FISCAL YEAR 2011-2012 MARK SANFORD GOVERNOR The Executive Budget Fiscal Year 2011-2012 January 4, 2011 Submitted by Mark Sanford Governor State of South Carolina to the 119th General Assembly of South Carolina, First Session MARK SANFORD PO BOX 12267 GOVERNOR COLUMBIA, SC 29211 January 4, 2011 To the Citizens of South Carolina and the Members of the South Carolina General Assembly: In the pages that follow is this Administration’s Executive Budget for FY 2011-12. 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 have the past two years and point out the obvious – our state is facing a very large budget deficit in FY 2011-12. The worldwide economic crisis, coupled with irresponsible spending by the legislature in times of plenty, has turned a potentially avoidable situation into an incredibly difficult one affecting all South Carolinians. Making an already bad situation worse, nearly $1 billion in stimulus money that was used to put off tough decisions by patching holes in the budget the last couple of years – which our Administration strongly opposed – will run out this year. Even though we are still experiencing a slow economy and much attention has been given to the more than $2 billion cut from the state budget during the past three years, it is important to keep in mind that this year’s total budget is expected to be more than $23 billion. This $23 billion includes federal funds and state fees and is the highest total budget in South Carolina’s history during one of the worst budget years. It is also $1.3 billion more than last year – a six percent increase. Over the course of this administration, the total state budget will have jumped from around $15.5 billion in 2003 to $23.1 billion in 2012 – an increase of 49 percent, or six percent annually. This outpaces the population-plus-inflation by 1.6 percent, annually, on average. As we’ve repeatedly said during the last eight years, this spending growth is unsustainable and the state would be wise to change course immediately. The bottom line is that state government will spend more funds than ever in FY 2011-12, but there are mounting challenges that must be addressed. South Carolina would need to find $1.3 billion if it were to run state government in FY 2012 as it is currently being operated in FY 2011. Most of this shortfall is due to the fact that South Carolina will not be receiving any more stimulus funds in the coming year. During the last couple of years, the General Assembly has used these stimulus dollars to kick the proverbial can down the road and put off making structural reforms that need to be made to state government in South Carolina. We are now further down the road and are faced with the billion dollar budget cliff we predicted during the stimulus debate a couple of years ago. The Legislature complicated matters by using stimulus dollars to fund core functions of government in order to delay critical budget decisions for two years. As a recent New York Times article from December 4, 2010, points out, while the last couple state budget cycles have been difficult, FY 2012 will be even worse: The federal stimulus money increased the federal share of state budgets to over a third last year, from just over a quarter in 2008, according to a report issued last week by the National Governors Association and the National Association of State Budget Officers. […] Scott D. Pattison, the budget association’s director, said that for states, next year could be “the worst year of this four- or five-year downturn period.” As we have said in the past, you cannot spend money you do not have and taking on more debt to solve a problem created by too much debt goes beyond the bounds of reason. We cannot expect future generations to foot the bill for the mountains of debt we are accumulating now. Predictably, some in the Legislature are looking to raise taxes and fees to cover the budget shortfall. Just last year the Legislature overrode our veto and raised the state’s cigarette tax without a corresponding tax cut, meaning annually $115 million more will be spent by the state. The Legislature also attempted to raise court fees to help fund the court system and drivers’ license fees to help pay for more State Troopers. Our veto of the court fees legislation was sustained by the House, and we would have vetoed the driver’s license fee increase because while we agree with the goals of these proposals – to fund core functions of state government – we do not believe the state should have to raise taxes to do so. As an example, we fully funded both the Judicial branch and increased funding for the Highway Patrol in this Executive Budget. We are hopeful that the General Assembly resists the urge to increase fees and other taxes in the future –even if the stated reason for the increase is to fund core functions. Raising fees or taxes to fund these types of activities sets a dangerous precedent – using unstable revenue sources to fund core functions of government. Doing this not only increases the financial burden on all South Carolinians, but also leaves agencies unsure of what their funding will be for the next year. Government should not be shielded from making the same hard decisions on costs, and cuts, that businesses and individuals who pay for government have to make. These decisions are tough but, in this kind of economic climate, necessary. Adequately funding core services of government during this economic downturn made crafting a balanced budget especially difficult, but it can be done without raising taxes or fees. Keeping these challenges in mind, the following pages lay out this Administration’s spending and policy initiatives. From a spending perspective, the FY 2011-12 Executive Budget prioritizes $5.38 billion in spending by breaking down each activity in government, ranking them to find our most critical and effective services, and then identifying $265 million in cost saving measures. In funding priorities and making cuts, our budgeting approach is focused on the performance and results of each agency. Our budget also prepares for what we believe may be several difficult years as state revenue growth idles, or increases only incrementally. For this reason we cannot shield K-12 Education, Higher Education, and Health from cuts – three functions of government that make up more than 70 percent of the budget, rendering it nearly impossible to make all of the cuts required to put forth a balanced budget out of the remaining 30 percent. Doing so would be harmful to other core government functions such as Public Safety. Regarding education, students at all levels are provided for by our budget, which replaces more than $175 million stimulus funds that K-12 education stands to lose in FY 2011-12, appropriates more than $12 million to First Steps, $4.8 million to charter schools and $291 million for scholarships and grants. For health care, we restore funding for the Department of Health and Human Services, the Department of Social Services, the state employee health plan, and the state’s Medicaid Maintenance of Effort. We especially provide funding to Medicaid fraud enforcement – because every $1 we spend on enforcement, we recoup $7 in Medicaid costs. To improve public safety, we restore funding to Corrections and keep Juvenile Justice out from under a federal court order, as well as send $10 million to DPS for increased highway traffic enforcement. We’re also putting $5 million in Commerce’s closing fund to help encourage investment and job growth in South Carolina, and fully funding enforcement of the South Carolina Illegal Immigration Reform Act at Labor, Licensing and Regulation with $2 million in recurring funds. Finally, we are funding the Conservation Bank with $7.8 million, and also continue to fund a Sunset Commission in order to eliminate archaic and oftentimes expensive laws that no longer serve their original purpose. From a policy perspective, we would like to see the following ideas implemented: spending caps, state government restructuring and tax reform. First, we continue to believe that government spending should not grow faster than the underlying economy. Prior to mid-year reductions in FY 2008-09, South Carolina government grew more than 40 percent between 2004 and 2008, leading the Southeast in year-to-year government growth. During the last three years, the same budget has been cut by 28 percent. This constant ebb and flow of state spending results in overspending during years with surplus revenues, leaving no savings for years when there is not enough general funds. If spending were capped at population-plus-inflation, the rollercoaster spending would be flattened out and a surplus would be available for the years when it was needed. Overspending in the good years and drastic cuts in the bad years do not show a genuine concern for the taxpayers’ well-being or money. Second, restructuring South Carolina’s fractured state government would make it more efficient and effective. We have proposed a series measures during the last eight years that would go a long way to making our government work better for the people of this state. According to Governing magazine, South Carolina government has 234 employees per 10,000 residents – 35 percent higher than the U.S.