What’s in the final 2019-2020 budget?

Last month, the General Assembly passed a budget spending nearly $30 billion – the largest appropriations bill in state history. By contrast, the governor vetoed only 0.1% of legislative spending. Below is an overview of how lawmakers are spending taxpayer dollars and what the governor vetoed.

Legislative leaders have called a special session beginning June 25, ostensibly to vote on the governor’s vetoes. However, it’s important to note that a special session is an opportunity for lawmakers to do practically anything they want. Technically the General Assembly is limited to only a handful of topics, but the first of those topics is amending the terms of the sine die resolution – a loophole that makes the special session limit virtually meaningless.

1. By the numbers

The 2019-2020 state budget totals at a whopping $29.8 billion – a 19% increase over last year’s spending and the largest budget in state history. (By contrast, South Carolina per capita income grew a mere 3.9% in 2018.)

There are three categories of budgetary spending: the general fund, “other funds,” and federal funds. The general fund is comprised of tax revenue and is often the only category of state spending officially reported. This year’s general fund totaled $8.7 billion.

“Other funds” are the revenue generated primarily from fines and fees and other dedicated revenue sources – such as the gas tax, which lawmakers renamed a “fee” and which state law allocated to the Department of Transportation. The “other funds” spending this year totaled $11.9 billion.

The final category of spending – federal funds – was $8.8 billion. However, this does not include all federal funds state government will disburse. In 2013, lawmakers moved the federal funding for the food stamp program (Supplemental Nutrition Assistance Program – SNAP) (estimated at $1.5 billion for fiscal year 2013-14) “offline” into an unbudgeted account. These funds have been unaccounted for in state budget documents since then. SNAP funding for fiscal year 2017-18 was $978.8 million.

This year’s nonrecurring surplus was around $324 million, and these funds were spent on a wide variety of items from core government functions to earmarks. Many of the earmarks are listed later in this breakdown. A few of the major appropriations from surplus dollars were:

• $4 million to the Department of Transportation for rest areas
• $40 million for a new statewide voting system
• $25 million for farm aid grants for farmers (as well as seasonal processing facilities in low-income counties) who experienced a loss due to Hurricanes Michael and Florence
• $10 million to the Department of Corrections for security equipment upgrades (the agency requested $159 million for this purpose)
• $1,250,000 for the Senate’s operating fund (no explanation given)
• $6 million on a taxpayer rebate

Lawmakers are also spending up to $61.4 million of tax revenue from the October 2018 lottery win on the taxpayer rebate – but only for taxpayers with a state individual income tax liability of fifty dollars, after credit. The rebate amount will be $50 per taxpayer.

2. Higher education

Lawmakers appropriated roughly $36 million in additional recurring dollars to public colleges and universities on the condition of a “soft” in-state tuition freeze. The freeze, however, is not comprehensive, and leaves a number of ways for schools to raise the price of attendance.

For instance, it only limits increases on in-state tuition and “mandatory fees,” which doesn’t include things like student housing, parking, textbooks, etc. Institutions may also increase tuition without limit to pay for employee pension or health plan costs. In fact, Clemson University recently announced it will increase in-state tuition by 1%, and out-of-state tuition by 3.8% for the upcoming school year. Room and board and meal plans will also see price hikes.

The budget allocated the following from lottery funding:

• Various scholarships, grants, and tuition assistance – $414.5 million
• High demand job skill training equipment (State Board for Technical and Comprehensive Education) – $12.5 million
• SC State University – $2.5 million
• Technology upgrades for colleges/universities/tech schools – $8 million

Finally, much of the $151.6 million in the capital reserve fund bill was appropriated to higher education facilities repair and renovation – for example, $12 million went to Clemson University, $12 million was allocated to the Medical University of South Carolina, $7 million went to the University of Charleston, and $15 million went to the University of South Carolina (contingent on a 1:1 private match).

