The State’s Secret $7 Billion Budget

February 8, 2010

Investigative Reports

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The NerveYou’d think it would be hard to miss $7 billion.

But S.C. lawmakers have been doing just that for years when it comes to a large part of the state budget known as “other funds.”

The other funds category, which makes up at least one third of the state’s approximate $20 billion total budget, includes fees, fines and penalties collected by state agencies, as well as revenues from the sale or rental of state property.

Those funds often are designated for specific programs.

In comparison, general funds, which are supported mainly by corporate and individual income taxes and sales taxes, typically have the fewest strings attached. Federal funds make up the other third of the budget, and usually require a state match and come with restrictions set by Washington.

Although fees and fines have long been tapped as revenue sources in South Carolina, there is still much secrecy and confusion surrounding their use.

Lawmakers routinely approve other funds with little, if any, scrutiny, in adopting the budget. And under state law, agencies have several ways they can slip in fee increases without much review.

“It comes on a blue page in the middle of the whole thing – it’s called the ‘reconciliation page,’” Sen. David Thomas, R-Greenville, told The Nerve last week. “It’s only one line out of 500 pages.”

Thomas, a member of the Senate Finance Committee, described himself as a “lone voice crying in the wilderness” in trying to bring attention to how other funds are spent. Since fiscal 1995, that figure has skyrocketed by nearly $4 billion, state records show.

“Clearly, it is out control,” he said. “There effectively is no oversight.”

An investigation by The Nerve found that there has never been a comprehensive analysis of all fees and fines levied by every state agency. Among the basic unanswered questions:

  • Are the programs supported by the fees/fines considered core functions of that agency?
  • Are the fees/fines being used for the purpose for which they were intended?
  • Are agencies collecting too much of a particular fee or fine? If so, where are the excess revenues going?
  • Are certain fees/fines being supplemented with other money if funding targets aren’t met?

Thomas said after getting tired of hearing him complain over the years about how other funds are spent, Senate Finance Committee Chairman Hugh Leatherman, R-Florence, gave him the go-ahead to form a study committee, which was done in 2008. But the study committee, directed by Finance Committee staffers, didn’t get as far as they had hoped to last year because they were tied up dealing with general fund cuts and federal stimulus funds, he said.Asked why other lawmakers have largely ignored the other funds part of the budget, Thomas replied, “It’s the tyranny of the urgent. … You kind of focus on what’s in front of you.”

 

Lack of Transparency

A budget proviso passed last year requires that all state agencies, “in order to promote accountability and transparency,” list online details of their fees and fines collected in the prior fiscal year. The posting deadline was Sept. 1.

But in a sampling of more than a dozen major state agencies, The Nerve found only one – the Department of Health and Environmental Control – that has its report on its home Web page. Other state agencies, such as the Department of Labor, Licensing and Regulation, list that information online in already-required annual accountability reports, though it often takes several computer clicks to get there.

Because the reporting requirement is listed in a proviso, it will expire unless it is renewed this legislative session or made into permanent law.

Given another likely extra-lean year for general fund revenues, S.C. agencies will once again be hunting around for more money. And getting the General Assembly’s OK to jack up various fees and fines likely will be a top priority for those agencies.

Suspecting that, Sen. Tom Davis, R-Beaufort, is again pushing a joint resolution that would require any new requests for fee or fine increases to be approved separately from the main budget bill. The resolution, which he first introduced last year but went nowhere, quickly passed the Senate last month and is now in the House Ways and Means Committee.

“It was a direct outcome of the report that the (South Carolina) Policy Council did,” Davis told The Nerve last week. “I started to ask questions about these other funds. People don’t know where the money came from, where the money went.”

The South Carolina Policy Council (www.scpolicycouncil.com) in February 2009 released an analysis titled, “The $21 Billion State Budget: South Carolina’s Three Spending Categories,” which detailed what makes up the total budget. Among other findings, the study noted that it is difficult to determine exactly how other funds are appropriated.

Davis’ resolution also would set up a 10-member committee that would review “all sources” of revenue in the other funds part of the state budget. Leatherman would appoint half of the committee; the other five would be named by House Ways and Means Committee Chairman Dan Cooper, R-Anderson.

Senate President Pro Tempore Glenn McConnell, R-Charleston, and Sen. Mike Rose, R-Dorchester, last month introduced a related bill that would make the separate-approval process for fees and fines a permanent law. Davis’ resolution, if approved, would affect only this legislative session.

On the House side, minority leader Rep. Harry Ott, D-Calhoun, says he plans to introduce a similar bill next week when the House reconvenes after a weeklong furlough.

But both bills and the resolution would exempt college tuition and fees –the single-largest source of other funds, according to the 2008 Senate Finance Committee study – from having to be approved in separate bills. In fiscal 2007, those fees totaled nearly $1.4 billion, the Finance Committee study found.

Public tuition, which is controlled by legislatively appointed boards of trustees, has been skyrocketing at colleges and universities statewide in recent years. The cost for in-state undergraduate tuition at USC Columbia and Clemson, for example, have jumped about 115 and 117 percent, respectively, since the 2001-02 school year, state records show.

Asked why he exempted colleges from his resolution, Davis told The Nerve, “The short answer is I couldn’t get it out of the Senate with that included.”

Ott, a member of the House Ways and Means Committee, told The Nerve that by exempting any proposed tuition increases from his bill, he is “trying to give university trustees the opportunity to do the right thing.”

