Veto on Sprawling Capital Reserve Fund Overridden

June 30, 2011

Investigative Reports

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The NerveS.C. House members wasted little time drawing a line in the sand regarding Gov. Nikki Haley’s budget vetoes, as evidenced by the fact that they quickly voted to override her capital reserve fund veto early Wednesday.

The Senate followed suit later in the day, by a 32-8 vote.

Tuesday, Haley announced she had vetoed 34 line-items and provisos in the 2011-12 state budget along with the capital reserve fund bill.

The vetoes totaled approximately $213 million, or about 1 percent of the proposed $5.754 billion passed by the General Assembly. The general fund budget makes up about one-quarter of the state’s overall $22.1 billion budget, the largest in state history.

By Wednesday morning, the House had already overridden the capital reserve fund veto, which features $107.7 million in spending, by a 112-1 vote, with only Rep. Ralph Norman, R-York, voting to uphold the veto. The Senate’s override was done by mid-afternoon.

By the end of the day, just eight of 35 Haley vetoes had been sustained by the House, while the Senate upheld one other of the governor’s vetoes. Overall, lawmakers voted to sustain just $507,000 of Haley’s proposed cuts.

Overturning a veto required a two-thirds majority of those voting. Vetoes overturned by the House then headed to the state Senate, where they also required a two-thirds majority. The budget year begins Friday.

The capital reserve fund is a recurring appropriation that must equal 2 percent of the General Fund revenue of the latest completed fiscal year and funds may be withdrawn from the reserve only for the purpose of covering year-end operating deficits, according to Lindsay Kremlick, the spokeswoman for the Budget and Control Board.

If there is no year-end operating deficit and the general reserve fund is fully funded at its constitutional requirement, the capital reserve fund may be appropriated in separate legislation for the following purposes: to finance previously authorized capital improvement bond projects; to retire the interest or principal on bonds previously issued; or for capital improvements or other nonrecurring purposes, Kremlick added.

However, a glance at the most recent capital reserve fund bill, H. 3701, shows that lawmakers have crafted a piece of legislation that appears to be a veritable hodge-podge of state spending.

Among expenses included in the bill are:

  • $13 million for the S.C. Technical College System for specialized training of plant workers, often used to lure Fortune 500 businesses such as Boeing to the state. The state technical college system received $7 million in fiscal year 2010-11 for the training program.
  • $5 million allocated to the Department of Commerce’s “deal-closing fund,” for use in attempting to land economic development clients. That’s the same amount Commerce was allocated for “deal closing” in 2010-11.
  • $5 million to Commerce for use among regional economic development organizations, several of which have ties to state lawmakers, as The Nerve reported earlier. A similar proviso was included in the previous four state budgets. But the total amount to be dispersed over the four fiscal years was $3 million – $2 million less than the amount proposed for next fiscal year.

Also included in the capital reserve fund bill was $3.8 million for the state Election Commission to run the 2012 statewide Republican presidential primary election.

In Haley’s veto message she wrote that in two of the four most recent fiscal years, the capital reserve fund was needed to offset substantial general fund shortfalls.

“We need to replenish and further build on that, leaving these funds unspent and moved to the Contingency Reserve Fund to weather another possible economic downturn,” she wrote. “Looking back at the last several years, we have had to institute mid-year budget cuts and furloughs to balance our state’s budget. …it is clear that the two percent set aside in the current Capital Reserve Fund proved not to be enough in two of the last four years.”

Haley goes on to write that she doesn’t question the merit of many of the projects funded in the bill, just the timing.

Reach Dietrich at (803) 779-5022, ext. 110, or kevin@thenerve.org.