Constitutional Context
On September 14, 1787, in the closing hours of the Constitutional Convention in Philadelphia, Ben Franklin proposed Congress be granted “a power to provide for cutting canals where deemed necessary.” Connecticut’s Roger Sherman objected, noting “The expense in such cases will fall on the United States, and the benefit accrue to the places where the canals may be cut.”
Sherman’s objection reflected a concern with the potential abuse when responsibility is offloaded to a distant authority. The phenomenon whereby somebody else or some other entity absorbs the risk or cost of another’s behavior is referred to as “moral hazard.”
Seeing Sherman’s logic, delegates from South Carolina voted with those from seven other states to reject Franklin’s proposal. By an 8-3 vote, the Framers made clear Congress would have no power to fund canals.
Reflecting a similar concern over moral hazard, South Carolina’s Constitution wisely prohibits the use of general obligation bonds to fund infrastructure projects unless a special taxing district is created specifically for those who benefit. Article X, Section 12 of the State Constitution reads:
“No law shall be enacted permitting the incurring of bonded indebtedness by any county for sewage disposal or treatment, fire protection, street lighting, garbage collection and disposal, water service or any other service or facility benefiting only a particular geographical section of the county unless a special assessment, tax or service charge in an amount designed to provide debt service on bonded indebtedness or revenue bonds incurred for such purposes shall be imposed upon the area or person receiving the benefit therefrom.”
Oconee County Wastewater Treatment Plant Case
In Oconee County, South Carolina, there’s something in the water–taxation. In the fall of 2023, the county issued $25 million in bonds to fund wastewater and sewer treatment for an area near Interstate I-85, but it only benefits part of the county. When a group of citizens approached SPCIF for help, knowing this was against the state’s constitution, we knew we needed to help. “It’s just one of these cases where you have to hold the feet to the fire of the powers-that- shouldn’t-be,” said SCPIF Chairman Vince Graham. “It has ramifications that go beyond Oconee County with a potential negative precedent.”
Plaintiff Debbie Krueger told Fox Carolina, “I just feel this kind of thing requires a referendum. Ask the people if this is what they want.” The county argued that the bonds were part of a county-wide economic development plan which aimed to attract businesses through an industrial park, but that attempt at creating a loophole doesn’t make it legal.
A judge granted an injunction in favor of the plaintiffs, but the county filed a motion for reconsideration. The judge has indicated he’s going to grant the County’s motion for reconsideration, but he also invited another similar motion from the plaintiffs. The county has already spent nearly $100,000 taxpayer dollars in legal fees, and further costs are still to come. This is a county of around 75,000 people, and the decision made here could set an important precedent for the rest of the state.
Throughout American history, the question of how to distribute taxpayer funds to pay for infrastructure has been hotly contested. Benjamin Franklin tried—and failed—to empower Congress to fund canals that would only benefit a few states in 1787, and then-President James Polk vetoed an infrastructure bill in 1847, saying that the federal government didn’t have the right to fund certain improvements within the states. To do so, he said, would lead “to a consolidation of power in the federal government at the expense of the rightful authority of the States.”
What’s happening with taxpayer dollars to fund infrastructure in Oconee County, however, shouldn’t be open to debate. It’s clearly ruled out in the Constitution. And, as SCPIF’s lead attorney Jim Carpenter told the court, “Violation of the constitution is in of itself irreparable harm to the citizens of this county.