New House Budget … More of the Same Problems

As the Senate Finance Committee meets this week to take up the budget, it’s a good time to review the House budget passed earlier this month.

Here are the basics:

  • ·         A total spending cut of 0.39 percent – from $21,183,609,401 in FY09-2010 to $21,101,169,392 for FY10-2011. Recall that the total budget includes the following three categories: federal funds, other funds (fines and fees) and state funds.
  • ·         Federal funds increased by 1.4 percent, going from $8,153,781,539 to $8,268,032,964. This spending increase is being paid for by federal taxpayers (and our heirs).
  • ·         Other funds (fines and fees) also increased: by 1.6 percent, or from $7,639,953,152 to $7,765,104,861. For the second year in a row, the other funds category thus grew at a faster rate than the rest of the budget. 
  • ·         General Fund spending was the only category actually cut by the House, declining by 5.9 percent, from $5,389,874,710 to $5,068,031,567. This reduction of $321 million represents just 1.5 percent of the total budget – but, again, is partially offset by increases in fine and fee revenue and federal spending.

Even as lawmakers are complaining about budget cuts and a barebones spending act, a 0.39 percent budget cut is hardly a crisis. By comparison, per capita income in South Carolina declined by 2.1 percent, going from $32,495 to $31,799.

In addition to failing to make significant, targeted cuts, the House budget also includes the usual line up of questionable provisos that either raise taxes, allocate money to questionable programs or make substantial changes to state law – often without transparent debate, let alone a vote on the merits of the provisos themselves.

More Taxes: 90.14

This proviso implements a 30-cent cigarette tax increase. The revenue would be allocated to a Medicaid Reserve Fund, but will also be used for General Fund expenditures (cf. 90.17). Given that the tax increase will destroy thousands of jobs, this issue should be debated as stand-alone legislation. In fact, the Senate is preparing to do just that, having fast-tracked a measure passed by the House last year that would increase the tax by 700 percent to 57-cents per pack.

Look for the Senate to cut this proviso, but strip any proposed health care reforms in the House bill and settle instead for the money going to Medicaid, as well as economic development. In other words, the worst of both worlds.

Another objection to proviso 90.14 is that it designates part of the anticipated revenue to the marketing of South Carolina-grown agricultural products. We’ve written before on how well this is working out for taxpayers.

More Economic Development Boondoggles: 89.112

A $10 million bailout for a PGA Tour golf tournament on Hilton Head is such a foolhardy idea that even the sponsor of this proviso apparently sought to conceal his intentions. A golf tournament is not “too big to fail” and should not be bailed out, especially as funding for core services is threatened.

Combined with H 4343, proviso 89.112 also designates $15 million to be used essentially as airline subsidies. As The Nerve details, predicting the success of an airline is nearly impossible – and in the event of financial failure, these incentives leave taxpayers holding the bag. If the legislature wants to help entice airlines, it could start by slashing taxes on business property. 

More Tax Breaks for Special Interests: 89.96

This proviso provides for a 30 percent tax credit for all installed solar power energy systems. Targeted tax credits are a bad idea to start with – it’s even worse when the credit is for an inefficient industry such as solar power.

More Sweetheart Deals:

90.16: This non-recurring revenue distribution includes $5 million to the Closing Fund. Another component of the state’s economic development pyramid scheme, this fund allows state officials to sweeten the deal for companies planning a move to South Carolina. As Unleashing Capitalism indicates, numerous economic studies have shown such incentives simply don’t work. In addition, they hinder transparency.

40.3: We should also mention that in previous years there was a cap of $7 million on how much could be transferred from the Coordinating Council for Economic Development to the Closing Fund. This proviso deletes the cap.

More Mandates that Drive Up the Cost of Health Insurance: 21.11 and 80A.55

The House budget continues to lengthen South Carolina’s growing list of insurance coverage mandates. Such mandates increase the cost of health insurance in South Carolina by as much as 30 percent. The House budget reauthorizes a Medicaid mandate for chiropractic coverage – an elective benefit not even covered by many private plans. (A gubernatorial veto of this proviso was overridden last year.) The budget also adds a new mandate for obesity treatments, including bariatric surgery. This particular mandate is expected to increase insurance premiums by 1 to 3 percent for the average policy holder.

More Legislative Power Grabs

89.108: Last year, it was the Ports Authority, the Aeronautics Commission, and the S.C. Research Authority.

This year, it’s the Office of Small and Minority Business Assistance. This proviso would move the entire agency from under the governor’s office to the Budget & Control Board (BCB). Given the agency’s mission, shouldn’t it be under the Department of Commerce? Or better yet – a Department of Administration under the executive branch, as proposed in H 3147.

