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2002-2004, South Carolina Statehouse Report. Published weekly during the S.C. legislative session. South Carolina Statehouse Report is a media project of The Brack Group, Charleston, S.C.

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SC's fiscal situation could be a lot worse
By Andy Brack
S.C. Statehouse Report

AUG. 25, 2002 -- The political finger-pointing and blame-laying over why the state was about $150 million short on last year's budget has started, but it really shouldn't be going on. Instead, leaders should focus on constructive ways to improve how the state budgets its money. Fortunately, many are.

South Carolina, like all states, relies on budget forecasts prepared months ahead of events to predict how much revenue the state will generate. Budget forecasters, like weather forecasters, are by their very nature wrong much of the time. Their revenue estimates generally are higher or lower than receipts that actually flow to the state. Just think about how hard it would be today accurately to predict, within $100, how much annual revenue you will receive in 18 months. It's not easy. You could get a raise. You could lose your job.

In South Carolina's flush economic times of the late 1990s, budget estimates were lower than realized, which meant the state generated huge surpluses. In large part, these past surpluses are the source of our current budget problems.

What happened in the late 1990s was the state got used to having big surpluses. Lawmakers started assuming there would be a surplus every year. Then they budgeted a lot of the one-time surpluses for programs that would need money every year -- things like base student education costs, scholarship programs and Medicaid health costs.

To put it in budget lingo, the state institutionalized surpluses by creating revenue annualizations -- spending one-time money for recurring expenses. This year when there was no surplus, the state still had to pay for those recurring programs.

The situation is analogous to the fellow who gets a $300 bonus this month and uses it to buy a nice boat, says economist Harry Miley, a former head of the state Board of Economic Advisors. Next month, the guy won't have the bonus, but he'll still have the payment for the boat.

Most folks would get rid of the boat and keep other spending in line. South Carolina, however, has kept its boat and tried to make up the difference by cutting other spending.

House Ways & Means Committee Chairman Bobby Harrell said the General Assembly is grappling successfully with the annualization problem. Over the last two years, lawmakers have cut annualizations in half -- from about $500 million a year to $269 million a year. The goal, Harrell says, is to get to zero.

State Chamber of Commerce President Hunter Howard, another former BEA member, said one of the best things the state could do to improve how it budgets money is to reduce the amount of one-year money used for recurring needs.

"We've proposed a five-year exit strategy to get out of the annualization business," he said.

Lawmakers also may want to consider putting more money in rainy day funds that can be tapped during the year if shortages occur, Miley said. Currently, South Carolina sets aside 5 percent of its budget in two reserve funds. Those funds greatly lessened this year's shortfall -- but more money set aside would create a more stable budgeting environment in the future.

Howard added South Carolina also should update the models it uses to forecast revenues because that would improve revenue estimates.

While the state could do several things to make forecasting and budgeting better, Miley, Harrell and Howard agreed South Carolina's budget practices are better than neighboring states like North Carolina, which had to raise taxes to cover shortfalls.

"As bad as we think it is, we've been able at least to manage it with the resources we've had," Howard said. "It could be a lot worse."

-- 30 --

11/3: Use your vote wisely: a lesson
10/27: SC GOP to keep control of House
10/20: Black voters may be secret weapon
10/13: Talk is cheap; action takes courage
10/6: Creating sunshine to dampen negative ads
9/29: SC Set to be world leader in news research
9/22: SC Senate shift could be around corner
9/15: Gov's race about barbs, ads, not people
9/8: Shorfall may cause look at prison alternatives
9/2: Revitalize your patriotism by participating
8/25: S.C.'s fiscal situation could be a lot worse
8/18: State wetlands policy needed
8/11: The bully vs. the whiner
8/4: Noah's Ark approach to tax reform
7/28: Two-party system could be political outcome
7/21: State budget woes loom for 2 more years
7/14: Agencies can do better job on Internet
7/5: Thank a guardsman today for service
6/28: Hodges-Sanford race will be wild ride
6/21: Sanford-Peeler race's impact on GOP
6/14: Ethics reform needed now

More done than you'd think(1.23)
More education $ also means cuts (1.22)
PSC reform to come, but when?(1.21)



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