Capital “Reserve” Fund?


As has become a yearly tradition, legislators have voted to raid the Capital Reserve Fund to funnel money to their own pet projects.

The purpose of the Fund is to finance previously authorized capital improvement bond projects and to retire interest or principal on previous bonds. Each year, the state constitution mandates that it be appropriated 2 percent of the previous year’s General Fund Revenue. However, a provision in the constitution allows the Fund to be used for “other nonrecurring purposes,” and lawmakers have used that phrase as license to raid the fund for all manner of things that have nothing to do with capital improvements.

The meaning of this third provision – much like the Commerce Clause and General Welfare clause in the U.S. Constitution – has been expanded well beyond its original intentions. Capital projects are supposed to be large, necessary projects.

For example, of the roughly $112.6 million appropriated to the fund this year, $5.3 million is given to the Deal Closing Fund. This fund, which is used to hand out tax dollars to specific companies to “lure” them to the state, was given a total of $25 million last year—$8 million in recurring funds, $7 million from the indecipherable Part 1B, and $10 million from the Mortgage Settlement Fund.

This year’s Fund also appropriates $3 million for the state Farmers Market, $2,950,000 more than it was funded in last year’s Capital Reserve Fund bill. A fund reserved for capital projects is designed to fund long-term, large-scale, necessary improvements – roads, bridges, refurbishments of prisons, DMV offices, or other government buildings – not to prop up failed, costly ventures when those ventures run through their originally allotted budget.

Below are just a few more items in the Capital Reserve Fund that seem questionable at best.

  • $1.5 million Cadet Accountability system for The Citadel.
  • $20.1 million for the Department of Revenue to repay a loan from hacking incident.
  • $7.5 million for the CATT Program/ReadySC – a program designed to provide workforce training for companies.
  • $5.5 million for a System-wide Infrastructure and Workforce Development for State Board of Technical and Comprehensive Education
  • $3 million Clemson University-PSA Advanced Plant Technology Lab.
  • $1 million Business Incubator Program.

The General Assembly routinely uses the Capital Reserve Fund to give these types of appropriations on years when they don’t have to use the fund to fill in General Fund deficits. The word “Reserve” in Capital Reserve Fund is apparently meaningless to legislators since every year they build up the fund and raid all of it in the same year. This fund should be what its title implies – a reserve fund – and should only be used to spend on actual capital projects, and only when there is some semblance of immediate necessity.

A bill has been proposed in the Senate, S.111, that would propose an amendment to eliminate “other recurring purposes” from the Capital Reserve Fund appropriations criteria. That would at least have the merit of preventing this “reserve” fund from being used as, in effect, a slush fund.

An additional point: If there are really no legitimate and immediately necessary capital projects to be undertaken in a given fiscal year, or at least if such projects haven’t taken all the previous year’s appropriation to the Capital Reserve Fund, that money should be returned to the taxpayer. If the General Assembly has taken more money from taxpayers than is required to run the state, they have a moral obligation – not a legal one but at least a moral obligation – to return it to the people who produced it in the first place.

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