89.99: Last session the General Assembly also hijacked stimulus reporting efforts by ignoring an executive order that established a task force (stimulus.sc.gov) to oversee the stimulus. As the governor’s veto message observed, the oversight committee created by the legislature is “unnecessary, duplicative, and will lead to greater confusion regarding stimulus spending.” The veto was initially sustained and then overridden on a re-vote – a dubious practice highlighted in this Nerve article. 

More Fund Raids … This Time from State Transportation Dollars: 90.17

South Carolina roads are in dire need of maintenance, with billions in unfunded road projects left undone. Yet this proviso takes $10 million from the Non-Federal Highway Fund (supposed to be used to maintain roads ineligible for federal dollars) and uses it on General Fund expenditures. Using non-recurring funds to pay for recurring spending also inevitably creates future budget holes.

More Spending on Nonessential, Marginal Activities

89.87: This proviso exempts certain entities from budget cuts. These sacred cows include the State House Gift Shop; the Santee Welcome Center; and the Palmetto Pride anti-litter campaign. So, that’s why teachers are being furloughed.

35.4: Last year we asked why lawmakers believe funding a dairy exhibition should be a budget priority. It’s back this year: $75,000 for the Clemson Spring Dairy Exhibition. 

6.10: Also from last year: $1.6 million to the EPSCoR program to improve South Carolina’s research capabilities, as well as $410,635 each for the Transportation Center and management education programs at S.C. State University.

More State Government Hiring: 80.A.7

This proviso is supposed to allow the BCB to eliminate positions that have been vacant for at least 1 year. But a stipulation in the proviso allows the BCB to suspend that requirement for FY10-2011. If a position has been vacant for 12 months, an agency can likely function effectively without it. This proviso continues to stifle any attempts to reduce the size of government. 

More Bail Outs for the Hunley (permanently): 80.A.1

This proviso authorizes the Budget & Control Board to spend up to $500,000 to support the Southern Maritime Collection (i.e., the Hunley submarine in Charleston). The proviso also commits the state to provide long-term support for the collection.

More Subsidies for the Tourism Industry

39.12: Last year’s budget designated $10 million for destination-specific tourism marketing. This proviso will continue to support such marketing via the transfer of an unspecified amount from the motion picture incentive wage rebate fund – contingent on whatever funds are remaining. It is not the role of government to advertise on behalf of destinations like Myrtle Beach.

39.1: This proviso allocates $1.38 million for tourism promotion, including: $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 $9.8 million for tourism sales and marketing, as delineated in the Commerce budget. 

More Wasteful BCB Management Practices: 31.11

The State Museum is exactly what it sounds like – a government-owned museum. Yet the museum pays rent to the Budget & Control Board – to the tune of $1.8 million. Setting aside the question of whether the state should even be operating a museum, why does the museum need to pay rent on property the state already owns? The 2007 Government Efficiency and Accountability Review Committee found that allowing the museum to manage its own property would save taxpayers almost $700,000 a year.

More Subsidies for Alternative Energy: 90.17

Presumably, this proviso stems from Clemson University’s obligation to provide matching funds for its Drive Train Test Facility project. The wind turbine testing center is already getting $45 million in federal stimulus funds. But if the project is so promising, why can’t backers raise private, instead of public, capital? (Answer: Wind turbines are incredibly inefficient.) Why, also, can’t the money come out of Clemson’s budget instead of being funneled from the Department of Motor Vehicles?

More Wasted Transportation Dollars: 40.9

Prepare to see another $1 million in tax dollars disappear in the form of studying whether to build I-73/I-74. A better strategy is to bid out the highways under a public-private partnership that could conduct an objective cost-benefit analysis as to whether these roads should be built – and then build them in a cost effective manner.

More Unfunded Federal Programs: 89.120

The proviso is extremely complex; put simply, it establishes a fund within the BCB to establish a regional health information exchange center (CITIA). A federal grant (part of the stimulus) will cover 90 percent of the costs up front. But in four years, the state will no longer be eligible for federal funding. Accepting matching federal funds seems to be a no-brainer. But when the funds expire, the state is obliged to pay for the new program. The very length of this proviso also raises questions because a proviso is not the place to pass substantial legislation.

More Bullying of Local Governments (and Taxpayers): 86.6

This proviso requires counties to fund their legislative delegation budgets. In other words, regardless of whatever needs or priorities your county may have, the needs of your legislator come first. As the governor’s unsuccessful veto of this proviso noted last year, this proposal is “an affront to the principle of home rule.”

Stay tuned for real-time coverage of the Senate budget debate and visit SCPC and The Nerve for ongoing updates.

 

Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2010.

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