The Palmetto Insider

The blog of the South Carolina Policy Council

Posts Tagged ‘Budget

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

Does South Carolina need a Sunset Review Commission?

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In the midst of all the talk about budget cuts and shortfalls, state spending for FY10-2011 was the largest in state history.

Logically, cutting the budget requires policymakers to determine what should be cut – ideally, inefficient programs.

However, South Carolina does not have a permanent standing agency or commission that continually assesses how well government is working.

The key words here are “continual assessment,” as opposed to a temporary or one-time discrete assessment.

What is needed is an institutionalized and methodical way to assist legislators in making budgeting decisions.

To some extent, the S.C. Legislative Audit Council (LAC) performs this role.

But according to the most recent nationwide survey of legislative program evaluations offices conducted by the National Conference of State Legislatures (NCSL), the LAC dedicates 100 percent of its workload to performance audits, program evaluations and policy analysis.

None of these activities are quite the same as pinpointing what agencies/activities should be eliminated or outsourced – that is governmental sunset reviews.

Already, a fifth of the nation’s state legislative auditor offices regularly conduct sunset reviews that examine state agency effectiveness and efficiency.

During the 2010 legislative session, H 3192 was introduced to create a legislative Sunset Review Commission and a Sunset Review Division of the LAC to evaluate state programs. The measure passed the House (without a recorded vote), but died in committee in the Senate.

But certain questions should be addressed before lawmakers reintroduce such legislation in 2011:

  • Should the LAC be conducting sunset reviews? Is any other agency (the Comptroller General, for instance) better qualified to do them?
  • Should the LAC share co-responsibility for such reviews with another state agency? For instance, the Comptroller General or the Office of the State Auditor?
  • How often should a sunset commission conduct a review of each agency? Every 2 years? Every 4 years?
  • What other safeguards or benchmarks should be implemented to ensure a sunset review commission will achieve its intended mission? This question is especially important since South Carolina previously had a sunset commission (abolished in 1998) that failed to eliminate underperforming agencies.

All in all, lawmakers need to find ways to eliminate waste if they wish to optimize the budget. Sunset reviews may be one of the answers – if we can begin by asking the right questions.

Written by Simon Wong

November 3, 2010 at 3:14 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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TRAC Tax Plan: Stacking the Deck

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We talk a lot about the folly—and unfairness—of government choosing winners and losers through taxpayer funded economic incentives. But while the state is playing favorites and grabbing headlines, they are pursuing policies that hurt the real powerhouse of employment and prosperity in South Carolina—independent businesses.

Lawmakers are not alone in choosing who wins, and who loses, in our state. The Taxation Realignment Commission (TRAC) recently voted in favor of a package of likely tax increases and unlikely tax cuts. The likely increases include new taxes on groceries, water from your tap, and prescription drugs, among many others. The unlikely tax cuts include a modest reduction in the overall sales tax. Unlikely because a slow recovery, combined with continued growth in government hiring and various budget shenanigans, will come home to roost for the 2011-2012 budget year.

The losers from the TRAC proposals are  taxpayers, who will see higher taxes as more of what we buy becomes taxable—and overall tax cuts fail to materialize. The winners will be the same special interests that have received preferential treatment in the past. Two that leap to mind are Boeing and the film industry. Recent reports in The Nerve highlight that, while TRAC wants to increase taxes for citizens of South Carolina, the commission left in place enormous economic incentives for Boeing and the film industry. Another report in The Nerve projects that “Army Wives” will likely cost South Carolina taxpayers as much as $23 million by the end of its fourth season.

You might hope that TRAC’s efforts at “realigning” South Carolina’s tax structure would focus on real reform for all businesses and all taxpayers. Yet the results speak to the Legislature’s clear preference for special interests over fundamental tax reform. That shouldn’t come as a surprise. The chairman of TRAC, Burnie Maybank, is a key player in crafting special interest deals—including the incentive package for Boeing and the recently passed “Economic Development Competitiveness Act of 2010” (H 4478).  

In the end, the deck is stacked—against meaningful tax reform and against independent business in South Carolina.

Written by Robert Appel

August 5, 2010 at 12:46 pm

Increased Funding Not Helping Students

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Education Funding in SCCall it “Playing the Education Card.”

Government in South Carolina keeps getting bigger, and spending keeps getting higher. Tell lawmakers enough is enough, and they’ll say “What about the teachers? What about the children?”

But what they really seem to mean is: “What about the Department of Education?” As Secretary of Education Jim Rex recently noted, the department’s budget has been cut by 20 percent since FY2008—that is, since the beginning of the current recession. (Actually, it’s been cut by 16.89 percent, but we’ll forgive the rounding error.)

But Department of Education (DOE) spending is not the same as total K-12 spending. In fact, DOE appropriations only account for about half of total K-12 spending. Other K-12 education funding sources include local funding, bond revenues, intergovernmental transfers, and other miscellaneous accounting items.

Once we look at these figures, we see that total funding increased by 2 percent over last year alone and by 9 percent since the beginning of the recession.

Moreover, average per pupil spending does not include local bond revenue. Once we include such revenue, total K-12 spending since the recession shows an increase of 18.94 percent.

Spending Including Bond Revenues

So where is the money going? Even though total education funding has increased, that does not mean schools have more money to reward good teachers or pursue innovative instructional techniques.

In part, this is because federal dollars are making up an ever larger share of education funding. And although federal funding still makes up the smallest component of total education spending, such funding increased rapidly in FY10-2011, rising by 26 percent.

The problem is that most federal funding for education is “restricted”—it has to be used for programs defined by the feds. And as a greater share of student funding comes from restricted, or categorical, funds, principals and school districts become even more hamstrung in how they can allocate financial resources. This explains why, even though they may be flush with (restricted) funds, some school districts are furloughing teachers.

The solution: Weighted Student Funding. Read more here and here.

Written by Robert Appel

July 30, 2010 at 11:06 am

Posted in Budget, Public education

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How to Raise Taxes (Kansas-Style)

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We’ve written before on how at least one state—Rhode Island—managed to slash taxes during the current recession.

On the other end of the spectrum is Kansas, which recently passed a “temporary” one-cent sales tax increase. (Neighboring North Carolina has had a “temporary” sales tax on the books for years.)

Kansas, like South Carolina, has a Republican-controlled legislature. Contrast that with Rhode Island’s Democrat-controlled legislature.

In Kansas, the tax increase was justified as necessary because neither education nor Medicaid could possibly be cut. Apparently, that left only corrections, which also could not be cut. Hence, a tax increase was argued to be imperative.

Yet, like South Carolina, Kansas rapidly increased spending before the start of the recession. As one legislator who objected to the tax increase argued: “It seems that we have a spending crisis, not a budget crisis.”

 In South Carolina spending likewise continues to grow, with the legislature passing the largest budget in state history for FY2011. 

So, the question is, will South Carolina, like Kansas, also raise taxes?

According to The Nerve, the answer is yes—or at least that’s what the powers that be seem to be planning for 2011.

New sales taxes on groceries, water, electricity, and prescription drugs are in the works. Untouched are special tax breaks for Boeing and other manufacturers.

As for that proposed sales tax cut? … don’t believe it.

Come next year we’ll hear—as taxpayers heard in Kansas—that taxes need to be increased to pay for education, health care and corrections. But in  reality,  spending is just too high—on everything from education to economic development. The solution: shorten session and institute an effective spending cap. Doing so will force legislators to evaluate what programs are really working and prioritize spending accordingly.

Written by Jameson Taylor

July 28, 2010 at 12:40 pm

Posted in Budget, Limited Government, Taxes

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