3. Debt service

Rather than using excess debt service funds to continue paying down debt, lawmakers redirected them to the following:

• $65 million to the Department of Commerce’s Rural School District and Economic Development Closing Fund
• $50 million to school district capital improvements
• $20 million for employee bonuses

Any leftover dollars after these three items are fully funded can be used to pay down debt. If the amount of excess debt service funds turns out to be less than the appropriated amounts ($135 million total), the employee bonuses and school district capital improvements must be funded first.

Prior to last year, any leftover debt service funds from the previous year’s budget would be carried forward and used to pay down debt. Last year, lawmakers began robbing that fund for various purposes. This practice leaves the state paying the bare minimum on debt service – a dangerous policy, given that default on a debt payment would result in an automatic statewide property tax without warning, debate or limit.

4. Economic development

As usual, economic development was a priority in this year’s budget, particularly for surplus spending. The following items were all funded with nonrecurring surplus dollars:

• Commerce closing fund – $3.7 million
• Commerce Locate SC – $4 million (read more about this program here)
• Military base task force – $750,000 (this program received $625,000 in general funds as well, making a total appropriation of $1.3 million)

The “military base task force” is a Department of Commerce program, for which the Department requested $275,000. According to the budget request, the funds will be used “to address military related economic development opportunities and assist the military base communities of South Carolina in dealing with the issues related to future potential and present conditions.”

One of the most significant economic development appropriations, however, was the previously noted $65 million of excess debt service funds for an additional closing fund to be administered by the Department of Commerce. This closing fund, created and funded by proviso, can be used for economic development projects, water and sewer infrastructure, and school building infrastructure, etc. in certain low-income counties and in counties that contain low-income school districts.

Some of the other economic development-related allocations include the following:

• $550,000 for the “SC Association of Tourism Regions”
• $2.5 million for destination-specific tourism marketing grants (read more about this program here)
• $6.5 million for a sports marketing grant program (read more about it here), which the governor vetoed
• $642,500 for a “Be Pro Be Proud” program – which appears to be an Arkansas program where a “tricked-out trailer” (their term) tours to give students exposure to industries.

5. Education

Funding for public K-12 education occurs through the Department of Education, which saw a total budget increase of $249 million for fiscal year 2019-2020. The department’s total budget topped $5 billion for the first time in state history.

Here are some of the department’s biggest expenditures for the year:

• $1.8 billion for schools (based on a formula in the Education Finance Act)
• Over $800 million for pension system employer contributions – proof that when lawmakers increase “employer contributions” in order to shore up the insolvent pension system, those funds come from the taxpayers.
• $159 million for teacher raises (including a revised teacher salary schedule, with minimum starting salary of $35,000)

As noted previously, lawmakers also allocated $50 million of excess debt service funds to school district capital improvements. The proviso directs 25% of that ($12.5 million) to cover the costs of school district consolidation (such as salary adjustments, debt mitigation, millage rate adjustments, transportation) for small districts in low-income counties. The remaining 75% of these funds actually go to capital improvements.

After neither chamber’s version of the education omnibus bill passed, lawmakers inserted several policies from the legislation as budget provisos. This practice of legislating-by-proviso is a common way lawmakers bypass the proper legislative process for bills that failed to pass on their own merits.

• Amending reading coaches program – The Department of Education must screen and approve literacy coaches for a school if one-third of its third-grade students are scoring at the lowest achievement level. School districts that achieve above a certain threshold can request waivers allowing them to spend the funds on interventionists who work directly with struggling readers.
• Suspending test requirements – The 8th grade science test and 5th & 7th grade social studies tests are suspended. Using funds freed up from the tests, $500,000 must be used to fund educator professional development.
• Creating “schools of choice” – The budget allows districts to create multiple schools of choice, which are special schools created by local school boards that are (with the permission of the State Board of Education) exempt from certain state education laws.

6. Public employee benefits spending

Government in South Carolina comprises nearly one-fifth of the state’s total workforce. As government grows, so does the cost of funding it, and accordingly a significant portion of the budget funds public employee salaries, retirement and benefits.

