Why the State Budget Grows … No Matter What

FINES AND FEES GO UP WHEN TAX REVENUES ARE DOWN … AND WHEN THEY’RE UP, TOO

For the last decade, the majority party in both chambers of the legislature has frequently claimed to espouse the principles of limited government and spending restraint. It’s striking, then, that in no sense has government been limited during these ten years. Indeed, not even a nationwide recession was able to produce actual decreases in the size of government. With debate over the state budget now in full swing, it may help to consider the extent of and reasons for the decade’s vast expansion.

Ten Year Comparison: FY 03-FY 13

Take a look at the total funds in perspective.  Note that the FY 2003 dollar amounts are in 2012 dollars, accounting for the 24.7 percent inflation we’ve seen since then.  Thus the increases we see here are nearly pure growth and can’t be blamed on national monetary policy.

 

Fund Type FY 02-03 (inflated to ’12 $) FY 12-13 % Change
General $6,292,149,510 $6,653,089,565 +5.74%
Other $6,794,105,959 $8,318,696,714 +22.44%
Federal $6,310,529,473 $8,669,288,844 +37.38%
Total $19,396,784,942 $23,641,075,123 +21.88%

 

The fact that the state budget has increased, and increased by leaps and bounds, is well known. However, it may surprise some to see which funds have seen the bulk of the increases.  While there shouldn’t be an excuse for the over 5 percent in pure growth in General Funds, the vast majority of the increases come from Other Funds and Federal Funds.

While the bulk of General Funds come from income tax and sales tax revenues, Other Funds come primarily from fines and fees.  And with the recent Supreme Court ruling on the Affordable Care Act, we can legitimately say that “fines and fees” are merely euphemisms for “taxes.” Although Federal Funds may be naively seen as in some sense “free money” by some, this money is still funneled from taxpayers around the country, including South Carolinians, and comes many times with strings attached – meaning we have to follow burdensome federal guidelines as a consequence of our acceptance of it.

Ten Year Department Comparison

It’s important to find which agencies account for the growth.  We took a look at roughly thirty agencies (excluding many of the smaller colleges and universities that saw significant increases in the past decade). These agencies account for roughly 75 percent of the total increase in the past ten years.  While again accounting for inflation, here are the agencies with the top ten percentage increases in budget.

 

Agency FY 02-3 Inflated to ’12 $ (Total) FY 12-13 (Total) Total % Change Other Funds % Change Federal Funds % Change General Funds % Change
Lieutenant Governor’s Office $395,134  $39,168,199  +9,812.63% +† +† +1559.71%
B&CB Employee Benefits $25,312,307  $135,207,313  +434.2% -† N/A +435.65%
Dept. of Insurance $8,631,759 $18,438,093  +113.61% +411.94% N/A -37.86%
Dept. of Social Services $1,005,407,398

 

$2,136,272,717  +112.48% -64.02% +193.91% -11.02%
Commission on Indigent Defense $14,773,844 

$31,238,550

 

+111.44% +42.17% N/A +234.19%
Adjutant General Office $35,555,126 

$66,584,047

 

+87.27% +187.28% +138.56% -49.7%
Attorney General Office $12,569,004 

$20,861,270

 

+65.97% +714.08% +29.13% -23.89%
Department of Employment and Workforce* $141,306,472

 

$231,108,488

 

+63.6% -30.45% +53.6% 11,691.35%
Prosecution Coordination Commission $12,433,366  $20,178,747 

 

+62.3% +1,536.14% N/A -3.05%
Administrative Law Court $2,072,688.580  $3,215,764  +55.1% +2,864.89% N/A -7.5%

† One of the compared years had no funding in this category, while the other year did have funding.

* Was Employment Security Commission in FY 02-03

 

The large increase in Lieutenant Governor’s Office funding comes mainly from the addition of the Office on Aging to the department, which brings in tens of millions of dollars from DC.  However, the increase isn’t just attributed to new federal funding, seeing that there is an over 1,500 percent increase in General Funds as well.

Notice that while several of these agencies actually had a decrease in General Funds, these decreases are more than made up for in large increases in Other Funds.  Other examples of agencies in which this is the case include the Governor’s Office: Executive Policy & Programs, Clemson, USC, the Judicial Department (which saw a 10,858 percent increase in Other Funds), the Department of Transportation, the Department of Labor, Licensing, and Regulation, and several others.

Who while many agencies have complained loudly about budget cuts, many of these same agencies have seen increases – in many cases more than making up for the “cuts” – in fine and fee revenue and federal money.

Effects of the “Great Recession”

To see the effects our recent economic downturn had on state budget practices, we compared the budget that was made right before the recession hit – FY 07-08 – with the FY 10-11 budget, which was the budget in which the General Fund hit bottom before increasing the next two years.

