Another Useless Attempt to Cap Spending


Yet another legislative session is about to pass in which there was some talk about controlling state spending, but nothing done.

Back in February, House members introduced a bill that aimed to limit state spending by capping General Fund (GF) appropriations. Specifically the bill would cap GF appropriations at 106 percent of the General Fund revenue estimate given by the Board of Economic Advisors on February 15. Of course, the bill also contains a provision allowing legislators to suspend the cap by a vote of two thirds in each chamber. More troubling than the ability to suspend the spending cap, however, is a provision ensuring that even if spending is slowed by this bill the size of government will be unaffected.

H.3533 creates a new spending limit reserve fund into which all General Fund revenues beyond the appropriations limit would be placed. The fund would replenish the General Fund if the balance of the General Fund is less than that required by law but could also be drawn from a number of select projects, including temporary tax reductions, infrastructure improvements, schools buildings, school buses, and expenses incurred by the state from natural disasters. So while spending appears to be capped, in reality all that is accomplished is pushing spending from one year to the next and directing a higher percent of state spending to favored programs.

Even if the special limit reserve fund was limited to replenishing the General Fund, its creation would remain highly questionable. The state already has two special reserve funds, the capital reserve fund, and the contingency reserve fund. Both of these special funds serve the same purpose as the proposed special limit reserve fund. The capital reserve fund acts as a special fund for favored projects, and the contingency reserve fund’s stated purpose it to replenish the General Fund in times of need.

Lawmakers frequently like to act as if they are working to limit the growth of government, but the vast majority don’t actually do anything about it. This is why attempts to create a taxpayer rebate fund like the one proposed by Senator Davis’ last session – S.207 – which would have returned excess revenues to taxpayers, failed. It would actually have limited government growth.

As long as special reserve funds exist, spending caps won’t matter: government will take in the same number of tax dollars with as they would without them.

Beyond the funding of favored projects and the creation of another unnecessary fund, there is one more important aspect of H.3533 that deserves attention. Only General Fund appropriations are capped by it. But the General Fund only makes up around a third of the state budget and accounts for only $6.6 billion of last year’s roughly $23.6 billion budget, or 28 percent. The rest of the budget is made up of the ever growing federal and Other Fund appropriations. (The latter is made up of fine and fee revenue.) Confining a spending limit to the General Fund is worse than useless, though, not just because it only caps a third or less on the budget, but also because – as experience has shown – any time legislative budget-writers can’t find enough money for a particular agency or program in the General Fund, they simply siphon it off Other Funds, with the result that the fines and fees imposed on South Carolinians keep going up and up.

Limiting the growth of state spending and in turn the growth of state government is a worthwhile endeavor. What’s not worth doing is pretending to limit spending while not actually limiting anything.

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