However, lawmakers appropriated the following additional amounts this year:

• $41 million on a 2% raise for state employees
• $20 million on a $600 bonus for state employees making less than $70,000 per year
• $49.7 million for a health insurance contribution increase
• $32.4 million on an employer (taxpayer) contribution increase to the state pension plan

The pension contribution increase was mandated by the pension “reform” law passed in 2017, which threw more money at the insolvent pension plan, but failed to remedy the underlying structural problems. Moreover, the $32.4 million represents only a one-percent taxpayer-funded employer contribution increase – a mere drop in the bucket compared to the $81.9 billion deficit. The “reform” law mandates additional one-percent employer contribution increases for the next three years.

7. Earmark spending

The budget contains a number of earmarks (preferential spending items for specific state agencies and projects). Many of these appropriations have no accompanying justification, and several were vetoed by the governor due to the lack of transparency. Below are a few examples, with the vetoed items in bold italics:

• $6.5 million for a sports marketing grant program (It should be noted that $150,000 was funneled through this program in fiscal years 2016 and 2017 to the Carolina Panthers’ summer training camp at Wofford College. Read more)
• $642,500 to the “Be Pro Be Proud” program (read more)
• $1.5 million for the SC Aquarium
• $6.5 million for “parks revitalization”
• $550,000 for SC Association of Tourism Regions
• $3.5 million to the Department of Health and Human Services for medical contracts
• $3.4 million to the Department of Archives and History for “historic preservation”
• $2 million for the Department of Archives and History for community development grants
• $170,000 for child advocacy centers
• $75,000 to the Bishopville Military Museum
• $7 million to the Greenville Cultural and Arts Center (read more)
• $450,000 to the Cultural Arts & Theater Center renovation
• $1.5 million to the Saluda River Greenway (read more)
• $800,000 to the SC Coalition Against Domestic Violence and Sexual Assault (a nonprofit organization)
• $350,000 to the Epworth Children’s Home (read more)
• $150,000 to Florence Crittenton (a nonprofit organization)
• $250,000 to M.A.D. USA: Men Against Domestic Violence
• $700,000 to Centers for Fathers and Families (a nonprofit organization)

8. Vetoes

The governor vetoed a total of $40.7 million – 0.1% of the overall budget. Most of the vetoed appropriations were earmarks (as listed above), struck due to lack of transparency. Here are a few highlights from the non-earmark vetoes:

Creating a new sales tax exemption by proviso – This proviso (109.13) would exempt clothing worn in food manufacturing facilities from sales taxes. Needless to say, the budget is  not the appropriate mechanism to change tax policy.

Broader spending permission for Hazardous Waste Fund Accounts – Proviso 34.55 would have loosened spending requirements on Hazardous Waste Fund County Accounts. These accounts are essentially infrastructure slush funds with no oversight other than local lawmakers. This proviso would have added “ancillary services” to the list of approved project types, essentially allowing the funds to be used for practically any projects that impact economic development. This proviso was also vetoed last year.

Amending DSS adoption policy – Proviso 38.30 modified existing Department of Social Services laws by giving foster parents preference with an adoption if they have cared for a child for a period of nine months. This proviso did not belong in the budget, as it dealt strictly with agency policy, not the raising or spending of funds.

Hiring consultants to train local election commission- Proviso 101.14 would require the State Election Commission to hire consultants to advise the Richland County Election Commission (appointed by the local legislative delegation) on how to properly conduct elections. While local officials’ incompetence should not be addressed via budget proviso, hiring consultants rather than simply replacing unqualified legislative appointees is both poor fiscal policy and poor governance.

Creating a new study committee – Proviso 117.170 created an early childhood education study committee to recommend the best way to consolidate the various early childhood services. Not only is this a non-budget policy, but the solution to shrinking government is not creating yet another study committee.

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Lawmakers will return to Columbia for a special session on June 25 to take up the governor’s vetoes. It takes a two-thirds majority in both chambers to override a veto.