The Palmetto Insider

The blog of the South Carolina Policy Council

Archive for the ‘Budget’ Category

S.C. State Budget: $182.188 Billion and Counting

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South Carolina’s FY10-2011 state budget is the largest in state history. At more than $21.149 billion, the state’s budget has increased about 44 percent over the last 10 fiscal years. Spending has been growing rapidly and has also consistently increased 9 out of the last 10 fiscal years.

Cumulatively, the state has spent $182.188 billion since FY2001. Here is the breakdown:

  • $57.087 billion in General Funds (31.34 percent)
  • $62.318 billion from Federal Funds (34.21 percent)
  • $62.782 billion in Other Funds (34.46 percent)

These numbers are fascinating for us budget geeks – in particular, the fact that offline fines/fees revenue that makes up Other Funds spending is the largest revenue source in the state budget. (For more on that, read this report.)

This year’s huge budget comes with a price: a $1 billion deficit for this upcoming year.

These cuts are going to have to be made, owing to a constitutional requirement (article 10, §7(a)) to balance the budget. But what is really needed is long-term reform.

Some of the necessary changes are not novel – such as implementing a budgetary cap (also known as a tax and expenditure limitation or TAL), redesigning the budget process through zero-based budgeting, scrutinizing governmental waste and abuse, and identifying governmental activities that could be outsourced to the private sector. We discuss many of these reforms in both the 2009 and 2010 Best/Worst guides.

Federal stimulus spending arising from the American Recovery and Reinvestment Act of 2009 (ARRA) is another concern – especially insofar as these federal dollars were used to balance a budget bloated by too much spending.

According to the S.C. Comptroller General ‘s Office, the state has an obligated total of $2.319 billion in stimulus funding, of which it has received $1.160 billion as of September 2010.

This means there is an additional $1.159 billion in obligated stimulus funding for the rest of 2010 and 2011. But with the majority of ARRA funds expected to end on Dec. 31st of 2010, much of the awarded, but as of yet unobligated, funding might not be realized coming into FY2011. (Funds that are awarded to states do not become obligated until they can provide a contract or promise to perform.) We’ll look more at this issue in a future blog.

The stimulus spending mentioned above also excludes money for local entities and direct funding to private sector firms. Build America Bonds (BABs), a federal subsidized loan program, is also part of the stimulus. As of September 30th 2010, 26 South Carolina local governmental entities and private companies had issued $753 million of bonds through BABs.   This program is also expected to end on December 31st of 2010.

No doubt, losing billions in federal stimulus funding is going to fuel a lot of complaints from lawmakers fearful of making targeted budget cuts. We’ll likely hear calls for tax increases as well. But amidst all this handwringing, remember that lawmakers have been overspending for the last decade. Cutting a billion from next year’s total budget won’t reverse this trend, but it’s a first step toward addressing the real problem of systemic high spending.

Written by Simon Wong

November 30, 2010 at 10:56 am

Posted in Budget

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Budget Crisis Long in Coming

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Despite all the rhetoric about budget cuts and employee furloughs, South Carolina’s FY10-2011 budget was the largest in state history. The total state budget was $21.149 billion. This includes: $8.268 billion in Federal Funds; $7.766 billion in Other Funds; and $5.115 billion in General Funds. That’s an increase of $500 million or 2.19 percent over last year. The increase comes mostly from increased fine and fee revenue and one-time federal stimulus dollars.

But this year’s budget increases are not an isolated phenomenon. Over the past 10 years:

  • The total state budget increased by 44.49 percent (FY2002 to FY2011).
  • The budget increased by 4.14 percent annually.
  • The budget increased every year, except one (FY2010).
  • In the five-year period (FY2003-FY2008) prior to the beginning of the current recession, the total budget increased 34.56 percent, going up by more than $5 billion.

According to the Mercatus Center, South Carolina’s state and local government spending relative to personal income is 26 percent – 5th highest in the country. In other words, local and state government spends 26 cents of every dollar earned by South Carolina’s people. Similarly, government spending accounts for 23 cents of every dollar of Gross State Product (GSP) – 4th highest in the country.

Debt is another serious problem. South Carolina government is carrying $40 billion in debt, including state, local, and school district debt, as well as unfunded liabilities on public employee pensions and post-retirement health benefits. State and local governmental outstanding debt accounts for 22 percent of GSP – again, 4th highest in the nation.

So we have high spending and high debt relative to income and GSP. What does that get us?

An unemployment rate of 11 percent – 6th highest in the nation (as of September 2010) and a median household income of $42,442, which is 42nd lowest in the nation (as of 2009). Our surrounding neighbors have unemployment rates of 9.6 percent (North Carolina), 8.9 percent (Alabama), 10 percent (Georgia), and 9.4 percent (Tennessee). A pretty uncompetitive situation for the Palmetto State.

