Session Week 9

Key Points for This Week
● House passes $15.4B state budget
● Income tax reform heads to Gov. McMaster
● DOT reform advances in the Senate

The One-Minute Drill
The Big Picture: The General Assembly has reached the midpoint of the legislative session, with nine weeks remaining before the May 14 Sine Die deadline. Expect longer days and faster legislative movement as lawmakers work to finish major priorities before adjournment.

1. House Passes $15.4 billion Budget
The News: After about 16 hours of debate, the House approved its first version of the $15.4 billion state budget. Despite the lengthy debate, the process moved faster than in recent years, with lawmakers finishing before midnight both nights. The Senate now begins its review.

What’s in the budget
State Workers
● $66.9M for a 2% pay raise for state employees
● $36.7M for the State Health Plan, avoiding premium increases
Education
● $150M to raise starting teacher pay to $50,500
● $95M for K-12 public and charter school facility and safety upgrades
● $8.7M to fully fund school breakfast statewide
Infrastructure
● $500M for roads and transportation
○ $249.2M for bridge modernization
○ $125M for interstate acceleration
○ $100M for county transportation funding
○ $25M for the road buyback program
Economic Development and Tourism
● $70M for airport enhancements to strengthen freight capacity and tourism
● $40M for tourism marketing
Tax Relief and Reserves
● $125M to reduce the top income tax rate from 6% to 5.39%
● $130M for property tax relief
● $179M added to the state’s reserve funds

What’s not included: The House version does not include earmarks or the $150M requested by the Department of Commerce for the Scout Motors project. 

What’s next: The Senate Finance Committee is expected to begin work on the budget in early April, where changes are common.

Why it matters
● Continued tax relief remains a legislative priority.
● Infrastructure funding signals ongoing focus on freight mobility and economic growth.
● The Senate budget process still provides opportunities for major revisions.

2. Income Tax Reform Heads to McMaster’s Desk
The news: After finishing the budget debate Wednesday night, the House approved the Senate’s income tax reform proposal, sending it to Gov. Henry McMaster.

Immediate changes
● Cuts the top income tax rate from 6% to 5.21%
● $308M in immediate income tax relief
● Taxes the first $30,000 of taxable income at 1.99%
● Existing exemptions remain unchanged

Impact: More than 77% of taxpayers are expected to see either a tax cut or no change in their tax liability.

​Long-term goal: The legislation commits to future incremental reductions, moving toward a 1.99% flat tax rate and potential elimination of the state income tax.

Why it matters
● Lower income tax rates can improve South Carolina’s competitiveness for investment and talent.
● Updated withholding tables mean workers may see higher take-home pay sooner, which can influence consumer spending.
● Future tax reductions will likely remain a major policy focus in upcoming sessions.

The Senate
DOT Reform
● The Senate gave S.831, the comprehensive Department of Transportation reform bill, second reading this week.
● Debate on amendments was carried over to third reading, which leadership expects to take up after completing debate on hemp beverage regulations.
● DOT governance changes could affect transportation planning, project prioritization, and infrastructure investment statewide.

Hemp Beverage Regulation
The Senate spent the week debating H.3924, legislation regulating hemp-derived THC products.
Key provisions
● Prohibits sales to individuals under 21, but keeps CBD products legal
● Places hemp beverages within the state’s three-tier alcohol distribution system
Product Limits / Restrictions
● 5mg THC drinks could be sold wherever beer and wine are sold
● 10mg drinks would be regulated similarly to liquor
● No on-premise consumption at bars or restaurants
● Gummies and other hemp consumables banned

Why it matters: The bill could significantly affect retailers, distributors, restaurants, and beverage manufacturers, particularly around where hemp beverages can be sold and how they are distributed.

The House
Tax Conformity
● After the budget and the income tax bill, the House passed tax conformity – aligning the state tax code with the federal tax code for 2025. One year only.
● This will include no tax on tips, no tax on overtime, and other provisions from the Big Beautiful Bill (2025). It will cost the state hundreds of millions in one-time money.
● This will also include full expensing of domestic research and experimental costs.
● The bill now goes to the Senate Finance Committee. 

In Committees
Municipal Tax Relief: S.866
A Senate Finance Subcommittee advanced legislation that would allow a municipality to hold a referendum to enact a penny sales tax within municipal boundaries if their county does not currently have a penny sales tax.

Pharmacy Benefit Managers: S.342
The Senate Banking and Insurance Committee advanced legislation that would further regulate pharmacy benefit manager programs and set a minimum drug reimbursement price and a $10.50 minimum dispensing fee for all prescriptions filled. This legislation will cost residents $300 million per year and increase health insurance premiums by 3%.

The Week Ahead
In the Senate:
● Floor Watch: The Senate is expected to continue their work on Hemp regulation and DOT reform.
● Committees: Senate Finance subcommittees will work on the state budget.
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In the House:
● The House will take their first of two furlough weeks next week.