BRIEFS: Overlooking Haley’s new budget; Pension reform looms

Haley’s new budget may get ignored as state faces millions of needs

Staff reports  |  Gov. Nikki Haley delivered a 636-page executive budget for 2017-18 to state legislators on Tuesday, the opening day of the legislative session.

Unfortunately for her, it may become the most ignored document of the year.  Haley, as most people know, is expected to become the country’s ambassador to the United Nations soon.  When that happens, her take on the budget becomes relatively moot to legislators, who already are in the driver’s seat on how the state spends its money.

A cursory review of Haley’s $7.8 billion budget shows it’s similar to budgets of recent years.  Among the highlights:

• Education: It seems to maintain the base student cost for public school funding at $2,350 per student “which increases average total per pupil funding by $481 to $13,095 due to a projected decrease in student average daily membership.” (p. 79)
• Higher education: Haley calls for efforts to make college more affordable and said the budget started the process to hold higher education more accountable, but this is not clear in the budget’s Commission on Higher Education section. (p. 212)
• Infrastructure: While improving roads and bridges is a legislative priority, Haley’s budget doesn’t appear to make suggestions on big improvements.  It includes Capital Reserve Fund spending on rest area renovations  ($5 million) and disaster funding caused by Hurricane Matthew ($30.4 million).  (p. 461)  Haley did, however, again call for the Department of Transportation to become part of the governor’s cabinet.
• Ports. Haley seeks more investment in ports and included two one-time multi-million-dollar allocations for a new port in Jasper County.  (p. 475)
• Tax relief. Haley, long a proponent of cutting taxes, called for the General Assembly to cut personal income and corporate taxes.
• DSS.  She says the proposal calls for more than 300 new employees to serve children at the state Department of Social Services, which came under serious fire for understaffing during her administration.  The budget recommends more than $28 million in agency increases as well as $25 million to pay for a long overdue computerized Child Support Enforcement System (p. 273).
• Pensions. The budget calls for more than $94 million to go to the state employees’ retirement system to deal with shortfalls and prevent big rate increases in a system plagued by $20 billion in needs.

Meanwhile, Statehouse observers say a lot of Haley’s budget, such as the zeal for tax cuts, may be ignored because lawmakers simply are strapped with existing obligations,  but only have $319 million in new tax revenues to meet needs.

According to a 2017-18 budget outlook by the state Revenue and Fiscal Affairs Office, there’s little flexibility despite more money due to funding needs that total $331 million, including:

• Scholarships. Because the state changed high school grading scales last year, there will be more students who qualify for lottery scholarships, which will cost $21.1 million.
• Disasters. The FEMA match for the state to get recovery money is $64 million.
• Health insurance. State employee health costs are expected to go up $26.5 million.
• Pay increase. If there is a 2 percent base pay increase, the impact is $36.6 million.
• Retirement increases. Costs for retirement systems will go up $19.6 million.
• Highways. The annualized cost for highway improvements is $50 million.
• Education. Costs will rise $61.2 million due to inflation, growth and more.
• Medicaid. Annual costs will go up $50.4 million due to growth, inflation, mandates and more.
• DSS. The state will have to pay $19.6 million to comply with a federal lawsuit related to child and family services and $25 million for the overdue child support computer system.

The good news:  Debt costs are going down $84 million and the state should save $17 million in a homestead exemption shortfall.

Roads to pension salvation

One of the biggest issues this year in the General Assembly is how it will handle the state’s ailing pension system, which is facing a 25-year underfunded shortfall.

Some have argued that because the pension system will never close, that there is no final date when all the money is due, the legislature will once again “kick the can down the road,” and it will put off tough lawmaking just like it has done with the state’s ailing infrastructure system.

On one hand, it looks like a perfect opportunity for legislators, cognizant that employees across the state will continue to pay into the system, to do nothing. But here’s why it will get dealt with in the short-term: long-term loans. The state ferociously guards its solid credit rating. That rating allows it to borrow money (think: bonds) from Wall Street at lower rates.

If Wall Street sees South Carolina being fiscally stupid, such as having an insolvent state pension system, then it will likely downgrade that much-valued credit rating. That would drive up interest rates for the state, and cost tons more money.

So when it comes to the state pension system, legislators can either pay employees now, or pay Wall Street later. The smart money is that the legislature will take care of its obligations