“But they really are bumping up on the limit of my patience because of those tuition increases,” he added. “If you see another one of them come out with a tuition increase, you will see some legislation to cap those increases.”

Gov. Mark Sanford supports the efforts by McConnell and Davis, Sanford spokesman Ben Fox told The Nerve last week.

“They provide a valuable layer of accountability and indeed transparency that are often times lacking in the process – especially when spending taxpayer dollars,” Fox said in a written response. “It’s important to recognize that although the $1.58 billion in state budget cuts over the last two years have garnered much attention, the total state government budget this coming year will top $21 billion. This $21 billion includes federal funds and state fees and is the highest total budget in South Carolina history.”

 

Huge Increases

The amount of other funds has skyrocketed over the past 15 years, jumping to a projected $7.2 billion this fiscal year from $3.3 billion appropriated in fiscal 1995, according to state Board of Economic Advisors records. Since fiscal 2005, appropriations in that category have totaled more than general fund appropriations.

With slightly more than 9 percent in across-the-board cuts so far this fiscal year, general fund revenues are estimated at about $5.3 billion, or 26 percent of total projected revenues. In comparison, federal funds are projected at $7.8 billion, or about 38.5 percent of estimated revenues, with other funds making up the remaining 35.5 percent, BEA records show.

The Senate Finance Committee 2008 study found that between fiscal years 1995 and 2007, the average annual percentage change in other funds (7.2 percent) outpaced the average annual growth of federal (5.7 percent) and general (3.8 percent) funds.

The study committee also found that only six out of 102 agencies, including the S.C. Senate and House, operate solely on general funds, while 12 agencies, including the Department of Motor Vehicles, Public Service Commission and Education Oversight Committee, operate only with other funds.

But the committee has not done a fee-by-fee analysis of every state agency, according to Thomas.

The Nerve found there is no systematic statewide oversight of the other funds. Michael Sponhour, spokesman for the S.C. Budget and Control Board, and R.J. Shealy, spokesman for S.C. Comptroller General Richard Eckstrom, told The Nerve that their respective agencies do not conduct any comprehensive analysis of other fees and fines, though state agencies include details on other funds in submitting their individual budgets to the Office of State Budget.

“There’s not any uniformity,” Sponhour said, explaining that agencies have different ways of categorizing fees and fines.

 

Two Case Studies: Judicial Department, DHEC

The S.C. Judicial Department – the third branch of state government – has seen one of the most dramatic shifts in recent years in funding, according to state Board of Economic Advisors and Judicial Department records. In fiscal year 2001, for example, general funds made up 99.9 percent of total revenues; for this fiscal year, that share – with mandated budget cuts –  will have plummeted to 44.4  percent.

In fiscal 2001, fees made up $66,575, or less than 1 percent, of total revenues. This fiscal year, fees are projected at more than $18 million, or nearly 36 percent, of total revenues.

The department over the past eight years has increased or enacted fees connected to lawsuits in circuit and magistrate courts, alimony and child support, and a computer case management system. It also relies on a portion of surcharges on criminal fines, along with bar license and law exam fees.

But it’s not enough to keep up with the nearly 41 percent in cuts in general fund appropriations over the past 19 months, according to S.C. Supreme Court Chief Justice Jean Toal, who heads the Judicial Department. In a presentation (www.sccourts.org) last month to the House Ways and Means Law Enforcement and Criminal Justice Subcommittee, Toal pointed out the department is facing a projected $7.6 million shortfall this fiscal year in its approximate $58.4 million budget.

Toal has requested a proviso exempting the department from any future mandated across-the-board general fund cuts by the General Assembly or state Budget and Control Board.

Provisos, which have to be renewed annually, are one way state agencies can slip fee and fine increases into the budget without debate, Sen. Davis told The Nerve. Besides that, some agencies can legally raise fines or fees without legislative approval, while others include them in proposed regulations that are automatically approved by the General Assembly if no action is taken within a certain period, he said.

The Department of Health and Environmental Control, for example, has several different procedures under state and federal law for proposing new fees or increasing existing ones, said agency spokesman Thom Berry.

The department last fiscal year collected a total of about $88.3 million from its approximate 90 categories of fees and fines, The Nerve found in an analysis of the department’s annual fees/fines report posted on its Web site (www.scdhec.gov). If the same amount is collected this fiscal year, it would represent about 15 percent of total projected revenues of $576.6 million.

DHEC’s top five fee generators in fiscal 2009 were:
 

  • State Underground Petroleum Environmental Response Bank – $19.5 million (fee assessed at ½ cent per gallon of gasoline sold);
  • Patient fees and services – $12.1 million;
  • Title V air fees – $9.5 million (fees assessed on major industries based on certain levels of air admissions);
  • Laboratory fees for patients – $7.7 million;
  • Vital records fees – $4.5 million.

Under state law, DHEC has the authority – without legislative approval – to charge for patient and laboratory services, but only to recover actual costs, Berry said.Other fees are contained in proposed regulations, which have to be submitted to the General Assembly, Berry said. Those fees are automatically approved if the Legislature doesn’t take action within 120 days.

Asked how often that happened, Berry replied, “From time to time they may approve one, but in recent experience, they will come back with serious questions.”

Berry, however, could not provide specifics on the number of fee requests that are accepted or rejected annually.

Reach Brundrett at (803) 779-5022, ext. 106, or rick@scpolicycouncil.com.