It goes without saying that South Carolina is suffering from a budget and spending crisis – and it’s good to know governor-elect Haley recognizes this. But the crisis is not new. It comes from years of fiscal mismanagement and poor budgetary practices. None of these problems were addressed during the 2010 session. It’ll be interesting to see how legislators respond in 2011.

Written by SCPC

November 22, 2010 at 10:15 am

Governor-elect launches website to address budget crisis

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In January, Nikki Haley will be sworn in as the new South Carolina governor. Like nearly every other governor across the nation, she is inheriting a budget crisis.

One of Haley’s first actions was to establish a task force with the goal of addressing budget challenges. (Disclaimer: South Carolina Policy Council president Ashley Landess is one of five appointees to this task force.) The task force will, “assist Haley in identifying the most pressing fiscal challenges facing the state.”

Additionally, Haley’s team launched a website – http://www.scbudgetcrisis.org – that will solicit suggestions from taxpayers about ways to balance the budget. Individuals can submit ideas – anonymously if preferred – the task force can consider in working toward streamlining government.

This evokes images of the movie Dave, where an average Joe becomes president for a short time and in one scene, spends an afternoon with his friend trimming $650 million in fat from the federal budget, in order to save a homeless shelter. As the fake president and his friend (an accountant) look through the budget, the accountant quips:
“I’ve been over and over this stuff. It doesn’t add up. Who does these books? If I ran my office this way, I’d be out of business.”

Sums it up exactly.

Hopefully, the budget task force and website will bring that common sense approach to budgeting next year.

To that end, here are three easy fixes to get the ball rolling:

1) Cut agricultural marketing funding. The General Fund provides $562,000 for Marketing & Promotions to the Department of Agriculture. Yet the Clemson PSA receives $62 million already for these and other purposes. Let alone the fact that government does not need to be marketing farms, there is already substantial funding for these activities. And without profit motives, you get things like Palmettovore.

2) Cut state-funded tourism. Proviso 39.12 of the FY10-2011 budget funnels leftover tax dollars from the Motion Picture Incentive Wage Rebate Fund into tourism marketing. Proviso 39.1 allocates $1.375 million for tourism promotion, including money for private chambers: $105,000 for the Georgetown Chamber of Commerce; $50,000 for the Myrtle Beach Chamber of Commerce; and $20,000 for the Williamsburg Chamber of Commerce. These funds are in addition to $10.05 million for tourism advertising already allocated in the total state budget. Tourism marketers and private chambers should have to pay their own way, instead of forcing other taxpayers to subsidize their marketing and advertising.

3) Close the Statehouse Gift Shop. For some reason, each year legislators protect the Statehouse Gift Shop from budget cuts. This is absurd. Why continue to subsidize a business that keeps losing money? Stop this ongoing bailout for the gift shop and let private sector vendors fill the void. That’s how you create a stable job base. Moreover, anyone ever heard of priorities?

These ideas are just a start. And you can find plenty more on our website – for instance, here and here. But we encourage you to submit your own ideas to www.scbudgetcrisis.org.

Written by Geoff Pallay

November 18, 2010 at 1:26 pm

Legislative Power: Even More than Meets the Eye

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With one goal in mind – accountability – the Policy Council recently published a three-part series on reforming the structure of government in South Carolina. The series of special reports looks at the following three reforms in detail:

Shortening the Length of Session

Restructuring the Balance of Power Between the Legislative and Executive Branches

Recording Every Legislative Vote

Earlier this week, the Palmetto Insider followed up by pointing out that per diem compensation in South Carolina is on the higher end compared to other state legislatures. The additional estimated $8,200 per diem per legislator is almost equal to each legislator’s annual salary of $10,400—another reason session should be shortened.

But just as legislators are being paid more than it appears on the surface, they also exercise a lot more power than is obvious.  As we noted in our report on legislative power, the Legislature makes more than 420 direct appointments to executive boards and commissions such as the Research Centers of Economic Excellence Review Board; and the Commission on Higher Education. In addition, the Legislature makes more than 100 direct appointments to the judiciary. 

While these numbers already show a concentration of power within the Legislature, they actually understate the case.

We looked at total appointments to 165 of the most prominent boards and commissions in South Carolina. The total number of appointments is 1,697. Of these, 1,213 are directly appointed by the Legislature or the governor.  

The governor appoints 785. The Legislature 428.

But who appoints the other 484?

