South Carolina’s Billion-Dollar-Plus Hidden Budget

March 11, 2013

Investigative Reports

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Treasure ChestWhat S.C. House members likely won’t be talking about today as they begin debate on the fiscal 2014 spending plan for South Carolina is the billion-dollar-plus hidden budget.

That’s the collective amount in general and “other” fund reserves that 18 non-college agencies with the largest agency budgets started this fiscal year with on July 1, a review by The Nerve found.

In the typical annual budget process, lawmakers decide to spend billions of taxpayer dollars for the upcoming fiscal year while ignoring huge agency reserves carried over from the previous fiscal year.

And there’s rarely serious talk about returning any of the surplus to taxpayers.

Of the 18 state agencies with proposed total budgets next fiscal year of at least $100 million, the S.C. Department of Health and Human Services (HHS), which manages the state’s Medicaid program, had the largest total general- and other-fund reserves – nearly $222 million – as of July 1, according to The Nerve’s review of the latest “detail base budget,” prepared by the Office of State Budget.

Of the total, about $63 million came from general-fund carryovers; the $159 million carryover balance was in “other” funds. In addition, the department carried over $58.4 million in federal funds into this fiscal year, state record show.

In recently announcing their alternative to “Obamacare,” the federal law allowing expansion of Medicaid coverage for the poor, S.C. GOP House leaders said they wouldn’t have to spend any new state funds next fiscal year for their plan mainly because they could tap $62 million in HHS reserves, according to media reports.

The Nerve last week sent a list of written questions to HHS about its reserves but did not receive a response by publication of this story, though department spokeswoman Kim Cox said that “key staff” were working on it.

Multimillion-Dollar Reserves

Below are the next nine-largest total general- and other-fund reserves as of July 1 for those agencies with proposed fiscal 2014 budgets of at least $100 million:

  • Department of Commerce:  $132.4 million ($130.4 million, other funds; $2 million, general funds);
  • Budget and Control Board:  $126.1 million ($117.2 million, other funds; $8.9 million, general funds);
  • Department of Education:  $99.7 million ($82.68 million, other funds; $17.08 million, general funds);
  • Department of Transportation:  $94 million ($92.8 million, other funds; $1.2 million, general funds);
  • Commission on Higher Education:  $61.8 million ($61.57 million, other funds; $254,503, general funds);
  • Department of Mental Health:  $52.8 million ($52.8 million, other funds; $6,070, general funds);
  • Department of Health and Environmental Control:  $47.2 million ($41.8 million, other funds; $5.4 million, general funds);
  • Department of Employment and Workforce:  $37.5 million ($37.5 million, other funds; $0 general funds); and
  • Department of Public Safety:  $30.4 million ($26.6 million, other funds; $3.8 million, general funds).

Rounding out the other eight agencies with the largest combined general- and other-fund reserves were the State House Authority ($20.9 million); Department of Corrections ($19.9 million); Department of Social Services ($17.8 million); Governor’s Office of Executive Policy and Programs ($14.1 million); Department of Juvenile Justice ($10.6 million); Department of Vocational Rehabilitation ($8.7 million); Department of Revenue ($7.4 million); and Department of Disabilities and Special Needs ($5.1 million).

Collectively, the 18 agencies had more than $1 billion in total reserves as of July 1, including nearly $889 million in other funds and more than $120.5 million in general funds, The Nerve’s review found.

And if every state agency, including public colleges and universities, were included, the total reserve amounts would be much larger. The Nerve, for example, reported in January that the University of South Carolina’s “unrestricted net assets” as of July 1 were $361.1 million, nearly the triple amount that the state’s flagship university recorded in fiscal 2003.

Agency surpluses aren’t the only types of funds that are “off budget” – at least if you ask the Department of Social Services. In the House Ways and Means Committee’s version of the fiscal 2014 budget, $1.5 billion in federal food-stamp assistance payments is listed in DSS’ budget as a transfer to an “unbudgeted account,” thereby reducing the agency’s total budget – at least on paper – to $656 million.

