in its current condition.

Rutherford, D-Columbia, said Haley’s plan simply puts lawmakers in a box and eliminates any other ideas.

“Nobody can propose anything because she is going to veto anything but her plan,” he said.

Haley acknowledged in her speech the reasons people in both parties have given for raising the tax.

“Yes, we do have the third-lowest gas tax in America. Gas prices are now down to their lowest level since 2009. Non-South Carolinians who visit our state would pay a portion of the tax. And we would boost the revenue stream that is dedicated to improving our roads and highways,” she said.

But she said the current DOT system leads to commissioners advocating for projects in their area, rather than what is best for the state. A 2007 law put the agency in the governor’s Cabinet but maintained the system of commissioners elected by legislators to represent certain areas.

“Instead of fighting for the needs of South Carolina at large, they fight for the needs of their districts, which means they fight each other,” she said. “Simply shipping more money into the current bureaucracy would be like blasting water through a leaky hose.”

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