State to Be Visited by Three Ghosts from “A Budget Carol”

OVERSPENDING, ANNUALIZATIONS, RETIREE LIABILITIES ALL PORTEND A DIFFICULT BUDGET YEAR

Columbia, S.C. - December 6, 2007 - In light of this week’s report by USC economists that South Carolina’s economy is expected to slow in the coming year, Governor Sanford today likened the upcoming budget challenges to the old Dickens story A Christmas Carol, warning of ghosts of budgets past, present and future coming back to haunt the state.

The Ghost of Budget Past: Overspending
According to the National Association of State Budget Officers, South Carolina’s spending has grown by more than 40 percent over the past three years. By way of comparison, personal incomes in South Carolina have grown by 19 percent over that same time, and population plus inflation has grown by 14 percent. By growing government spending faster than the underlying economy, South Carolina will now face difficulties in paying for core government functions.

The Ghost of Budget Present: Annualizations
Despite a record $1.5 billion in revenue growth last year, budget writers still employed the risky spending practice of annualizations - paying for ongoing expenses with one-time money. The current year’s budget contains $270 million in annualizations - which, added to additional costs of things like healthcare and education, means the upcoming budget will be starting essentially $200 million in the hole.

The Ghost of Budget Future: Retiree Liabilities
South Carolina has roughly $20 billion in unpaid for liabilities tied to retiree pensions and healthcare. Even with $1.5 billion in new money this year, budget writers put nothing toward paying down this liability.

“There are certainly some parallels between this classic Christmas story and the budget situation we’re facing, but the reality is no laughing matter,” Gov. Sanford said. “We’ve had some banner years with respect to revenue growth in our state over the past couple of years as the underlying economy has grown. But this week’s report again highlighted what we’ve been saying for the past four years - we have to restrain spending to keep the state from being hit so hard when things slow down, because good times don’t last forever. It’s looking like some tough choices are going to have to be made in next year’s budget that are unfortunately going to have a negative impact for everyone served by state government. This should serve as a wakeup call on the idea of institutionalizing spending restraint to keep this from happening so that we don’t continue to find ourselves in situations like this every few years.”