 

Fund Type FY 07-08 (inflated to ’11 $) FY 10-11 % Change
General $7,019,098,458 5,115,072,163 -27.13%
Other $6,961,350,545 7,765,618,221 +11.55%
Federal $7,178,142,311 8,267,948,216 +15.18%
Total $21,158,591,313 21,148,638,600 -.05%

 

As would be expected through this three-year period, the recession had an adverse impact on the General Fund, since people were making less and spending less, resulting in lower sales and income tax revenue to the state. Through stimulus bills and an increased need for federal welfare benefits, we see the expected increase in Federal Funds.  And we see an increase in Other Funds in an apparent attempt to make up for the loss in General Funds.

At a time when states were allegedly cutting back, one might have expected to see department budget decreases across the board.  This wasn’t the case.  Here is a list of just some of the departments that saw a decrease in general funding, but still saw an overall budget increase through increases in Federal and/or Other Funds.

 

Agency FY 07-08 Inflated to ’11 $ (Total) FY 10-11 (Total) Total % Change Other Funds % Change Federal Funds % Change General Funds % Change
Department of Employment and Workforce $89,276,908 $222,037,698 +148.7% +92.04% +166.72% -50%
Adjutant General Office $37,487,485  $66,821,540  +78.3% +69.41% +124.38% -47.96%
Dept. of Social Services $1,295,572,667  $1,698,667,492  +31.1%% +128.53%% +31.81% -12.68%
Clemson $587,480,477 $767,750,533 +30.7% +68.64% -21.65% -45.49%
Dept. of Labor, Licensing, and Regulations total $33,265,170  $41,167,579  +23.8% +34.17% +10.89% -56.63%%
Dept of Transportation $1,044,089,366

$1,289,302,270

 

+23.5 % +23.63% N/A -95.38%
Judicial Department $63,202,375

$67,062,070

+6.1% +33.54% -6.03% -3.1%
Vocational Rehabilitation $129,217,463

$136,348,681

+5.5%% +20.58% +9.26% -39.79%
Department of Revenue $60,232,965 $62,812,944

 

+4.3% +32.6% N/A -6.4%
Governor’s Office: Executive Policy and Programs $68,613,502  $70,719,343  +3.1% +21.66% +4.81% -35.98%

 

While programs like the Department of Employment and Workforce and Department of Social Services were mandated by law to increase via the rise in unemployment and welfare benefits during the recession, the other programs did not have the same excuse to keep growing.

One other interesting point to note: The only department of the roughly 30 that we analyzed actually saw an increase, inflation included, in General Funds during this time period: the South Carolina House of Representatives.

Post “Great Recession”

The General Fund hit a low point in FY 10-11. But since the recession ended – at least according to the technical definition of a recession – we’ve seen an increase in General Funds the past two years.  With this recent boost in General Funds, one might expect to see Other Funds return to previous levels, the supposed need to supplement the General Fund now having disappeared. But one would be wrong.

 

Fund Type FY 10-11 (inflated to ’12 $) FY 12-13 % Change
General $5,115,072,163 $6,653,089,565 +27.52%
Other $7,765,618,221 $8,318,696,714 +5.02%
Federal $8,267,948,216

$8,669,288,844

+2.8%
Total $21,148,638,600 $23,641,075,123 +9.59%

 

Again, still accounting for inflation, we in fact see an increase, not a decrease, in Other Funds as General Funds bounced back.  To compliment this point, here are just a few agencies that saw decent increases in General Funds during this rebound and were accompanied by continued growth in Other Funds:

 

Agency FY 10-11 Inflated to ’12 $ (Total) FY 12-13 (Total) Total % Change Other Funds % Change Federal Funds % Change General Funds % Change
B&C-Employee Benefits $57,906,498  $135,207,313  +133.49% +262.91% N/A +133.49%
Department of Insurance $11,928,189  $18,438,093  +54.58% +49.79% N/A +78.44 %
Lieutenant Governor’s Office $37,028,866.20  $39,168,199  +5.78 +37.24% -5.25% +42.75%
Prosecution Coordination Commission $15,741,633  $20,178,747  +28.19% +25.92% +5.89% +30.32%
Technical and Comprehensive Education $555,627,350  $663,468,531 +18.62% +34.17% +52.53% +10.49%
Vocational Rehabilitation $139,075,655 

$146,773,957

 

+5.54% +14.64% +0.72% +33.63%
Attorney General’s Office $16,181,572 

$20,861,270

 

+28.92% +11.03% -4.02% +95.5%

 

Two conclusions. First, any effective spending limit legislation must apply to all three budgetary funds – General, Other, and Federal. Any spending cap that doesn’t is completely useless. (Spending cap alternatives are discussed here.)

Second, always take agency complaints of budget cuts skeptically. A closer look often reveals that they are not overall “cuts” at all – and in some cases that they are actually increases. In fact, you could legitimately broaden this principle to say: Always treat government’s claims about itself with skepticism.

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