After mid-decade binges in state spending and program expansions, state government has been a three-year purge, with even tighter belts a year away.

Currently, the House version of the state’s General Fund budget is sitting in the Senate, waiting to be debated on the floor of the Senate beginning Monday. The $5.1 billion budget is the smallest in years, taking spending levels back nearly a decade. But hey, who doesn’t want to be as thin as they were 10 years ago?

Complicating matters last week were a $60 million accounting snafu and a $67 million “mis-spending” on Medicaid that caused the Senate now has to craft a budget closer to the $5 billion mark.

“Winners” and losers

And as it always is with money, there are going to be winners and losers. Or in this year’s budget process, losers and not-quite-as-big losers.

“We’ve already gone through horrendous, horrible cuts,” said Senate Finance Chairman Hugh Leatherman (R-Florence). “And now we have to deal with a $127 million difference so late in the day; I don’t how we’re going to do it.”

Leatherman said there was some “good news” about the budget his committee will present to the full Senate next week. “We’ve been bumping along the bottom so much for so long, we can’t go much lower.”

But he said, there was a darker lining to that cloud in that funding for core state services is getting cut so close to the bone that the state soon may not be able to deliver core services it is required to provide.

Corrections Department wins

Perhaps the biggest “winner” in the budget that will be up for debate on Monday is state Department of Corrections, which is already running a $29 million annual deficit.

The House budget funded Corrections at close to its current year spending and the Senate’s plan is within $7 million. But because the agency was allowed to continue its deficit this year, Corrections was arguably exempted from 4- and 5-percent mid-year cuts all the other state agencies were hit with.

While talks of layoffs and furloughs pepper state job water coolers, there is no hiring freeze at Corrections, where jobs listings are in plain view on the agency’s Web site.

Corrections could actually see its inmate numbers begin to slow or recede in January, thanks to a sentencing reform bill winding its way through the legislature. That bill would reserve future prison beds for more hardened, dangerous criminals, and divert more into treatment, and supervised home stays. That bill has yet to be passed, and its effects could take months or even years to be fully felt.

Highway Patrol wins

Another “winner” might be the state Highway Patrol, which was looking at a reduction of more than 250 officers over the next year or so. That is a significant number because the entire department is only close to 900-strong.

Before a Senate Finance move restored a big chunk, funding was so scarce that there might not have been jobs for the 46 candidates expected to graduate from highway patrol school this year, according to Finance staffers.

Education crippled

Easily, the biggest loser in the budget to be debated next week will be education. Cuts to K-12 education take state funding levels back 16 years to 1994. But that pales in comparison to the hit Higher Ed is about to take.

The current Senate plan is to remove an additional $104 million from college base budgets in recurring cuts. Finance research showed that not only would that represent a 44-percent cut to higher education over the past two years, but it would drop state funding levels to those from 1985. Yes, 1985.

Here’s the kicker: the reduced amount is not adjusted for inflation or increased student populations, which is crucial since the state has, according to Finance, increased its student population by the equivalent of four Clemsons. Yes, four Clemsons.

Some of the money being taken away from colleges’ base budgets is being diverted into state scholarship programs in the Finance proposed budget.

As draconian as the higher ed cuts may seem, Julie Carullo, director of government affairs at the state Commission of Higher Education, said they were in line with the House cuts. Carullo also said that like K-12, most institutions’ money was tied up on the personnel side of the ledger for salaries.

“Colleges and other institutions will all be working hard in response to this to find more efficiencies, but it’s hard to imagine that with having lost 44 percent in baseline funding since 2008 that there won’t be consequences.”

Pain for awhile

The bad news won’t stop coming for any corner of state government, at least for a while. Even though the state and national economies seem to be improving, Leatherman doubts they will redouble quickly enough to stave off any of the current budget drops.

That’s especially bad news for state Medicaid, which expanded its eligibility roles to get federal stimulus money, which stops at the end of next summer.

“More people, less money” may soon replace one of the state’s mottoes: “Dum Spero Spero.”

But as bad as the state budget situation is, state Sen. Kevin Bryant (R-Anderson), who serves on Finance, said he thought it actually was much worse. Bryant contended that core services were getting cut, but that the “fluff” was still getting funded “in order to fool the people.”

Crystal ball: There are three options for state government. First, keep cutting. The problem here may be that core services are so close to the financial bone that any more cuts in the coming years could mean agencies won’t be doing the jobs they are required by law to do. Second, raise fines and fees so that anyone needing something outside of core services will be expected to kick in more and more money, like the way the state’s administrative courts may soon be funded. And third, raise taxes. When asked about the likelihood of raising taxes next year, Leatherman was cryptic. “That’s up to the General Assembly,” said Leatherman, a bit of a bigwig in that body.

4/16: State edging toward requiring home sprinklers

4/9: 2010 session more effective so far

4/2: Will SC reapply for big education grant?

With the budget on the floor of the Senate beginning Monday and the final weeks of the session upon the House, the pace of legislative meetings has slowed to a crawl.  

