SC Budget FY09-2010 Summary Review

The General Assembly voted Wednesday to override Governor Sanford’s veto of those parts (IA and III) of the budget (H 3560) that spend disputed federal stimulus dollars, with the Senate taking up separate line-item vetoes well into Thursday night. In response to a likely lawsuit in state court, the governor announced on Thursday that he has filed suit in federal district court challenging the General Assembly’s use of federal stimulus dollars.

The court battle will focus on the governor’s authority to decide how to spend that small part ($694 million over two years) of the state’s federal stimulus package over which he has control. Explained the governor, €œThis is about two fundamental principles: the separation of powers and protecting future generations of taxpayers.

The governor has proposed using 10 percent of the stimulus money to repay part of the state’s $8.2 billion debt. According to Governor Sanford, this compromise would save taxpayers $168 million in interest payments over two years. Alternatively, the governor argued that accepting the stimulus dollars would create $920 million in recurring obligations that will require state funding after two years. For its part, the legislative leadership has argued that the state budget has been cut to the bone such that federal stimulus dollars are necessary to maintain core government services.

The governor’s reasons for vetoing the budget:

In addition to vetoing Part IA and Part III of the budget — in effect, those sections that spend disputed federal stimulus dollars — the governor also vetoed 47 provisos €œthat made inefficient structural changes, continued wasteful practices, or represented misplaced priorities. Yet Governor Sanford acknowledged that he was more lenient with his veto pen this year than in past years because he wanted to focus attention on the problems associated, not only with the stimulus package, but also with South Carolina’s budget process. Some of the key practices vetoed by the governor include:

The use of reserve accounts to balance the budget. These include a $36.9 million transfer out of the Insurance Reserve Fund and a $15 million transfer from the Unclaimed Property Fund. These transfers were used to fund a variety of expenditures, ranging from making up the homestead exemption shortfall to destination specific tourism marketing to hydrogen fuel station loans (proviso 90.19; veto 43). The Insurance Reserve Fund would become essential were the state to be hit by a major natural disaster. The Senate initially sustained the governor’s veto of this proviso and then reversed itself. See also line-item veto 31.

The continued practice of shielding wasteful practices under the Budget and Control Board (BCB). The governor called out the General Assembly for refusing to implement a Department of Commerce (DOC) plan to reduce costs related to state-owned aircraft. The move would have saved taxpayers $363,503. Instead of permitting these cuts, the General Assembly moved the Aeronautics Commission from under the DOC to the Budget and Control Board (proviso 89.127; vetoes 9-12). The governor also objected to a $823,993 increase in funding for the BCB. Both the House and the Senate initially sustained these vetoes and then reversed themselves upon reconsideration.

The refusal to privatize nonessential government services. These include a proviso (49.1; veto 14) that prohibits the Highway Patrol from charging fees for traffic control at special events, as well as the continued refusal to privatize state-owned golf courses (39.4; veto 8). Although the House initially sustained the governor’s vetoes of these two items, it then reversed itself. The Senate, however, eventually sustained the governor’s veto of proviso 39.4, thus permitting the option of privatizing the state’s two publicly owned golf courses. The General Assembly also did not sustain the governor’s veto of a proviso (49.15; veto 15) requiring the Department of Public Safety to provide security services for the H. L. Hunley.

The undermining of the balance of power of state government. In particular, the governor vetoed the General Assembly’s ongoing attempt to create for itself a Capitol Police Force (cf. provisos 48.11; 49A.1-49A.5; vetoes 16-24). Cautioned Governor Sanford: €œThe proposed Capitol Police Force is just another example of the General Assembly’s unrelenting contempt for the doctrine of separation of powers. There is no doubt that the provision of security is an executive function, and this new police entity will effectively allow legislators and judges on the Capitol Police Force Committee to execute the law. . . . This means that the legislature and judicial branches will control their own police force without any check from another branch of government. Subsequently, the House sustained 7 of 8 of the governor’s vetoes regarding the Capitol Police Force. However, as the governor has pointed out, the legislature’s use of federal stimulus dollars itself constitutes an €œunprecedented breach of the balance of power.

Likewise, the governor vetoed two provisos that permit county delegations to exercise control over the use of Department of Natural Resource county funds and equipment (provisos 37.1-37.2; vetoes 5-6). These vetoes are of note because they were first sustained by the Senate and then, upon reconsideration, overridden thanks to the vote of one senator. See also line-item vetoes 7, 29, 30, 37, 38, 41, 42.

