Lawmakers Move $3.7 billion Off-Budget

The South Carolina budget process has been eventful this year:  Overall spending has continued to climb; lawmakers have once again refused to follow the transparent budget process mandated by law; and both the House and the Senate have inserted unconstitutional budget provisos, which range from separate bills that failed to pass on their own, to a data warehouse to track individuals from preschool to the workforce.

Unfortunately, this is not all: Just before sending the budget to conference committee, the House voted to move nearly $4 billion of higher education spending off-budget.

It is important to note that these funds are not being cut from the state budget. They will remain in their respective agencies, who will continue to spend those funds as normal. It will simply be unreported to the public.

Higher Education “Other Funds”

State spending is made up of three categories of spending: General (tax revenue), Federal (revenue derived from the federal government) and Other Funds (fines and fees). Typically, lawmakers only debate the first category of general fund spending, but as the state budget is the authorization for all agency spending, it must include all three categories. The funds to be moved offline come from public colleges’ and universities’ Other Funds appropriations.

College and university Other Funds consist of tuition fees, athletic program revenues, etc.  The House amendment removed the entire category of Other Funds amounts from the public colleges and universities. Here is a breakdown:

• The Citadel – $106 million
• Clemson – $877 million
• University of Charleston – $223 million
• Coastal Carolina – $211 million
• Francis Marion – $39 million
• Lander – $65 million
• SC State – $52 million
• University of South Carolina (all campuses) – $1 billion
• Winthrop – $99 million
• Medical University of South Carolina – $455 million
• State Board for Technical Education – $463 million

These total $3.7 billion – 13% of the entire proposed House budget.

State law requires lawmakers to appropriate all anticipated Other Funds in the state budget. Instead of reporting the projected Other Funds amounts, the House inserted a budget proviso, stating that public colleges and universities “shall be authorized to retain, expend, and carry forward any revenue received by the institutions which is designated as other funds.”

This is not the first time lawmakers have removed appropriated funds from the budget. In 2013, federal dollars funding the food stamp program (Supplemental Nutritional Assistance Program – SNAP – estimated at $1.5 billion for fiscal year 2013-14) was moved off-budget and has been unaccounted for in state budget documents since then. This program is administered by the Department of Social Services (DSS) and the funding was formerly included in the DSS budget. The total SNAP appropriations in the 2016-2017 fiscal year equaled $1 billion.

Moving funds off-budget is not only nontransparent, it also has major policy implications. These funds are still spent by state government, and the failure to include them in the total appropriations bill presents a distorted picture of agency funding needs.

Moreover, higher education Other Funds are used by colleges and universities to increase the state’s debt. For instance, state law allows public colleges and universities to issue state institution bonds for facilities, maintenance and construction. Debt capacity for higher education is tied to the amount of tuition collected: According to state law, annual debt service on all state institution bonds cannot exceed 90% of total annual tuition fees.

It’s important to note that these are not revenue bonds, which are backed only by a particular revenue stream. These are general obligation bonds, which are initially backed by tuition fees, but which taxpayers are pledged to pay if the universities cannot. This is only one type of bond debt that university fines, fees and athletic revenues are used for, and does not include other revenue bonds, athletic facilities revenue bonds and auxiliary facilities revenue bonds – all of which are backed by Other Funds.

Failing to present the whole of higher education’s available funds in the budget could lead to further increases in both spending and debt. For instance, House leadership pushed a bond bill last year that would have created half a billion dollars of new debt – nearly half of which would have gone to higher education renovation, maintenance and repairs. While the bill did not pass, the chairman of the House Ways and Means Committee has stated his intent to bring similar bond bills every few years.

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Public colleges and universities are state agencies, and are governed, funded and overseen by state government. Lawmakers elect the boards of trustees, and spending and programmatic decisions are overseen by governmental boards and commissions. As is the case with every other state agency, public colleges and universities need legislative authorization to spend every dollar they receive.

Higher education is a service the state has assumed the responsibility to provide, and as such, it forms a major portion of state spending every year. Refusing to report an accurate, comprehensive picture of higher education funding is detrimental to transparency and a grave disservice to the taxpayers of South Carolina.