SHORT VERSION: MASSIVE HIKES FOR THE USUAL SUSPECTS
The House will begin debate on another record high budget today. At $25.4 billion (assuming a $1.5 billion food stamp item for some reason no longer listed in the budget), the Ways and Means Committee’s proposed budget is over $1 billion higher than last year’s ratified budget. And like last year, despite hefty increases in tax revenue, there are no provisions to return any money collected by the state back to the taxpayers. Every penny collected will either be spent on whatever programs the legislature chooses to fund, or kept to be spent later. No tax cuts, no tax rebates.
The bulk of the budget is spent in just a few areas like health care, education, and transportation. How much more do lawmakers propose to spend in these areas? And have we seen convincing results from present spending.
Health and Human Services: $6.9 Billion
The Ways and Means budget would provide a $475 million increase to the Department of Health and Human Services (DHHS), the bulk of which is Medicaid spending. Even though the state has not used the Affordable Care Act’s option to expand Medicaid coverage to those making 138 percent of the federal poverty line, DHHS has made a concerted effort to put those eligible, but not yet enrolled, into the state-run Medicaid system. In fact, South Carolina is expected to increase enrollment by 16 percent by the end of June 2015, while the average projected increase among the states using ACA “expansion” is only 12 percent. DHHS has utilized “auto-enrollment” – automatically enrolling South Carolinians already in TANF and food stamps databases, as well as presumptive eligibility – an option given by the ACA to let hospitals presume certain patients are eligible for Medicaid and then enrolling them in the program.
While DHHS may ostensibly be trying to give more people access to health insurance, the recent randomized, controlled Oregon study has shown that Medicaid coverage generates no significant improvements in measured physical health outcomes. Moreover, the study found that those on Medicaid visited emergency rooms at a 40 percent greater rate than did the uninsured.
Higher Education: $4.6 Billion
When including all of South Carolina’s state-funded universities, technical colleges, and higher education-related agencies, the Ways and Means budget provides $4.6 billion for higher education. While most of university funding comes from Other Funds, which in this case would mean student tuition and fees, a substantial amount is still funded through the General Fund – roughly $630 million.
The highly touted “fair funding” initiative proposed by the University of South Carolina (asking the state for $10 million more in annual General Fund funding in exchange for not increasing tuition) only received $1 million in the Ways and Means budget. That’s $1 million too much. Bear in mind, while universities have vastly increased their own budgets in recent years, graduation rates have decreased. Moreover, universities are sitting on hundreds of millions of unused funds which could easily be used to offset new expenses. USC-Columbia has $347.8 million in “unrestricted net assets” and Clemson has $133 million in similarly unrestricted reserves.
It’s also important to note that since many students are essentially guaranteed federal student loans, universities are, as a practical matter, able to increase tuition as much as they please.
K-12 Education: $4 Billion
The Ways and Means Committee voted to fully adopt Gov. Haley’s proposed education plan. New spending to implement the plan includes:
- $137.5 million for implementing changes to the school funding method (including changing the base student cost formula).
- $29.4 million for reading coaches.
- $4.5 million to expand summer reading camps.
- $7 million for new digital instruction materials.
- $4 million training teachers to use new technology.
- $4 million for charter schools revolving loan program.
The one possible positive item in this list is the charter schools loan program but it makes up less than one percent of the cost of the entire program. Needless to say the Governor’s plan and the budget in general have little time or funding for school choice (the one exception being the $8 million tax credit scholarship proviso for exceptional needs students). The governor’s plan isn’t likely to improve educational outcomes, but it’ll be absolutely successful at spending more state money to no discernible result. The total Department of Education budget grew by $126 million when compared to last year’s ratified budget.
Transportation: $1.8 Billion (Includes DOT, STIB, and County Transportation Funds)
No real plan is evident in the committee’s transportation spending plan. So far, the overall size of the transportation budget will have increased by $146.8 million in just one year, and in the Ways and Means Budget there are several increases in the tens of millions of dollars for various line items. These increases include $45.2 million for non-federal aid other operating expenses, and $52.5 million for port access road expenditures.
The most notable item in this section of the budget, however, is a $100 million appropriation for the State Infrastructure Bank Board (STIB) that cites last year’s Act 98. We’ve discussed Act 98 at length before and pointed out that it does nothing to address the priority problems that are the root of South Carolina’s infrastructure woes. What it will do is add to the state’s debt burden. The debt comes from the fact that STIB will bond out the funds in receives under Act 98 to as much as ten times their face value.
What’s truly stunning about the Act 98 appropriation is that the law only requires that $50 million be transferred to STIB. While there are already bills in the legislature that would increase the required transfer amount to $100 million, Ways and Means apparently decided they didn’t want to wait for them and doubled down on this terrible policy themselves. If this appropriation isn’t changed in subsequent budgets the state could be looking $1 billion in new debt, courtesy of the STIB, in this year alone.
How Can This Spending Be Stopped?
Simply put, if the state receives money from taxpayers, they are going to spend it. The only way to cut their spending is to cut their funding stream. South Carolina has some of the highest tax sales and income tax rates in the nation; cutting these taxes would help shrink the General Fund. Other Funds can be slashed by cutting fines and fees – as well as tuition in universities. And perhaps most importantly, federal funds – and the regulatory strings and sovereignty lost attached to these funds – can be cut by simply refusing to take the money. (This strategy – dubbed “Starve the Beast” when it was debated at the federal level in the 1980s – doesn’t work so well with Congress, since the federal government can simply print more money.)
It’s naïve to think any form of spending cap or “tax savings” funds in the budget will limit state spending in any significant way. Even if the money collected isn’t spent on a program, it isn’t going back to the taxpayers.