Next week will bring some interesting floor debate. In the House, members will discuss a bill that would take kids’ drivers licenses away if they drop out of school, but that measure could fall prey to the crossover deadline, May 1, when bills need two-thirds votes to be sent to the other chamber.

The Senate will see most of the action with the budget out of committee and on the floor. If there is room next week for anything other than the budget in that chamber, an offshore drilling bill could make it to the floor, as could more discussion on increasing fines and fees to support the state’s financially struggling administrative courts.

This week, when asked about his thoughts on the corporate income tax reduction plan tucked into an economic development plan sent over from the House, Senate Finance Chairman Hugh Leatherman (R-Florence) had three words to say: “No … no … no.”

“The state can’t afford any kind of cut right now.” The reduction proposal was House Speaker Bobby Harrell’s (R-Charleston), who wants to shrink the state’s current 5-percent corporate income tax rate a half-percent over the next 10 years. Harrell’s spokesman said the speaker wasn’t surprised and that once the Senate passed its version of the bill, the two sides would hash out differences over the tax cut in conference committee.

The House passed a 50-cent increase per-pack cigarette tax this week. The bill originated in the House in last year’s session, but stalled in the Senate.

The House initially wanted to use the money generated by the proposed increase to give state businesses tax credits to help them give health insurance to more employees. The Senate wanted to use the money to help cover expanding state Medicaid program costs, estimated at different times to be between $125 and $130 million.

This week, the House settled on the Senate version, in part because of the national health care insurance package President Obama signed into law made the initial plan obsolete, according to House staffers. Now, according to Speaker Bobby Harrell’s office, the question became should the increase be 30 or 50 cents, because the lower number was thought to be more veto-proof.

Gov. Mark Sanford has hinted he will veto the measure, especially if the increase was not offset by an equal tax cut elsewhere, making it revenue neutral. The 62-53 vote in the House raises the specter that 50 cents won’t be veto-proof, as the General Assembly needs a two-thirds vote to overcome Sanford’s opposition.

Through the years, we haven’t seen eye to eye on much of anything political. Our visions of what government should do are just different. 

In general, you prefer to limit state government’s power or control it by shifting oversight to the executive branch. In your tool belt are strategies designed to say no – tax cuts to starve programs and dizzying spin strategies to get around public institutions, such as school vouchers that would harm public schools.

On the other hand, I don’t find government to be an enemy, but a vehicle to deliver pragmatic programs to enhance the common good. Sure, there are occasional inefficiencies, but after years of cuts to state budgets, there isn’t a lot of fat hanging around fueling idle state workers.

About the only thing we’ve agreed on in the political arena is that you shouldn’t have to resign because of a marital infidelity. We both agreed that it was a personal mistake that essentially didn’t impact on the job of being governor.  We both caught a lot of flak for that position. But you’re still governor. I still write.

So while we look at the world differently, please bear with me as I make a case for why you should sign a bill to raise the cigarette tax by a half dollar per pack.

First, it’s the right thing to do for adults. Right now, about 720,000 South Carolina adults – 22.3 percent – smoke cigarettes, according to HealthySC.gov. The annual cost of health care related to smoking is about $1 billion. Because of the way the health care system functions, all South Carolinians pay for millions of dollars of treatment for South Carolinians who smoke. 

Raising the cigarette tax by 50 cents will generate about $120 million in revenue that will help bring in another $360 million in federal matching monies to help defray health care increases and keep Medicaid programs going in the state. In essence, this “user fee” on smokers would generate monies to help pay down some of the high costs they generate in the health care system. More than three in four South Carolinians – you, me and other non-smokers – won’t be impacted at all immediately by a higher cigarette tax. In the long run, we may not face bigger health cost increases to cover care of smokers.

Second, it’s the right thing to do for children. If cigarettes cost more, youths might not be able to afford cigarettes and may not start smoking, which will reduce long-term costs to health care – and keep our kids healthier over time. To put it more politically, adding a fee per pack will act as a disincentive for users, which should make the population healthier over time.

Third, increasing the cigarette tax is fair. In your years as governor, there have been an estimated $2.3 billion in tax cuts in South Carolina, according to estimates made with figures from the state Board of Economic Advisers. There have been income tax cuts to get rid of a tax bracket and marriage penalty. There have been millions cut through sales tax holidays, sales tax exemptions and elimination of taxes on groceries. And more than a billion dollars has been cut from school operating expenses in a controversial, lopsided property tax swap. 

Anytime there are proposals to raise taxes, the return rhetoric always insists that they be revenue neutral – that there are cuts to balance any increases. I don’t recall the opposite rhetoric in the pleas for tax cuts – that there be offsetting revenue to ensure they are revenue neutral. 

On the balance sheet of your seven years in office, there are tax cuts worth $2.3 billion and tax hikes that, at best, are inconsequential. Approving a $120 million user fee that impacts a small audience isn’t going to dirty your record of overseeing what may be the largest decrease of revenue to the state in its history.

