The Governor’s Spending Plan (Part 1)

MORE OF THE SAME?

The 2013 legislative session has just begun, and one of the first items unveiled was the governor’s executive budget. Whether or not the legislature will follow state law and actually hold joint public hearings on the executive budget remains an open question – though it seems doubtful.

Which is too bad, since the executive budget represents the priorities of the only official in the entire budget process who is elected by the entire state. Sadly, however, Gov. Haley’s budget looks all too similar to ratified legislative budgets of the recent past.

The General Fund – the revenue comprised of statewide tax revenue – increased more than $181.1 million from our previous ratified budget to a total of $6.29 billion, while the total budget fell by less than 2 percent. However, it isn’t clear whether the drop in the total budget is due to a decrease in Federal Funds or Other Funds, or both. Despite this slight decrease, the total proposed budget is still over $22.6 billion – much more than is required to execute the legitimate functions of state government. Not surprisingly, all of South Carolina’s taxpayer-funded higher education institutions, which have proven to be some of the key drivers of increased budgets, saw significant increases in General Funds.

Below are some of the key points on the proposed changes in our income tax code and some notable spending increases in Education.

Eliminating the 6 percent Tax Bracket

The governor in her FY2013-14 Executive Budget Overview explains that in the past eight years, the Bureau of Economic Advisors’ (BEA) May revenue estimate has been $103.4 million above the November estimate. She then argues that we should use this extra revenue this year to eliminate the 6percentincome tax bracket (worth $26 million out of a $22.6 billion budget – or about .01 percent) and devote the rest to transportation infrastructure.

It is true that having a top tax bracket of just over $14,000 (at 7 percent) is severely outdated, and the fact that there are currently six different tax brackets within the $0-$14,000 range is preposterous. However, just getting rid of the six percent tax bracket does not go nearly far enough in solving our state’s problem of over-taxation – and consequently of lawmakers’ addiction to spending your money. As we mentioned in our article on last year’s governor tax proposal(s), only 12 states have a higher rate than South Carolina’s families.  In New Jersey, for example, people making $450,000 per year pay a lower marginal rate than average South Carolinian families. In Connecticut, not even millionaires pay seven percent of their income.

Eliminating the 6 percent bracket would entail the state confiscating roughly $28 less than it would have otherwise – an amount worth, roughly speaking, a trip to Golden Corral. If the governor was serious about giving South Carolinians some tax relief, she would propose (a) lowering these tax rates altogether and (b) significantly raising the top $14,000 bracket so that a cashier at McDonalds wouldn’t be paying at the top income tax rate.

Skyrocketing Increases for Tax-Payer Funded Universities

As usual, public colleges and universities see significant increases in this year’s executive budget compared to last year’s ratified budget, despite the recent trend of increased tuition costs and university funding and decreased graduation rates. Below are just five of the key increases in total funding for public universities (which are run like state agencies in themselves).

• Clemson University: $122.7 million (15.87 percent) increase
• Lander University: $6.3 million (15.58 percent) increase
• College of Charleston: $19.5 million (8.77 percent) increase
• Francis Marion University: $5.4 million (9.93 percent) increase
• USC-Beaufort Campus: $3,3 million (13.47 percent) increase

Maintaining the Failed Status quo for K-12 Education

Both K-12 and higher education in South Carolina have a history of underperforming expectations despite ever-increasing levels of funding as we have documented here and here. Regardless of past failures, the newest executive budget shows no signs that these failures are being acknowledged; what we see instead is a commitment to double down on the same approach. Some of the most flagrant examples of this stubborn mindset include:

• An additional $19.5 million for the Education Finance Act, to maintain base student cost at $2,012 per the Department’s request.

As we have written before there is little evidence that spending more on base student cost will improve educational outcomes. In fact we have found that, looking at the district level, many measures of student performance actually fall as state per-student funding increases. The only guarantee of spending more on base student cost is that less revenue will be left for other budget items.

• $1 million for Teach for America.

Once again we have to ask why South Carolina should be funding a national level non-profit that receives plenty of funding already and will be largely bringing temporary teachers to SC?

• K-12 Transportation: Other Operating Expenses $2.2 million increase.

More state funds are being thrown at transportation costs related to education, an item that should be solely the responsibility of local governments.

More Money for Higher Ed Pet Projects and Employees

Listed below are just a few line items we found that add to the budget in the absence of any evidence that these programs and projects are improving performance at the state’s higher education institutions.

• $3 million for the Center for Energy Systems (Clemson)
• $10.9 million more in Classified positions, $21.4 million more for Unclassified positions for Education and General expenses (Clemson)
• $2.1 million increase for the Palmetto College Initiative (USC)
• $1,25 million to fund the On Your Time proposal (USC)
• $6.7 millionfor deferred maintenance (USC)

Using the Capital Reserve Fund Inappropriately

• $7.5 million from the Capital Reserve Fund for Direct Training for ReadySC

While it is part of the job of higher education institutions to give students the skills they need to succeed in the workforce, the program ReadySC goes far beyond this task. Indeed, it’s as much of a corporate welfare program as it is a skills imparter for students: the program’s own website lists its activities as including helping companies start or expand new facilities and providing special training customized for select companies. It’s unclear why private companies – many of them large, multibillion-dollar companies – should have their workers trained at the expense of South Carolina taxpayers. (The objection, as in other discussions of state-driven “economic development,” is that companies will go elsewhere if the state doesn’t promise to provide them with taxpayer-funded worker training. But there are a great number of advantages South Carolina can offer a company that don’t require squeezing the taxpayer for more revenue, a policy that does its part to keep per capita income low and, in turn, to keep other companies from investing here.)

More analysis of the executive budget is on the way. Thus far, there’s little to be encouraged about.