Probe Reveals $3 Billion Gap in ‘Other’ Funds

September 22, 2010

Investigative Reports

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The NerveSince July 1, 1999, S.C. agencies have spent $3 billion more in “other” funds than what was initially appropriated to them by the General Assembly, a review of state records by The Nerve found.

And that doesn’t include the final figures for the fiscal year that ended June 30.

If you ask any state lawmaker, chances are few will be able to provide many details on which agencies are getting that money, and how exactly it’s being spent. The Senate Finance Committee’s budget director earlier this month publicly acknowledged that the huge pot of public funds has been given “spotty attention” by lawmakers and other officials over the years.

“It’s not looked at, in my own opinion, as it should be from a systems standpoint,” Mike Shealy told the S.C. Tax Realignment Commission (TRAC) – a legislatively created committee charged with recommending changes to the state’s tax structure – during TRAC’s Sept. 10 meeting.

Lawmakers in this year’s legislative session approved a budget proviso (70.27) creating a legislative oversight committee to begin studying how other funds are being spent and make recommendations to the General Assembly about the “appropriate policy for the receipt, appropriation, expenditure and reporting” of that money.

Shealy told TRAC members that the committee has not yet been appointed. Under the proviso, four of the eight members would include or be appointed by the Legislature’s top two budget writers: Senate Finance Committee Chairman Hugh Leatherman, R-Florence; and House Ways and Means Committee Chairman Dan Cooper, R-Anderson.

Shealy recommended that TRAC endorse the legislative oversight committee. TRAC is expected to take up the matter at its Sept. 30 meeting.

Other funds, according to the Office of State Budget, include such things as college tuition and fees, lottery proceeds, a portion of the state sales tax earmarked for K-12 education, gasoline taxes, motor vehicle license fees and court filing fees.

College tuition and fees, which have been skyrocketing at public colleges and universities statewide in recent years, make up the single biggest chunk of other funds. In fiscal 2009, for example, about $1.7 billion was generated by tuition, budget records show.

With severe general fund budget cuts over the past several years, state agencies have been looking harder at increasing other fund revenue – typically fee hikes. Often, those increases are buried in budget provisos.

For this fiscal year, which started July 1, lawmakers appropriated a record approximate $7.8 billion in other funds, which represent nearly 37 percent of the state’s ratified $21.15 billion budget. The appropriation is nearly $600 million more than what the Legislature appropriated last year – the single largest yearly increase since fiscal year 1995, state records show.

The other two pots of public money in the state budget are federal funds, which typically are restricted for specific programs and require matching state money; and general funds, which generally have the fewest strings attached.

As a funding source for this fiscal year, other funds come in second to federal funds, projected to be about $8.3 billion. The general fund appropriation after Gov. Mark Sanford’s vetoes is about $5.1 billion.

The Nerve in February reported that the amount of appropriated other funds has more than doubled since fiscal year 1995. In its latest study of appropriation bills and records from the Office of State Budget, The Nerve found that:

  • From fiscal year 2000 through fiscal year 2009, state agencies spent a total of $3.1 billion more in other funds than what was initially appropriated to them. In fiscal year 2009, the additional amount was nearly $414 million; the gap ranged from a low of $36 million in fiscal year 2001 to $857 million in fiscal year 2005.
  • As lawmakers prepare the following fiscal year’s budget, they are provided with an amended budget for the current fiscal year. In all but one year since fiscal 1997, the amended other funds appropriation was higher than the initially ratified amount. Based on available records, the largest increase – $465 million – occurred last fiscal year.
  • From fiscal 1997 through fiscal 2001, the amount of other funds spent was less than the amended appropriated amounts; the spent amounts were higher in all but one of the successive fiscal years through 2009. The net total difference over the 12-year period was $796 million more.

The Nerve last week provided its findings to Les Boles, director of the Office of State Budget, but he did not respond by publication deadline to questions on the findings.In an earlier written response, Boles acknowledged the $465 million gap in last fiscal year’s budget between what was originally appropriated for other funds and what was amended later. He attributed the difference to the “numerous nonrecurring funding provisos (Part IB) that were in the FY 09-10 Act.”

“In a normal year there would be little difference,” he said.

Boles said his office won’t release what was actually spent in other funds last fiscal year until the end of this year, explaining that his staff has started the process of preparing the “detail budget.” Also known as “the brick,” the document, which runs hundreds of pages, lists actual revenues for each state agency for last fiscal year, plus the current ratified fiscal year’s budget and the agencies’ proposed budgets for next fiscal year.

Shealy told TRAC members at their Sept. 10 meeting that as lawmakers have drastically cut the general fund over the past several years –  $1.6 billion since the start of fiscal year 2009 – state agencies have been pressured to make up the difference through increases in other funds, which include various fees charged by agencies.

“It’s pushed them, if they’re going to deliver their missions, to look for a transactional fee to maintain their services,” he said, adding later, “The days of the general fund growing and agencies getting a piece of the pie – those days are over.”

S.C. Supreme Court Chief Justice Jean Toal this year, for example, sought lawmakers’ help in bringing in an estimated $24 million to the Judicial Department’s budget with proposed court fee increases. But Sanford vetoed that bill (H. 3161), and the House narrowly sustained the veto.

The state’s budget situation will be even worse next fiscal year with the loss of hundreds of millions in federal stimulus dollars, Shealy told TRAC members.

“That’s the whole story of the budget right now,” he said.

Reach Brundrett at (803) 254-4411 or
rick@thenerve.org