There’s an old saying that those who don’t learn from history are doomed to repeat it.
That’s why keeping tabs on the South Carolina General Assembly feels a lot like watching the movie Groundhog Day.
State spending exploded in the late 1990s. Then during the 2001-2003 recession, the General Assembly raided trust and reserve funds to the tune of $500 million to fuel continued spending in spite of declining revenues.
After three years of intense public pressure from the governor, the legislature finally finished repaying the funds in 2006.
Then, déjà vu all over again. From 2004-2008, the General Assembly grew government by over 40 percent. Now that a downturn has hit, rather than making cuts, legislators are again eyeing trust and reserve funds.
Already, the state Budget & Control Board has depleted the $128 million Capital Reserve Fund to cover overspending in the FY09-2010 state budget.
In addition, the state’s general fund budget has been slashed by nearly $439 million since July 1 and even with those cuts lawmakers are facing a projected deficit of more than $550 million for the next fiscal year.
In the FY09-2010 budget itself, the General Assembly took $37 million from the state’s Insurance Reserve Fund, a state-run insurance pool that underwrites policies for government buildings, property and other legal costs.
They also took $15 million from unclaimed property in the Treasurer’s Office, money owed to South Carolinians for various reasons such as overpayment on taxes.
Not only is it poor fiscal policy to pay for ongoing expenses by taking from one-time sources, it also puts taxpayers on the hook if these funds need to be tapped and the money isn’t there.
So now that the legislature has broken its tacit pledge to not use trust and reserve funds to balance the budget, what will the next fix be for their spending addiction? A look back at some previous trust and reserve fund raids may provide some clues. All of the raids noted below have been repaid … at least for now.
The State Health Plan
During the last downturn, the General Assembly took $135 million from reserves held by the State Health Plan, taking it from a fiscally prudent 45-day reserve down to a 0-day reserve. In other words, they took so much from the fund that it was operating on virtually a day-to-day basis.
The Barnwell Trust Fund
South Carolina maintains a trust fund for the long-term monitoring and maintenance of the 235-acre Barnwell nuclear disposal site. The legislature took $90 million from that fund, a move that would have left the state in a precarious position had an accident occurred there.
Workers Compensation Trust Fund
Over $13 million was taken from the pot of money set aside to pay workers’ comp. claims by state workers.
State Life and Long Term Disability Fund
The legislature borrowed $4.1 million from premiums paid by state employees for life insurance and long-term disability insurance.
DHEC Environmental Protection Fund
The state Department of Health and Environmental Control (DHEC) has a number of trust funds for environmental protection and cleanup, collected from sources like permits, tire disposal fees and fees from petroleum wholesalers. The General Assembly took $4 million from these funds.
Will the General Assembly stop at only having raided the Insurance Reserve Fund and the Unclaimed Property Fund? Or are we witnessing the beginning of a new round of trust and reserve raids?
Time will tell, but one thing is certain. Taxpayers are going continue to pay the price until legislators break themselves of their "spend first, borrow later" mentality.
Reach Pallay at (803) 779-5022, ext. 109, or at geoff@scpolicycouncil.com.