Ways and Means Budget: More General Fund Growth

March 14, 2011

Investigative Reports

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The NerveIf there is a $700 million hole to fill in next year’s state budget, you wouldn’t know it by looking at the House Ways and Means Committee’s version of it.

A review by The Nerve of the 2011-12 spending plan released last week by the House’s budget-writing committee found that:

 

  • Of 90 state agencies, divisions or programs receiving general funds, 11, or slightly more than 12 percent, would receive increases over this fiscal year’s adjusted budget. The increases would range from 4 percent in lottery expenditures to 699 percent for S.C. Budget and Control Board employee benefits, though a BCB spokeswoman said the actual increase in employee benefits would be much smaller.
  • The Department of Health and Human Services, which manages the state’s Medicaid program, would receive a 31 percent boost in general funds, even as the agency moves forward with plans to save tens of millions by cutting Medicaid provider rates.
  • Another 16 agencies, divisions or programs, or about 18 percent of the total, would experience no general fund cuts.
  • The state’s total general fund would increase by more than 5 percent.
  • Of 106 agencies, divisions or programs receiving general, “other” or federal funds, 32, or about 30 percent, would receive increases over this fiscal year’s adjusted budget. The Department of Social Services, for example, would see its total funding jump by nearly $427 million, or 25 percent, though the agency wouldn’t receive any increase in general funds.
  • Another 18 agencies, divisions or programs, or 17 percent, would see no change or less than a 1 percent drop in their total appropriations.
  • Nineteen agencies, divisions or programs facing proposed general fund reductions would receive increases in their total appropriations. For example, a division of the governor’s office known as the Office of Executive Policy and Programs would see its total funding jump by 67 percent, though general funds would decrease by 10 percent.
  • Three dozen agencies, divisions or programs would receive general fund reductions of 5 percent or 6 percent, though two-thirds of those would see smaller percentage reductions in their total funds.

The full House is scheduled to begin debate today on the budget and is expected to pass its version before going on a self-imposed furlough next week. The Senate Finance Committee would then consider the House version, to be followed by debate and a vote by the full Senate.

Any differences between the House and Senate versions likely would be resolved in a joint legislative conference committee, and a final version approved by both chambers would be sent to Gov. Nikki Haley for her review. Any gubernatorial vetoes would have to be overridden by a two-thirds vote of both chambers.

Shifting Numbers

The Ways and Means budget authorizes about $21.7 billion in total spending next fiscal year, which starts July 1. That’s down less than 1 percent from this fiscal year’s adjusted budget of $21.8 billion, but is more than a half-billion dollars higher than this year’s initial ratified budget.

This fiscal year’s adjusted total budget is nearly $671 million, or 3.2 percent, more than the initial ratified total budget of $21.15 billion.

Lawmakers typically have lowballed the “other” funds part of the state budget, which 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. The Nerve in September revealed that since July 1, 1999, state agencies had spent $3 billion more in “other” funds than what was initially appropriated to them by the General Assembly.

According to the Ways and Means budget, the adjusted “other” funds for all agencies for this fiscal year total $8.1 billion – nearly $360 million, or 4.6 percent, more than what was initially appropriated. Adjusted federal funds for this fiscal year are listed at $8.6 billion, an increase of about $346 million, or 4.2 percent, over the initial ratified budget.

The Ways and Means budget for next fiscal year includes about $7.9 billion in “other” funds and $8.4 billion in federal funds.

Under the Ways and Means budget, the state’s general fund for next fiscal year was set at $5.35 billion, an increase of $275 million, or 5.4 percent, over this fiscal year’s adjusted budget of $5.08 billion. In comparison, when the recession officially began in December 2007, the S.C. Legislature initially adopted a $6.7 billion general fund budget, which was later adjusted upward to about $7.2 billion.

Citing mainly the loss of federal stimulus dollars, the Office of State Budget initially projected an $829 million budget hole for next fiscal year, which was later revised downward to about $700 million amid more optimistic general fund revenue growth projections.

The Nerve last week asked Les Boles, the Office of State Budget director, to explain how the Ways and Means budget for 2011-12 could be larger than this fiscal year’s budget, given his office’s projections on the size of the budget hole. Boles did not respond to written or phone messages by publication of this story.

Big Budget Hikes

Under the Ways and Means budget, the S.C. Department of Health and Human Services’ general fund budget would see a $222 million increase next fiscal year, the single biggest dollar-amount increase in general funds among all state agencies, and the fifth-largest percentage increase (31 percent), according toThe Nerve’s review.

The agency, which manages the state’s Medicaid program, earlier said it was facing an approximate $225 million deficit this fiscal year, citing exploding growth in the number of Medicaid enrollees amid the recession, the draining of reserves by lawmakers for other agencies, and a budget proviso banning the agency from cutting provider rates.

The state Budget and Control Board in February approved allowing the agency to run a $100 million deficit for the remainder of this fiscal year, and the agency is seeking legislative approval to cut provider rates.

“We did get everything we requested in the House (Ways and Means) budget,” HHS spokesman Jeff Stensland told The Nerve when contacted last week.

Under the Ways and Means budget, the agency’s total 2011-12 budget, which includes federal matching dollars for Medicaid programs, would be $5.8 billion, or about 2 percent less than this year’s adjusted budget. Stensland said the lower amount reflects the agency’s plans to cut provider rates.

“We’re actively meeting with providers now,” Stensland said. “We don’t want to use a blunt instrument of across-the-board cuts.”

Health and Human Services’ total budget for next fiscal year represents the single-biggest chunk (27 percent) of the state’s total budget, and the second-biggest percentage (18 percent) of the state’s general fund budget, next to the Department of Education (35 percent).

