Fast Facts: Increased Fines/Fees Keeping Spending High
While media coverage of the budget this year has pointed to “the $5 billion budget,” “1,000 job layoffs,” and “unprecedented cuts,” the truth is that the budget is still growing and that the $5 billion General Fund budget actually authorizes $6.7 billion in agency expenditures, in addition to new highs in Federal and Other Funds spending. Consider the following:
• The total proposed FY10-2011 House budget is $21.10 billion. This includes: $8.26 billion in Federal Funds; $7.77 billion in Other Funds; and $5.07 billion in General Funds.
• The proposed House budget increases spending by $400 million, or 2 percent, over the current authorized budget.
• The proposed budget increases Federal Funds by $450 million (6 percent) and Other Funds by $600 million (8 percent). These increases are only partially offset by a General Fund cut of $640 million.
• Other Funds, or fine and fee, revenue is the fastest growing funding source in the FY10-2011 budget. Moreover, such revenue is likely being underreported and, if trends hold constant, will increase by an additional $500 million to reach $8.27 billion in expenditures for FY10-2011.
• The total budget has increased by 1 percent since the beginning of the current recession, fueled by a 17 percent increase in Federal Funds and an 11 percent increase in Other Funds.
• The General Fund makes up only 25 percent of the proposed FY10-2011 budget, yet legislative debate focuses almost exclusively on this revenue source.
• Other Funds revenue typically makes up 35 percent of the S.C. budget; the national average is 25 percent.
• Other Funds revenue and expenditures are consistently being underreported and then (via flexibility provisos) used to supplement General Fund spending. For the FY10-2011 budget, such transfers could exceed $1.6 billion.
The following five reforms will help bring clarity to the state’s budget debate and fiscal responsibility to the use of fine and fee revenue:
1) Adopt uniform reporting requirements for both General Fund and Other Funds dollars
a. Fold Other Funds revenue into the General Fund budget and debate the entire state budget
b. Subject all state-sourced revenue – as derived from general taxes and fines/fees – to the same reporting and forecasting requirements
c. Require the BEA to conduct Other Funds revenue projections
d. Include specific information on fund surpluses in the budget and in Summary Control Documents
2) Safeguard the integrity of restricted and earmarked funds
a. Eliminate the use of flexibility provisos that discourage targeted cuts and mask agency spending increases
b. If the provisos remain, provide additional oversight by requiring agencies to report on how money is being drawn down from Other Funds and why certain funds are being targeted over others
3) Impose a moratorium on all fine/fee increases
a. Prohibit agencies from increasing fines/fees via administrative regulations or legislative proviso
b. Pledge not to raise fines/fees by standalone legislation
c. If necessary, pursue constitutional reforms that require a supermajority to raise fines/fees or to redirect fine/fee revenue to other purposes
4) Conduct a comprehensive review and audit of fines/fees
a. Establish an independent commission to review fine/fee revenue and surpluses
b. Hire an independent consultant to conduct a comprehensive audit of fine/fee revenue, with the goal of establishing a baseline for fund surpluses
5) Eliminate unnecessary funds and rebate excess fine/fee revenue
a. Eliminate unnecessary funds – in particular, those that have outlived their purpose or are primarily being used for political benefit
b. Establish a baseline, using historical data on annual revenue collections, to track surplus revenue at 10 percent above the baseline
c. Once funds meet the 10 percent threshold, cap fine/fee increases; lower corresponding fines/fees; and, where possible, issue rebates to taxpayers