The answer is quite diverse:

  • 59 by the Board of Medical Examiners
  • 38 by the Budget and Control Board
  • 24 by the State Superintendent of Education
  • 21 by the Chief Justice of the S.C. Supreme Court
  • 19 by the S.C. Supreme Court
  • 10 by the North Carolina House, Senate and Governor

And the list goes on …

Two points:

1)      If the Legislature doesn’t exercise direct control over these appointments, neither does the governor. Hence, in many cases, we are still talking about the same problem: encroachment upon executive branch authority.

2)      The Legislature still exercises indirect control over many of these appointments.

Supreme Court justices, for instance, are appointed by the Legislature. Thus, the Legislature has indirect influence over the 40 appointments made by the judicial branch. These include:

  • 19 to the Judicial Council of the State of South Carolina
  • 19 to the State Board of Law Examiners
  • 2 to the Commission on Indigent Defense

Likewise, the Budget & Control Board makes 38 appointments to various boards and commissions—namely:

  • 24 to the State Employee Grievance Committee
  • 8 to the S.C. Retirement and Pre-Retirement Advisory Board
  • 5 to the Deferred Compensation Commission
  • 1 to the S.C. Second Injury Fund

Keep in mind that the Legislature has essentially controlled the BCB since State Treasurer Converse Chellis joined the board in 2007. Chellis is a former state representative and was elected to fill the position by the S.C. Legislature after Thomas Ravenel was indicted on federal cocaine distribution charges.

In total, the Legislature makes 81 appointments indirectly: either as sitting members on various boards, or through their direct appointees to various boards.

That means the Legislature directly or indirectly controls 509 executive branch appointments out of a total of 1,697.

All in all, a compelling case for legislative reform.

Written by Simon Wong

September 1, 2010 at 4:14 pm

Cut the Per Diem for South Carolina Legislators

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Last Week the Policy Council unveiled three studies, all aimed at one goal – reforming government in South Carolina. One of the new policy reports looks at the idea of shortening session as a means of lowering spending and mitigating the culture of political careerism that has taken hold in Columbia.

Although the National Conference of State Legislatures formally classifies South Carolina’s General Assembly as “part-time,” our legislative session is five months long. We are tied with Tennessee as having the longest session in the Southeast and one of the longest in the country as well. This long session bars most ordinary citizens from even thinking about running for legislative office.

The Policy Council report recommends scaling back session to no more than 45 legislative days—down from the 2009-2010 average of 63 legislative days a year.

Another negative consequence of South Carolina’s lengthy session is cost. Legislative staffing costs, per diem reimbursements, even electricity to run the place—all of these things cost taxpayers money.

Here, we want to look more closely at per diem rates for legislators. South Carolina legislators receive an annual salary of $10,400. According to a comparison of legislative salaries, this is on the lower end. (Then again, per capita income in South Carolina is among the lowest in the country, too.) In addition to salary, legislators receive per diem reimbursement for mileage, lodging and food. Not to mention $1,000 per/month in-district compensation; and health and retirement benefits.

But back to per diem. High per diem rates actually serve as an incentive for a long session. Think about it. Legislators receive $131/day for each “workday” or legislative day. The more legislative days, the more money they collect. If $131 doesn’t seem like a lot of money, consider this: It’s 7 percent higher than the average daily wage for most people in South Carolina. (Based on per capita income of $31,799 for 2009: $16.38 for an 8-hour day vs. $15.29 per hour.)

And, compared to other states, South Carolina’s per diem rate is on the high end. Five states offer no per diem. Seven states are under $100 per day. Twelve more are between $100-$131. South Carolina is the 11th smallest state in the country by geographic size. But it has higher per diem rates than Oregon, Montana, Wyoming, South Dakota, and Kansas – all states in the top 20 in terms of size.

Per diem is supposed to help offset costs for mileage and food. But Columbia is in the center of the state – making it easy to get to from almost everywhere else. No more than a 3-hour drive—and for many legislators, much less.

Which begs the question – why is per diem so high in South Carolina? Couldn’t legislators get by on less? Doing some back-of-the-napkin math …

 • Current per diem costs are about: 170 legislators x $131 x 63 legislative days: $1,403,010

• Cutting per diem to $100 per day would save taxpayers $332,010.

• Cutting per diem to $100 a day – and shortening session to 45 legislative days – would cut costs almost in half, saving $638,010 a year.

True, cutting per diem alone will not solve the current spending crisis. But these are the types of tough decisions our legislators refuse to make when trying to trim the budget. The General Assembly has a history of ignoring common sense fixes like this – and instead promoting temporary, across-the board cuts that do nothing in the long term to reduce to the size of government. Starting with their own wallets would send a message to the rest of the state: we’re going to start being smarter with taxpayer dollars.

