Thursday, January 07, 2010

S.C. Legislature - outlook for 2010 - Part 2

(See part 1 here - Les Boles, state budget director)

After Boles there was a legislative panel with the following
How do you approach a budget with a $563 million hole?
Cooper: FY10 cuts do anticipate deficit by Corrections. Most agencies operating at FY05 level. So far this year 76 layoffs and more than a thousand furlough days. We're not going in FY11 going to be able to fund things even at current level.

Projected budget gaps in FY12 and 13 are as high as $1.3 to 1.4 billion.

Thinking of increasing general reserve fund from 3% to 5%. Will require constitutional amendment. Also delay use of capital reserve fund from beginning of year to end of FY. Now it is the first place we go.
Increase the number of trigger dates for general fund reductions. Add one in the third quarter and lower the trigger from 4% to 2% (in other words, if Board of Economic Advisors projections show 2% drop, Budget and Control Board must reduce budgets).
Create government streamlining commission – consolidate, eliminate, privatize, outsource.

Peeler: "The good news is that fiscal year 2010 is not fiscal year 2009. 2009 was terrible."
Got to do things differently, mainly how we budget. Nervous among members about AAA credit rating. "That's going to be foremost among our minds, how we maintain our AAA credit rating."
"Get away from this boom and bust situation."

Ott: "We've got the same guys shuffling the deck chairs on the Titanic."
Leadership wants to shift responsibility to a gov streamlining commission.
"I think we are way past the day we can make across the board bjt cuts and hide behind the Budget and Control Board to make those cuts for us."
When we left in 2008, the BEA certified an amount and we spent that. "They did a lousy job of predicting how much money, $1.2 billion." I gave them some slack, maybe they didn't know recession. "But I want to know what the BEA's excuse is for the second year."
"It is an impossible thing for the General Assembly to pass a balanced budget if we don't get good numbers." Need to change way we budget. "I no longer have confidence in the BEA to give us a number that we can depend on as legislators" for revenue.

Yes, increase reserve fund, but that acknowledges BEA will miss estimates.
I'm ready to work with the GOP leadership to work on ways to change the way we project revenues and budget.
I've been huge supporter of public ed, but maybe we need to take a look at all the new programs over the past few years and suspend them till we can fund them. I'm willing to look at everything. We have a responsibility to not have midyear cuts over and over so people/agencies can plan. May mean some RIFs.

Peeler: "We're all in this same boat." You need to get your guys to go along with McConnell's spending caps bill to create a "true reserve."

Government restructuring task force recommendations ready in time for this budget year?
Cooper: probably not. We'll have to do it in XGR. Biggest drivers are aid to education and aid to local govs and Medicaid (+3 to 4% year). Plus prisons and DJJ have to be funded. But "We're going to have to cut a lot of government" to come up with a half-billion shortfall.
(He and Ott exchange words)
Cooper: We've deviated from the education and local gov funding formulas. If we had to follow those, we'd be in worse shape.
Ott: "We can't raise taxes." Have to figure out how to "provide the absolute necessity of services" with that restriction.

Cobb-Hunter: I'm listening to this and hearing we're all in same boat. "I want people in this state to remember that we're not in the same boat, but who's been captain of the ship … Republicans."
All people in my district say is "I want to know why you all aren't doing your job up there." Been here 18 years and seeing little new. See how many commissions we've had since 1990 and how much we've done with the reports "absolutely nothing."

{Note: Act 388, passed two years ago, eliminated the use of property taxes for school operations and replaced the money by replacing the sales tax and funneling the money back to school districts through the state.}
Cobb-Hunter on formula-driven items: "For me there are no sacred cows." Act 388 "has been one of the biggest budget busters that I've seen in the time I've been here" in the name of property tax reform. Have the TRAC commission refocus on Act 388. Wants specifics from Peeler on how we do things the different way. (TRAC – tax realignment commission -- was set up to study exemptions and effect on state budget.) She questions why TRAC looking at "fair tax" and not Act 388. It's time for legislators to stop the across the board cuts and make targeted cuts.

Peeler: "Nothing happens in the economy until the cash register rings." Have to focus on jobs, jobs, jobs. Gov doesn't create jobs, but it can run jobs away. Look at Boeing (Boeing recently announced it would build its 787 jet in Charleston), the ports, Clemson wind thing. Some good things are happening.

Ott: (About Peeler) He says we need a gov that creates jobs, but he's been in charge of it for 20 years.

Cobb-Hunter: Boeing – everyone took credit for bringing them here. So if we took credit, what does Peeler mean that gov. doesn't create jobs? Hopes for a media that goes back to being inquisitive and not just based on press release. State not being served well by not following up, such as not asking the disconnect between Peeler's gov doesn't create jobs and legislators taking credit for landing Boeing.

O'Dell: Bickering between parties unfortunate. Until we create jobs, no revenue. Boeing showed we can create jobs and that gave us "lots of credibility." Reps and Dems can't work it out alone – take united effort. "If we don't have the revenue coming in, we're going to have to cut programs and it's going to be a tremendous disaster."

TRAC is prohibited from looking at Act 388. Any chance of changing that?

Ott: A comprehensive review of taxes requires including Act 388. "We are way behind having any of these sacred cows." "We get locked in and don't ever want to say we made a mistake."