The largest-percentage general fund increase (699 percent) in the Ways and Means budget is listed under the “employee benefits” section of the S.C. Budget and Control Board. That section would jump from $10 million under this fiscal year’s adjusted budget to more than $80 million in 2011-12, though the initial budget for this year authorized $56.5 million in that category.

In a written response last week to The Nerve, BCB spokeswoman Lindsey Kremlick said the $10 million adjusted appropriation for this fiscal year reflects the amount that remains in the fund after state health plan contributions were distributed since the start of the fiscal year among various agencies participating in the plan.

Given Kremlick’s explanation, the projected percentage increase in employee benefits next fiscal year would be closer to 42 percent compared to the initial ratified budget for this fiscal year.

The Nerve reported earlier this month that the Employee Insurance Program, which the BCB oversees, is projecting a $73 million increase in the state health plan next fiscal year for state and local government employees, retirees and their dependents.

Besides the employee benefits program and HHS, the Ways and Means Committee proposed big general fund increases for the Department of Corrections (a $49 million, or 17 percent ,increase) and the state Department of Disabilities and Special Needs (a $35 million, or 27 percent, increase).

Before last month’s approval by the BCB to allow HHS to run a deficit, Corrections was the only state agency that had been allowed to run a deficit. Corrections had projected to run a $7 million deficit this fiscal year, but newly appointed director Bill Byars announced last month that the shortfall had been eliminated through furloughs and insurance savings, according to media reports.

Contacted last week by The Nerve, Corrections spokesman John Barkley declined comment about the Ways and Means budget, saying only, “Because we are at the very beginning of the budget process, (Byars) doesn’t feel comfortable commenting on it at this time.”

Some state agencies would see big increases in their total funds under the Ways and Means spending plan. For example, although the Department of Social Services wouldn’t receive any more general funds next fiscal year, the agency’s total funds would jump nearly $427 million, or 25 percent, to $2.1 billion from $1.7 billion.

The agency initially was projecting to run a $28 million deficit this fiscal year, but Lillian Koller, DSS’s new director, said the entire shortfall will be eliminated after the agency recalculated expenditures and froze hiring, according to media reports. Koller also said the agency was seeking federal matching funds that the state might have been eligible for but did not seek over the past several years.

The S.C. Retirement System Investment Commission, which manages the state’s approximate$20 billion retirement portfolio for government employees, would see its total funds double, from $5.8 million to $11.6 million. The agency receives no general fund appropriations.

The Nerve in a December story quoted Allen Gillespie, the commission chairman, as saying he would seek a big budget increase next fiscal year primarily to add in-house staff to seek higher returns on investments, a move he contends would save millions in fees paid to outside private firms.

Another state agency, the Aeronautics Division, which provides flights for the governor, lawmakers and other state officials, would see its total funding jump by nearly $2.3 million, or 56 percent, to about $6.4 million under the Ways and Means budget, though its general funding would decrease by $34,000, or 6 percent, to about $536,000.

And the governor’s Office of Executive Policy and Programs, which administers certain programs such as the State Office of Victim Assistance and Veterans’ Affairs, would see its total funds increase by 67 percent, to $118.5 million from about $71 million. General funds for the office, however, would decrease by about $726,000, or 10 percent.

Special Schools Favored

Other significant increases in the Ways and Means general fund budget for 2011-12 compared to this fiscal year’s adjusted budget include, with the amount of the proposed hike in parentheses:

  • Wil Lou Gray Opportunity School, 92 percent, ($2.3 million);
  • Law Enforcement Training Council, 85 percent, ($542,000);
  • John de la Howe School , 46 percent, ($1.3 million); and
  • S.C. School for the Deaf and the Blind, 16 percent, ($1.8 million).

The Wil Lou Gray Opportunity School, based in West Columbia, provides a military-style education for at-risk youth, while the John de la Howe School in McCormick County serves emotionally disturbed children. The S.C. School for the Deaf and the Blind is based in Spartanburg and has five outreach centers across the state.

Contacted last week by The Nerve, Pat Smith, director of the Wil Lou Gray Opportunity School, said the proposed budget hike for his school was “quite a surprise to us.”

“There seems to be a focus this year on education … especially the special schools,” Smith said. “There are thousands of dropouts every year, and there has to be a way for South Carolina to serve them so we can turn them into productive citizens.”

Smith said although the proposed percentage increase likely would be the biggest in the school’s history, “It would put us back us back on track to where we probably would have been if economic conditions were normal.”

Smith said his school’s budget was discussed by a House Ways and Means subcommittee chaired by House Majority Leader Kenny Bingham, R-Lexington. Smith said a proposed $4.9 million general fund budget for his school was presented after a subcommittee staffer asked “what would it take to fully fund us for full enrollment.”

At the other end of the spectrum, the Ways and Means Committee proposed an $18 million, or 20 percent, cut in what the state transfers to counties to make up for shortfalls in collections from the 1-cent state sales tax used to replace school operating property taxes for homeowners under Act 388; and a $20 million, or 9 percent, decrease in aid to local governments.

The state Department of Education would see its general fund budget decrease by nearly $13 million, or less than 1 percent, from this year’s adjusted budget of $1.86 billion. Its total adjusted $3.3 billion budget this fiscal year would be cut by $165 million, or 5 percent.

The House budget-writing committee also would eliminate the entire $9.6 million general fund budget of Educational Television, though ETV spokesman Rob Schaller in a written response last week to The Nerve said budget writers proposed that the agency be funded “through a series of (budget) provisos that bring us back up to a little over $9 million.”

“We know there are many more steps ahead in this process,” Schaller said.

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