Five Myths About the FY09-2010 State Budget

This year’s budget debate has not only been one of the most contentious in state history, it has produced the second-largest state budget in history ($20.7 billion), an increase in fees imposed on businesses and taxpayers, more funding for the government-driven economy and a massive increase in Washington’s control of South Carolina’s state government. But those facts are not the talking points coming out of the Statehouse.

Legislative leaders have argued the state is in a severe crisis and that a quick influx of federal cash is the only way to avoid firing teachers and closing prisons. A closer look at the budget reveals that is not the case. Below are some of the myths about this year’s state budget, and the truth behind them.

Myth 1: The proposed state budget is $5.7 billion
Most of the public and many elected officials believe the state budget is around $6 billion, but that is actually less than a third of what is spent on state government.

• The total state budget ratified by the General Assembly this week is $20.7 billion. This figure includes: $5.7 billion in General Fund spending; $7.8 billion in federal funds; and $7.2 billion in Other Funds.
• The FY08-2009 budget (as ratified) was $20.9 billion. Mid-year cuts reduced that to $19.97 billion actually expended.
• Other Funds spending is particularly difficult to track. The result is that even as General Fund appropriations were cut this year, the Other Funds component of the budget increased by $200 million.

Myth 2: The new state budget will save thousands of jobs
According to an independent study by economist Arthur Laffer, South Carolina’s high dependence on government spending is hurting the state’s economy. In short, public sector spending is crowding-out private sector growth and creating private sector job losses.

• South Carolina’s unemployment rate (11.4%) is the third-highest in the nation. Only Michigan (12.6%) and Oregon (12.1%) have higher rates of joblessness than South Carolina. The national average (as of April 2009) was 8.9 percent.
• The impact of the federal stimulus package will be particularly detrimental, costing the state between 23,800 and 34,850 additional job losses.

Myth 3: This is a fiscally responsible budget that will grow the state’s economy
In the minds of many legislators, increased government spending translates into more economic opportunities for the people of South Carolina. The truth is that economists are beginning to see a correlation between South Carolina’s high rate of government expenditures and the state’s poor economic performance. Consider the following:

• The total state budget increased by almost 20 percent over the past five years (even more, if we use the ratified FY08-2009 budget as a baseline). During the same period (2004-estimated 2009), state median household income rose by approximately 15 percent — which means state spending grew by 33 percent more than household income.
• As of mid-FY08-2009, only four states faced budget gaps proportionately larger (>12.7%) than South Carolina’s. Three states — Wyoming, Montana and North Dakota — did not anticipate a budget shortfall at all.

Myth 4: The state has drastically cut spending

• The proposed budget passed by the General Assembly is $730 million more than last year’s (final FY08-2009) budget and only $40 million less in terms of General Fund appropriations. That’s a 1 percent cut.
• Even as measured by the ratified FY08-2009 budget, the new budget only cut General Fund spending by 15 percent ($1.02 billion) and total spending by less than 1 percent ($160 million).
• The $1 billion cut in General Fund spending is less significant than it might seem because General Fund spending increased by $1.1 billion between FY05-2006 and FY07-2008. Moreover, state spending increased by more than 40 percent in the three years prior to 2007.
• To put things into perspective, this year’s budget essentially reduces General Fund spending to FY05-2006 levels. But FY05-2006 was widely regarded as a good year for economic growth.

Myth 5: There is no pork or waste in this year’s budget
This is, perhaps, the biggest myth of all surrounding this year’s current budget debate. The truth is that lawmakers have set aside millions in General Fund spending alone for special giveaways and pork projects. Again, however, this does not include the many duplicative and inefficient programs receiving money from the $7 billion Other Funds component of the budget, as well as millions of dollars in federal matching funds for programs South Carolina does not need. Here is a list of just some of the boondoggles the General Assembly has put ahead of core government services:

• $10 million for destination specific tourism marketing: $8 million in nonrecurring revenue inserted as a House amendment (90.19) and $2 million transferred from the Product Development Program (proviso 39.7).
• $7 million in economic development funds for a Commerce Department Closing Fund to provide incentives for businesses to relocate to or expand in South Carolina (provisos 40.12, 40.25). In effect, the fund uses tax dollars paid by other businesses to provide incentives to favored companies.
• $2.7 million for six regional economic development organizations (proviso 40.30).
• Although the proposed Senate budget already allocates $775,000 for hydrogen research, House leadership inserted an amendment (90.19) that provides an additional $1.45 million in nonrecurring revenue for hydrogen-fuel station loans. This additional funding comes in the wake of an announcement by the Obama administration that the federal government is cutting hydrogen research funding by $100 million owing to concerns that the technology is too costly and would take too long to develop.
• $1.38 million for regional tourism promotion, including: $105,000 for the Georgetown Chamber of Commerce; $50,000 for the Myrtle Beach Chamber of Commerce; and $20,000 for the Williamsburg Chamber of Commerce. These funds are in addition to a $13.9 million allocation for tourism sales and marketing (proviso 39.1).
• $800,000 for career cluster industry partnerships aimed at funding career awareness programs and other such services for select industries (proviso 1.67).
• $500,000 to continue operating the state’s two publicly subsidized golf courses at Cheraw State Park and Hickory Knob State Park (cf. proviso 39.4). The governor’s office estimates taxpayers could save at least $500,000 from contracting out the management of these facilities to a private entity.
• $75,000 for the Clemson University Spring Dairy Exhibition program (proviso 35.4).

If these myths sound familiar, it’s because they have become a permanent part of the budget debate here in South Carolina. Instead of rhetoric, we need concrete solutions — an effective constitutional limit on state spending, increased contributions to the state’s two rainy day funds, and zero-based budgeting — that will enable legislators to focus on saving taxpayer dollars, not just during a budget crisis, but in good times as well.

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.