The practice of using provisos to enact permanent law. As originally intended, provisos are supposed to be temporary and related to fiscal matters. Yet many provisos in this year’s budget — for instance, a provision challenging the governor’s authority to appoint the chairman of the S.C. Research Authority — clearly violate this rule.

The FY09-2010 Budget

The governor has asked for injunctive relief that would prevent Part III, section 1, of the FY09-2010 budget from being enforced. This section, in particular, pertains to the use of $694 million in federal stimulus funds the governor proposes using for debt repayment. Yet because previous sections of the budget anticipate expenditures in Part III, it is unclear how the governor’s lawsuit, if successful, would affect the budget in its entirety.

In the meantime, the remainder of this report will provide a brief recap of the FY09-2010 budget, highlighting the following points:

1) The current budget still contains plenty of pork and waste;

2) The budget neglects to undertake true fiscal reform, opting instead for targeted tax breaks for special interests;

3) The budget does take some positive steps forward regarding transparency;

4) The budget is a missed opportunity to enact meaningful reform.

More waste and questionable spending:

While the governor’s line-item vetoes highlighted numerous instances of waste in this year’s budget, we wanted to mention several more examples that could be cut from this year’s €œbare bones budget. Note, in particular, the use of federal stimulus dollars for nonessential services. Again, these provisions are in addition to the $25 million in wasteful spending identified previously.

In addition to an allocation of $2.7 million (proviso 40.30), $3.45 million in federal stimulus funds for 7 regional economic development organizations (Part III).

$2.2 million for an 800 mhz service contract for the statewide Palmetto radio system to help coordinate public safety communications (cf. proviso 80A.37). As important as this service may be, it was cut entirely from the Senate budget, having already been funded last year at $4.2 million.

$1.6 million to the EPSCoR program to €œimprove South Carolina’s research capabilities, as well as $410,635 each for the Transportation Center and management education programs at the S.C. State University (proviso 6.11).

$1 million for the routing, planning and construction of I-73 and I-74 (proviso 40.18). These two interstates run through sparsely populated areas and, what is worse, run virtually parallel to one another.

$500,000 in stimulus dollars for the Department of Archives and History (Part III).

$389,565 in stimulus funds for the Arts Commission (Part III).

$300,000 in stimulus funds for regional economic development in Chester County, Lancaster County, Union County and York County (Part III).

$285,000 to Clemson University-PSA (Public Service Activities) for the S.C. Biotechnology Incubation Facility (proviso 90.21).

$100,000 to create a statewide rail plan (proviso 40.32).

$100,000 in stimulus funds for the Southeastern Wildlife Exposition in Charleston (Part III).

$100,000 for the Spoleto Arts Festival in Charleston (Part III).

$75,967 increase in funding (over the Senate budget) for the Confederate Relic Room and Military Museum. Appropriations for other operating expenses constitute an increase of more than $30,000 over last year’s funding ($459,287) in this category.

After the House increased such funding by $65,000, appropriations for parking (personal service, classified positions) for the Budget and Control Board went from $51,794 in last year’s budget to $123,471.

$21,172 for the Veteran’s Cemetery (personal services, other operating expenses) after the Senate funded this item at $0.

$10,435 for the McClellanville Arts Council (added by the House to the final budget, Part III).

Finally — and this is one practice the governor also vetoed (vetoes 32-35) — the General Assembly continues to attempt to allocate competitive grant funds to legislative pet projects. Although the Competitive Grants Committee has technically been eliminated, the current budget anticipated the use of such funds for nonprofits (80A.27), travel and tourism (proviso 39.3), and other purposes (22.39; 40.20). The House sustained the governor’s vetoes of these appropriations.

Targeted tax breaks:

Instead of enacting broad-based cuts that would lower taxes and make South Carolina economically competitive, the General Assembly chose instead to pass several targeted tax breaks. These include:

Increasing the payroll tax rebate for movie production companies from 15 percent to 20 percent (proviso 39.10). Likewise, the proviso doubled the rebate (from 15 percent to 30 percent) on expenditures made by a motion picture production company in the state. This proviso was eliminated from the Senate budget, which proposed using the resulting $2 million in savings for the S.C. Conservation Bank.