Written by Geoff Pallay

August 30, 2010 at 9:28 am

State/Local Spending Hikes Outpace Private Sector Growth by 90 Percent

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Government spending has continued to grow throughout the recession, as illustrated by the following trends:

Analysis from the Mercatus Center at George Mason University demonstrates that South Carolina governments are not alone in this trend.

Over the past 60 years, state and local spending has increased 10-fold, holding spending  constant to 1950 levels.

The private sector? A 5-fold increase.

Overall, state/local spending has grown at twice the rate of private sector spending.

More startling is the explosion in government spending over the past 10 years.

Between 1950 and 2000, state and local spending grew at 4 percent annually, compared to 3 percent in the private sector.

But between 2000 and 2009, the gap widened substantially. State and local spending grew 2.6 percent compared to private sector growth of 1.4 percent.

Translation:

  • A 33 percent higher growth rate in local/state spending up to 2000.
  • An 86 percent higher growth rate in local/state spending after 2000.
  •  

Combine these figures with out-of-control federal spending, and you have a recipe for fiscal disaster.

Written by Jameson Taylor

August 19, 2010 at 4:24 pm

Why More Education Spending = More Teacher Furloughs

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State Superintendent of Education Jim Rex recently lamented (see this Nerve video) what would seem to be a precipitous drop in education spending over the past two years.

These are Rex’s estimates:

  • Education has been cut by more than three-quarters of a billion dollars
  • The S.C. Department of Education (SCDE) has been cut by 45 percent
  • School district budgets have been cut by about 25 percent

We’ve pointed out before that Superintendent Rex’s numbers don’t always add up, or at least rarely tell the whole story when it comes to education spending.

Granted, SCDE’s budget was cut by just over $700 million between FY08-2009 ($3.815 billion) and FY10-2011 ($3.098 billion).

However, when it comes to education spending we should keep in mind that SCDE’s budget only accounts for about half of total K-12 spending. As we discussed in this recent report on education spending,  total K-12 funding includes local funding, bond revenue, intergovernmental transfers, and other miscellaneous accounting items.

Once we account for these pots of money, total K-12 spending actually increased by 5.40 percent from FY08-2009 to FY10-2011. And by nearly 20 percent since the beginning of the recession in FY07-2008.

That said, let’s look more closely at the numbers Rex uses:

1)      SCDE’s budget has been cut by 45% over the past two years …

According to the General Assembly’s appropriated budgets for FY2009 to FY2011, the Department of Education’s budget decreased by 18.79 percent – compared to an overall decline in General Fund appropriations of 24.98 percent. Regardless of how you look at it, the numbers are nowhere near 45 percent. Moreover, education funding declined at a slower rate than did the budget as a whole.

Again, that’s just the agency budget, not total K-12 spending.

2)      School district budgets have been cut by 25 percent over the past two years …

Total projected per pupil funding for FY10-2011 is $11,372 compared to $11,480 for FY08-2009. The amounts are based on federal, state and local funding, and exclude local bond revenue. But this decline of $108 per pupil represents less than a 1 percent reduction in spending.

Looking exclusively at local funding, the decline is only slightly larger: from $5,516 in FY2009 to $5,254 for FY2011 – a reduction of 5 percent.

Again, though, when local bond revenue is accounted for, local funding actually went up by 6.57 percent over the past two years from $6,571 to $7,003 per student.

That brings up an interesting point. Rex claims the educational system has been cut by 6,000 positions – including about 4,000 classroom teachers – over the past two years. Given that total funding is up, why are teachers losing jobs?

Could it be more money, but less flexibility?

As Rex notes, the Base Student Cost funding level for FY10-2011 has fallen to FY94-1995 levels. Base Student Cost makes up a major component of the unrestricted funds each district receives. Thus, if the Base Student Cost is down, that means school districts have less control over how to use their funding – for instance, whether they have the option to use this money for  teacher and teacher aide salaries.

Unleashing Capitalism indicates how we could lift categorical funding restrictions at the state level on schools and school districts.

As for federal funding, no chance. Thus, increased federal funding is not really about saving teacher’s jobs, but seems to be more about funding pet federal programs.

Consider the recent $26 billion “son of stimulus” (it is working yet?) package passed by the House yesterday. 

“Most of the positions and programs that would be secured by this new taxpayer funded bailout (are not classroom teachers or proven instructional programs, and thus have no impact on student learning,” observed Jeanne Allen, president of the Center for Education Reform. “This is a jobs bill that has no place in our schools, where how we educate students should always be the most important consideration.”

So, the truth is, K-12 funding, including local bond revenue, is at an all-time high. But, in the end, Rex may have a point: because even though overall K-12 funding is up, school districts may still have to furlough more teachers.

Written by Simon Wong

August 11, 2010 at 2:30 pm

Posted in Budget, Public education

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