Governor's Executive Budget
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S TAT E O F SO UT H C AR OL I NA EXECUTIVE BUDGET FISCAL YEAR 2010-2011200910 -20 MARK SANFORD GOVERNOR The Executive Budget Fiscal Year 2010-11 January 7, 2010 Submitted by Mark Sanford Governor State of South Carolina to the 118th General Assembly of South Carolina, Second Session MARK SANFORD PO BOX 12267 GOVERNOR COLUMBIA, SC 29211 January 7, 2010 To the Citizens of South Carolina and the Members of the South Carolina General Assembly: I present to you this Administration’s FY 2010-11 Executive Budget. Before going into some of the points included in the document, I would once again like to express my thanks to all who gave time, talents and focus to this effort. Unfortunately, I must begin this letter the same way I did last year and point out the obvious – our state is facing very significant financial challenges due to the national and international economic slow down. As the revenue projections become bleaker, the task of crafting a budget that adequately funds core functions of state government becomes correspondingly more and more difficult. In many ways these challenges are exacerbated by the fact that federal stimulus dollars, used this year to plug state budget holes here in South Carolina and nationwide, are fast drying up. Amidst these challenges, our goal this year, as it has been the past six years, is to offer a balanced budget without raising taxes that provides essential services to the citizens of South Carolina in the priority areas of education, health care, social services, economic development, public safety, and natural resources. Although the $1.58 billion in state budget cuts over the last two years have garnered much attention, what is important to remember is that the total state government budget this coming year will top $21 billion. This $21 billion includes federal funds and state fees and is the highest total budget in South Carolina history. It is seven percent higher than last year’s total budget and projected to increase another 7.5 percent going into FY 2010-11. Over the course of this Administration, the total state budget will have jumped from around $15.5 billion in 2003 to a projected $22.8 billion in 2011 – an increase of almost 47 percent, or 5.23% annually, which outpaces by an average one percent annually the estimated growth in “population plus inflation” over that time. We’ve said year after year that this spending growth is unsustainable, and the budget choices necessitated in this year’s budget reinforce this. More funds than ever are being sent to and spent by state government, but there are still mounting challenges to be addressed. First, South Carolina stands to lose roughly one billion stimulus dollars after FY 2011 that are currently filling gaps in the state’s general fund budget. Our Administration argued repeatedly during the stimulus debate last year that you can’t spend money you don’t have, and that solving a problem created by too much debt by indeed issuing more debt seemed misguided. We strongly believed that using future generations’ tax dollars from Washington D.C. to supplement today’s state budget in Columbia, S.C., would have dangerous consequences – unsustainable spending, mounting debt, and taxpayers footing the inevitable bill. A Washington Post article from January 5, 2010, agreed: What many state governments want is a federal bailout, which would free them of the consequences of overspending. It's a classic case of what economists call ‘moral hazard’ – in that the bailouts would allow the irresponsible behavior to continue, rather than forcing a halt. South Carolina was not alone in falling prey to the stimulus’ fiscal consequences. A January 2, 2010, Wall Street Journal editorial pointed out that “in most state capitals the stimulus enticed state lawmakers to spend on new programs rather than adjusting in lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state’s money.” For example, this year South Carolina was given a full year of enhanced match money for Medicaid by the federal government, also known as Federal Medical Assistance Percentages (FMAP). Next fiscal year, Washington D.C. will only provide half a year of enhanced FMAP, and the year after that none at all. This tapering-off effect of all federal stimulus funds will create an additional hole of $733 million by FY 2011-12 in the state budget – and this does not even take into account any of the certain financial costs that will come to South Carolina with the massive change contemplated by Congress in health care. Second, we already begin this Executive Budget $462 million in the hole. Revenue numbers lagged this year, and the Office of State Budget sees this downward trend continuing over the next three years. They project another drop of $560.9 million in FY 2010-11, a $1.34 billion drop in FY 2011- 12 and a $1.44 billion drop in FY 2012-13. The Budget Office’s report also assumes a two percent annual growth rate in sales and income tax revenues – which some would argue is most hopeful. Third, there are nearly $1 billion in existing liabilities – including a $98 million deficit from last year – that must be funded in the budget before even addressing core services like education and law enforcement. In all, our Executive Budget starts not from ground zero financially, but short some $1.44 billion in revenue, meaning that difficult decisions must be made with regard to cutting programs or finding new sources of revenue. We have ruled out the second option because raising the overall tax burden of South Carolinians is not something we’d ever support. On that front we’d applaud the General Assembly for what they did last year in resisting the path of raising taxes as several other states did. We hope the tax increase option remains off the table as raising taxes will do more to deepen and prolong this global recession’s impact on our state. We believe government should not be shielded from making the same hard decisions on costs, and cuts, that the businesses and individuals who pay for government have to make. These decisions are tough – and in many cases less than ideal – but, in this kind of economic climate, necessary. With these challenges in mind, the following pages lay out this Administration’s spending and policy initiatives. From a spending perspective, the FY 2010-11 Executive Budget prioritizes $5.84 billion in spending by breaking down each activity in government, ranking them to adequately fund our most critical and effective services, and identifying $254 million cost savings measures. In funding priorities and making cuts, our budgeting approach is focused on the relative performance and results of each agency. Our budget this year also looks longer term in preparing for what we believe may be several difficult years as state revenue growth idles, or increases only incrementally. For this reason, we cannot hold certain areas of the budget harmless from cuts that we ordinarily by and large would – such as K-12 Education, Higher Education, and Health. These three pieces of the state budget pie make up over 80 percent of the current budget, rendering it nearly impossible to make all of the cuts necessary to put forth a balanced budget out of the remaining 20 percent. To do so would be detrimental to other core government functions such as Public Safety. Specifically, our budget serves students of all ages, providing more than $218 million to college scholarships and grants, $34 million to First Steps and $3.3 million to charter schools. On health care, we fully fund the state employee health plan and the state’s Medicaid Maintenance of Effort, and support Medicaid-fraud enforcement because every dollar we spend on enforcement we recoup seven dollars in Medicaid costs. To improve public safety, we restore funding to Corrections and keep Juvenile Justice out from under federal court order, as well as send $40 million to DPS for increased highway traffic enforcement. We’re also putting $4 million in Commerce’s closing fund to help encourage investment and job growth in South Carolina, and we’re setting aside $40 million to pay the interest on federal unemployment benefit loans taken out by the ESC. Finally, we are making sure the Conservation Bank doesn’t have to shutter its doors, and also again funding a Sunset Commission in order to eliminate archaic and oftentimes expensive laws that no longer serve their original purpose. From a policy perspective, we are focused this legislative session on three primary objectives: spending caps, real reform at the Employment Security Commission (ESC), and state government restructuring. One, we continue to believe it is important we not allow government spending to grow faster than the underlying economy. Prior to mid-year reductions, South Carolina state government grew by over 40 percent from 2004 to 2008, leading the Southeast in year-to-year government growth. Over the last 18 months, that same budget has been cut by 27 percent. This spending roller coaster brings with it harmful consequences, and given the current economic climate, we believe it is critical that spending caps finally be adopted. Capping government spending growth at population-plus-inflation would help on two fronts: first, it would protect the neediest of the needy for cuts past muscle and right into bone when times are bad; and second, when times are good it protects taxpayers from the excesses in spending that usually accompany large amounts of money coming into any state Capital.