Establishing an admissions tax exemption for monies paid to nonprofit athletic booster organizations as part of season ticket purchases (proviso 81.17). This proviso did not appear in either the original House or Senate budgets.

Suspending sales and use taxes on viscosupplementation therapies for the FY09-2010 fiscal year (proviso 89.86).

Creating a sales tax exemption weekend (November 27-28, 2009) for firearms purchases (proviso 89.135). South Carolina’s sales tax of 6 percent is the highest in the Southeast (along with Florida, which does not tax individual personal income) — and higher than the national median of 5.4 percent. A general sales tax cut could thus conceivably boost gun sales more — by freeing up consumer income — than would this targeted tax break.

Increasing the solar power personal income tax credit from 25 percent to 30 percent (proviso 89.114). The Senate had eliminated this provision, but it was added back by the House. South Carolina’s top personal income bracket of 7 percent starts at $13,150 and is the 12th highest nationally, according to the Tax Foundation.

Transparency:

On a more positive note, the budget included some provisions that further transparency — even as the two chambers refused to act on more ambitious reforms in this area:

The House added a last-minute amendment (proviso 1.43) requiring school districts to maintain an online transaction register for all expenditures exceeding $100. The Comptroller General must establish and maintain such a register for school districts that do not have websites. The Comptroller General is likewise responsible for reimbursing school districts for costs associated with the registers.

The General Assembly also required state agencies to prepare and make available via the internet a comprehensive report regarding fine and fee revenue, including how collected funds are spent (proviso 89.125).

After Senator Greg Ryberg (R-Aiken) informed fellow members that 12 House members failed to file a state income tax return for at least one year between 1999 and 2007, the Senate added language to the budget requiring candidates for public office to fulfill their tax obligations (proviso 81.16). The results of each inquiry are to be posted on the Department of Revenue website.

State agencies must post a listing of all programs funded with federal stimulus money derived from the American Recovery and Reinvestment Act of 2009 (proviso 89.116).

The House eliminated a Senate proviso (89.130) requiring state agencies that possess a composite bank account to submit a report to the Comptroller General regarding such expenditures.

Other changes of note:

The House added an amendment in the final budget removing the governor’s authority to appoint the chairman of the S.C. Research Authority (proviso 89.136; veto 40). The governor’s veto of this proviso was sustained in the House by a vote of 3 to 107.

The budget gives counties the ability (for FY09-2010) to transfer state funds as necessary (proviso 86.2) to pay for services. Likewise, school districts were given greater flexibility over spending (1.43).

Of particular interest are those provisions over which the House and Senate disagreed. These include the following:

The House deleted a Senate proposal (provisos 52.11-12) that would have granted early parole/probation termination for nonviolent criminals, pending a lack of funding for state services.

The House deleted from the Senate budget a fee increase for lobbyists (proviso 82.5), as well as a requirement mandating the electronic filing of all statements and forms filed with the State Ethics Commission (proviso 82.6).

The Senate deleted a House proviso that would have required the University of South Carolina to study the impact of closing branch campuses (proviso 15.7).

The Senate removed a House plan to provide a security detail for the lieutenant governor (proviso 89.89; cf. veto 25). After it was added back by the House, the governor vetoed this proviso; thereafter, the House first sustained and then overrode the governor’s veto. The Senate likewise overrode the veto.

The House deleted a Senate proviso prohibiting counties from supplementing the salaries of Department of Social Services employees (proviso 26.5).

After being deleted by the Senate, the House reinserted language that the State Law Enforcement Division is not required to investigate deaths at veterans’ nursing homes (proviso 23.16).

As the governor noted, in passing the FY09-2010 budget, legislators missed an important opportunity to bring about much needed fiscal reforms for South Carolina. Taking last year’s authorized budget as a baseline, state spending increased by 43 percent over the last four years. Even after this year’s cuts to the General Fund budget, spending has increased 20 percent over five years. At the same time, South Carolina’s debt load has skyrocketed such that 11 percent of every dollar in state tax revenue must be used for debt payment.

What is worse is that the budget process itself is broken. Thus even as the General Assembly takes piecemeal steps toward requiring transparency of school districts and state agencies, it continues to resist fundamental reforms (such as zero-based budgeting and spending caps) that would enable legislators to review the entire budget and exercise leadership in setting spending priorities for the state.

–Want more information on individual votes? Visit our 2009 Votes Tracker

Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2009. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201. Visit the Policy Council online at www.scpolicycouncil.com.

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