So when the legislature sends its bill to raise the cigarette tax, please consider signing it so that we can protect children, provide funding to mitigate smokers’ health costs and promote the common good. 

A final note to legislators: If he vetoes the bill, please override it for all of the reasons above.

4/16:   Keep guns from under seats

4/9:   Let's learn from the Civil War

4/2:   Census brings a little R&R

APRIL 23, 2010 -- Lost in the shuffle of budget shortfalls, the cigarette tax and other high profile issues is to address the problems created by Act 388 for the index of taxpaying ability (ITA). The ITA measures the share of total statewide assessed property value located in each district. It is used to determine what share of a school district’s EFA (Education Finance Act) operating funds come from the state and how much must be raised locally. A high index requires more local funding, while a low index means more state aid. The ITA distributes more operating revenue per pupil to poorer school districts to help level the education playing field.

From 1977 until Act 388, the ITA was a good way to apportion local responsibility for the EFA part of education finance. It measured a school district’s ability to raise more money by raising mill rates. In the 1990s, county councils were allowed to negotiate fee in lieu agreements (FILOT) with new and expanding business firms. A FILOT replaces property taxes for these firms with a fixed annual fee. The fee help fund schools and county services, but when the school district raises its tax rate, FILOT property doesn’t generate additional revenue.  So the ITA no longer measured the ability to raise revenue.

The Department of Revenue came up with a solution to this particular problem. Suppose the agreed-on fee is $100,000 a year. That fee can be treated as equivalent to a property tax payment. To convert the payment into a property value, just divided by the tax rate. Assume a tax rate of 80 mills, which is eight percent, or .08. At that mill rate, the property would have to be worth $1.25 million in assessed (taxable) value to generate $100,000 in property taxes. So the Department of Revenue entered that property at $1.25 million in the ITA.

In 2006, Act 388 further complicated the ITA problem by replacing school operating taxes on homeowner property with state property tax relief payments. After the first year, increases in state property tax relief payments are no longer tied to the value of homeowner property, so newly constructed owner-occupied housing generates no additional revenue for school operations. But owner-occupied homes are still counted in the ITA.  

This issue wouldn’t matter if all districts had the same share of homeowner property in their tax bases, but they don’t. The state average share of homeowner property in the tax base is 30.4%. Districts with a higher share of homeowner property get relatively more property tax relief payments from the state, but if they have to raise the mill rate, they will generate less additional revenue another district with the same ITA but more non-homeowner property.

What about just taking owner-occupied property out of the ITA? That’s what will happen if the General Assembly takes no action. But the result would be a significant redistribution of EFA funds. The ITA for a “bedroom” school district with lots of homeowner property would drop more than average, so that school district would get more EFA aid from the state. These same districts already get more state property tax relief than average, because they have more homeowner property. A district with less than the average share of owner-occupied property as of 2006 already gets less than average state property tax relief payments and would now also get less EFA money. So taking homeowner property out of the index would redistribute EFA money in ways that would worsen our already inequitable distribution of state funds to school districts.

Some seven bills have been put into the hopper to address this issue. One, H. 3748, was reported favorably out of Ways and Means. This bill would keep the present ITA but convene a study committee to determine how to adapt it to the effects of Act 388. Other bills would simply delete the ITA as a factor in state aid and replace it with some other measure of local effort or ability to pay.

A relatively simple solution would be to adjust the ITA for homeowner property the same way as fee in lieu property. Homeowner property would still be in the index, but its value would be based on property tax relief payments from the state, not actual assessed values. This kind of adjustment to the ITA would be fairer to districts with below-average shares of homeowner property in their tax base. But in the long run, the state needs to come up with a better way to decide how much each local school district should contribute to the cost of K-12 education.    

Dr. Holley H. Ulbrich is a senior scholar at the Strom Thurmond Institute of Government and Public Affairs at Clemson University. She is the author of numerous economic works, most recently Our Money, Our Values: Building a Just and Sustainable World (Pilgrim Press, 2010).

4/16: Walker: Unhealthy male obsession with abortion politics

4/2: Gasperson:  No middle ground on education

3/19: Couick:  Extraordinary SC effort on energy

Do you seriously think it's going to make a hill of beans' difference if someone has a gun in the console or under the seat? Aside from a child getting their hands on it, I see no difference. Do you really think we are " the most violent state in the nation " because of responsible/legal gun owners who are reading and adhering to these laws. 

-- Paul Worthington, Florence, S.C.

Right on guns

To Statehouse Report:

You are so right! [Commentary, 4/16] With some folks, it doesn’t take much to set them off. Now imagine road rage, and drunken driving rage, etc.

Isn’t it wonderful to know they will have a gun right on their fingertips. Thanks!

-- Judy Garnett, Florence, S.C.

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Ominous start. Attorney Steve Benjamin won a runoff Tuesday to be Columbia’s next mayor, but he was involved in a car accident in the early hours of the morning after becoming the city’s first elected black mayor; the woman in the other vehicle was seriously injured.  More.

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