If the $1.5 billion were included, the total proposed state budget, which includes general, federal and other funds, for next fiscal year would be more than $24.2 billion, compared to the $22.7 billion figure listed in the Ways and Means budget version.

Contacted last week, DSS spokeswoman Marilyn Matheus in a written response to The Nerve said DSS does not “expend the $1.5 billion for food stamps.”

“This is a federal U.S. Department of Agriculture expense,” she said. “Food stamp funds are never in the custody of DSS.”

“After this change,” Matheus continued, “only those federal monies that DSS will actually have in its custody and that DSS will actually make expenditures of will be budgeted for in the DSS budget.”

Can’t Touch Surpluses?

Besides HHS, The Nerve last week asked the departments of Commerce, Education and Transportation, and the Budget and Control Board, which rounded out the top-five largest surpluses in The Nerve’sreview, for explanations of their reserves and if some of those surpluses could be returned to taxpayers.

“There is no statutory authority for the SCDE (S.C. Department of Education) to return General Fund carry-forward (funds) directly to taxpayers,” department spokesman Jay Ragley said in a written response. “The General Assembly would have to pass legislation to create a mechanism to return General Fund carry-forward (funds) to taxpayers, such as a taxpayer rebate program.”

As for the majority of the department’s reserves, which are derived largely from 1 cent of the 6-cent state sales tax mandated by the Education Improvement Act, Ragley said, “If the General Assembly desired to return EIA carry-forward (funds) to taxpayers through a rebate program, it would take a 2/3 vote of both chambers to amend the EIA law.”

Ragley said the Education Department can’t use its EIA reserves for any purpose, noting that those funds are “annually appropriated by the General Assembly and governed by state law and budget provisos,” and are kept in a separate trust-fund account “not under the direction of the Department of Education.” At least 96 percent of EIA funds “flows to school districts for mandated programs, other state agencies such as S.C. Educational Television, colleges and universities, and nonprofit organizations such as Teach for America,” he said.

Ragley also said about $12.1 million of the department’s other-fund surplus, derived from lottery proceeds, was used earlier this fiscal year to purchase new school buses.

Most of the department’s general-fund reserves for this fiscal year are restricted for specific purposes under state budget provisos, Ragley said.

At the Department of Transportation, Christy Hall, deputy secretary for finance and administration, said in a written response to The Nerve that her agency’s year-end surpluses are “utilized to support the following year’s appropriations budget, including meeting commitments on items such as construction activities on road and bridge projects, as well as mass transit activities.”

“The carry-forward (amount) is calculated at the end of the state fiscal year, which for SCDOT coincides with the peak cash demand timeframe for the agency because of summertime road and bridge construction activities,” she said. “During the summer months, it is not uncommon for SCDOT to experience up to $90 (million) in expenditures in a single month.”

Budget and Control Board spokeswoman Lindsey Kremlick said last week she would respond to The Nerve’s questions, though no response was received by publication of this story.

Amy Love, Commerce’s chief spokeswoman, did not respond to The Nerve’s written inquiries. The agency carried over more into this fiscal year ($130.4 million) than its total proposed budget ($102.6 million) for fiscal 2014 – a far greater percentage compared to the 17 other agencies in the The Nerve’sreview.

What typically isn’t addressed when discussing surpluses is that the S.C. Constitution establishes two large “rainy-day” funds separate from individual agency reserves:  the General Reserve Fund and Capital Reserve Fund, which are based on 5 percent and 2 percent, respectively, of the state’s general-fund revenues from the previous fiscal year.

The General Reserve Fund is supposed to cover any year-end deficits; if that fund has to be tapped, the Capital Reserve Fund must be used to replenish it, under the constitution.

As of July 1, the General Reserve and Capital Reserve funds stood at $281.6 million and $104.8 million, respectively. In recent years, however, lawmakers have drained the Capital Reserve Fund to cover a laundry list of projects, though they replenish it annually, only to raid it again the following year, The Nerve has previously reported.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Following him on Twitter @thenerve_rick. Following The Nerve on Facebook and on Twitter @thenervesc.