Cobb-Hunter: Need to revisit all the limitations we have put on that "hamstring" local governments and schools with unfunded mandates, etc. At least do that if we are not going to look at Act 388. "If it's bad for the federal government to send unfunded mandates down to the states, it's bad for the state to send unfunded mandates down to local governments." School boards can't do what they think is morally right for their constituents.

Cooper: I hear unfunded mandates all the time. But we appropriate 4.5% of the previous year's revenues to local government support (more than $200 million). And with homestead exemption, we send more than $500 million to local governments to make it up. Total $772 million sent to local govs, so where is the unfunded mandate?

Cobb-Hunter: Tax relief is not funded. Act388 rolled back property taxes for school operations. We provided tax relief but have not paid for it. "Unpatriotic … irresponsible" to take the credit but not provide the funding. We are not taking into account inflation. GOP talks about not increasing taxes. But look at the increases in the budget in fees and assessments. How is this different than not increasing taxes? "What we have done in this state is a shell game that has increased taxes but we call it fees and assessments."

Cooper: Act 388 not off the table. And he understands from the TRAC meeting yesterday that TRAC may ask for authority to look at Act 388.

Peeler: Act 388 not off table, but "tax increases in owner-occupied homes, that's off the table as far as I'm concerned." But $1.7 billion is lost in past two years "it's not under any shell; it's gone" because of the economy. The No. 1 thing that brought Boeing: "Our right to work laws."

Ott: No one here saying any tax increase. But you've shifted the tax burden to small businesses, and they're the ones that will bail us out of this recession. We've got to look at Act 388 and see if we have put the burden on the business community and if we have, change it. Need to set priorities and fund them.

Peeler: A House bill will give tax credits to those small businesses that will hire people on the unemployment rolls. (Cobb-Hunter: "Good bill.")

Taking the rainy day fund from $150 million to $250 million – we are saying we are going to divert money from our current shortfall to fund the next shortfall?

Cooper: Probably be implemented in FY12 (that would be the year $700 million in stimulus money goes away). We need a larger reserve fund. It would minimize some of the midyear cuts. Other states have bigger reserve funds than we do.

Board of Economic Advisors – are its estimates a reflection of reality or politics?
Cooper: I don't influence my appointee to the board. Doesn't think Sen. Leatherman does either. Can't speak for the governor. It's looking at a crystal ball on the economy.
Ott: "Their crystal ball is broken." "I think every one of us in the business community knew that we had better be planning for hard times going into last year." Across the board cuts hurt programs that can bring in additional dollars. When I came up here as a freshman, the GOP leadership wasn't talking savings but spending. Same leadership still here.

If Act 388 went away, what's the average hit to the homeowner?
Panel demurs on providing figure. Depends on home value.

What responsibility do legislators have to improve the state's position in many rankings we hear about nationally?
Peeler: I was born in this state, like the state, think there are many good things (talks about the weather and the soil). I think we have a good government. Optimistic about the state.
Cooper: We're trying to do the best we can with limited – very limited – resources.

Had Democrats been in charge since the 1990s, how would things be different?
Ott: We wouldn't have wasted all this time on debate about school vouchers but we probably would have had some ability for parents to choose their children's schools. Probably would have had some relief on children's health care.
Cobb-Hunter: We would have settled the 17-year school funding equity lawsuit. We also would have had tax relief targeted at the middle class, not a "tax shift."

In Charleston County in 2008 Dems did not challenge GOP in many legislative seats. Will that change this year?
Cobb-Hunter: People don't want to become legislators. "It's just no fun anymore." We're encouraging people to run. But people, and in S.C. in particular, people are basing decisions on party, not issues. In S.C., if you are white, it's presumed you are a Republican and black presumed a Democrat. But if we had informed voters, she thinks the GOP would not have the clout it does. Need to vote class, not just race – the only color that counts is green, money, but people don't realize that and continue to vote against their economic interests.
Ott: I'm not looking so much for Dems and GOP, but for those who will uphold S.C. "values" – "family values."

Proposed cigarette tax increase and its role?
Peeler: The House-passed bill is on the Senate's contested calendar. 50 cent/pack increase. Biggest issue is what to do with the money and do we have the votes to override an expected veto by Gov. Mark Sanford.
Cobb-Hunter: Wait to see what happens with federal health care bill. Raise the tax but put the money in a health savings account for now till we see what the federal system finally funds.

White joins panel: "We've got to fund our needs and not our wants." You can't raise taxes on people who don't have money. "Maybe not turn to the government looking for a handout. Maybe talk to your neighbor" for help.

What sort of rollbacks or changes in education funding?
Ott: May have to look at rolling back – "I want to cut programs in K-12 that don't actually go into the classroom." He talks about physical education mandates that were passed in recent years.
Peeler: We have an Education Department, so why do we have an Education Oversight Committee? Sacred cow: economic development.
Ott: Prisons have to be funded. "What can I say? This is a law-and-order state."

Status of 10th Amendment resolution on state sovereignty?
Peeler: The sovereignty resolution is on deck in the Senate. Hopes that it will move and then can get to bill that would limit the tax provision that raises property taxes/valuation on a home when it is sold.

Reduction in school days?
Ott is not in favor of reducing number of school days. He does want to look at teacher furlough days.

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At 1/12/10, 4:50 PM, Blogger Paul Bowers said...

Maybe I'm ignorant, but what is XGR?

At 1/12/10, 7:46 PM, Blogger Doug said...

Sorry, these were quick notes and I reverted to wire shorthand - XGR is the wire service abbreviation for Legislature.


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