The citizens of South Carolina aren’t in control of their own government. Politicians are. It’s time to change that, and here’s how.

(1)   Restore judicial independence. The public deserves confidence that judges rule independently of the legislature whose laws they judge. South Carolina is the only state in the nation in which the legislature unilaterally appoints judges even when vacancies arise. The governor should nominate judges, with only advice and consent from the Senate.

(2)  Make the governor fully accountable for the Executive Branch. South Carolina lawmakers control the executive branch through a complicated web of boards and commissions, to which lawmakers appoint members to run state agencies instead of allowing the governor to run them. The legislature has further diluted the governor’s responsibility by doling out power to multiple constitutional officers (the Comptroller General, Treasurer, Agriculture Commissioner, Secretary of State, and so on), thus creating little executive fiefdoms that properly belong in the governor’s cabinet.

(3)  Ensure a true citizen legislature by shortening session. Our state has one of the nation’s longest legislative sessions: a system that favors career politicians over citizen-legislators, and empowers lobbyists and special interests over taxpayers. Legislative sessions should be limited to 90 calendar days or 45 legislative days, every other year, forcing lawmakers to limit their activity to citizen priorities.

(4)  Open the state’s secret incentives process. Corruption is virtually guaranteed when politicians have the power to strike secret deals with private companies using public money. Taxpayers deserve full transparency in all incentive deals – including public applications for subsidies, public debate on the merits of deals, and full reporting on investment “return.”

(5)  End lawmakers’ ability to police themselves. House and Senate members police their own ethics violations – and much of the process is kept private. Legislators should be governed by the same agency that governs other public officials, and details of hearings should be publicly reported.

(6)  All South Carolina elected officials should report their income sources. The public has no way to ensure that lawmakers don’t personally profit from legislation on which they vote. Members of Congress and elected officials in other states report their income – and so should South Carolina politicians.

(7)  Strengthen the state’s open records law and abolish lawmakers’ exemption from it. State agencies should organize their transactions and expenditures to be accessible to the public rather than charging taxpayers double for “labor” costs. And there’s certainly no justification for lawmakers exempting themselves from the state’s Freedom of Information law.

(8)  Enforce the state law that mandates an open budget process. The law requires the governor to write “the” budget and the legislature to hold “joint open hearings” to debate it. Compliance with that law would allow the public to engage in the budget process in real time. In addition, lawmakers should submit the budget in a simple format that is accessible to citizens online.

(Download pdf.)

The Senate is set to begin debate on the budget passed by the Senate Finance Committee last week. Here’s what you should know about it:

• The total projected budget is the largest, yet again, in state history; totaling just more than $23 billion.
• This budget is larger than the both last year’s ratified budget, and this year’s House-passed budget.

Below is a comparison[1] of the Senate Finance Committee budget and last fiscal year’s.

As has been the case in previous years, the Senate learned last week they would have an additional $292 million to add to their budget. This increase comes just months after the board added $1 billion dollars in revenue.

The question is, what are the Senate’s budget priorities?  Here’s a glance at a few agencies, programs, and projects:

Unemployment “tax relief” – Both budgets include $77 million dollars to the Department of Employment and Workforce for something lawmakers are calling “tax relief.” In fact, the money would be given to small businesses in order to pay a portion of their Unemployment Insurance Tax. That tax is artificially high because the state has to pay back loans from the federal government  — loans that were necessary in the first place because the Employment Security Commission (as it then was called) grossly mismanaged its Unemployment Insurance fund. Essentially, then, the current budget would pay the premium on federal loans, not by sending money to the federal government, but by putting it in the hands of small business owners, and they would pay it back. One might accurately describe this scheme in any number of ways. “Tax relief” isn’t one of them.

Marketing – The Department of Agriculture received $600,000 dollars in proviso spending for marketing purposes from the House, while the Senate provided $1.1 million for the same purpose.  The Department of Parks, Recreation, and Tourism got an $8 million boost to their destination specific tourism marketing campaign.

Economic Development – The Department of Commerce received $10 million dollars for its deal closing fund from both the Senate and House.

Raises for Law Enforcement and State Employees – The House-passed budget included a 2% raise. The Senate Finance Committee version, currently under debate, also includes a 2% raise by appropriating the total amount needed to fund the raise ($48.7 million) through the general fund.

Charleston Harbor Deepening fund – both bodies provide $180 million dollars to the State Ports Authority.  As we pointed out, the Senate Finance Committee went a step further to fund the project.

(Download pdf.)

The House of Representatives has finally unveiled their amendment to the Department of Administration bill – after crafting it behind closed doors for more than two months. It sailed through the House in record time and has already gone back to the Senate.

This House proposal finally eliminates the Budget and Control Board. The trouble is, it doesn’t go much further than the lackluster Senate version; mainly it reshuffles state agencies on the grounds that doing so would encourage efficiency. But restructuring government isn’t just about efficiency. It’s chiefly about concentrating accountability and diffusing authority: that is, making elected officials accountable for their decisions, and establishing checks on their power.

The House version of the bill accomplishes little in that regard. So what does it do?

Bond Authority

Real reform: Lawmakers should publicly debate and vote on every bond they authorize, not give that authority to some anonymous board that voters can’t hold accountable.

The House amendment: The authority to issue state debt involves appropriating state money and should rest exclusively with the legislature. The House proposal, however, punted the responsibility to a new state agency. The State Contracts and Accountability Authority is overseen by a seven-member authority comprised of the governor, lieutenant governor, comptroller general, treasurer, and appointments by the Speaker of the House and President of the Senate. The state’s current Joint Bond Review Authority – which reviews projects prior to approval by the Budget and Control Board – will remain in place, and will serve the same role it currently serves. Instead of the B&CB approving recommended projects from the Joint Bond Review Committee, the new hybrid State Contracts and Accountability Authority will carry out this responsibility.

Mid-year Budget Cuts and Deficit Recognition

Real reform: In the event that there is a revenue shortfall – in effect meaning that lawmakers spent more money than the should have – they should come back into session and make responsible, targeted cuts. Elected officials should be held accountable for their decisions.

The House amendment: In a revenue shortfall, lawmakers have the option of taking no action on mid-year budget cuts, thus automatically giving tough, potentially unpopular decisions to an anonymous bureaucrat (the Director of the Executive Budget Office). On the plus side, the House version would force the General Assembly to pass a joint resolution if members want to allow an agency to run a deficit. Up until now, that decision has rested with the Budget and Control Board.

Legislative “Oversight”

Real reform: Lawmakers should mandate regular, objective and public audits by the Legislative Audit Council on a schedule that is independently determined.

The House amendment: The Senate version of this bill broadened the General Assembly’s power through legislative “investigative committees” – which would have the authority to summon and question not just state employees, but private citizens if they deem them to have relevant information. In addition, the Senate version left decisions regarding which agencies are “investigated” up to legislative leaders – the same ones who control most of state government already. The proposal put forth by the House did nothing to change this. Like the Senate version, the House version of the bill would give high-ranking legislators the authority to go on witch-hunts when an executive agency’s decisions aren’t to their liking.

Procurement Oversight

Real reform: The responsibility for purchasing goods and services for the state should lie with one person – the chief executive – whom the citizens of South Carolina can hold accountable for corruption or poor decision-making.

The House amendment: The House plan (unlike the Senate’s) moves all of procurement under the Department of Administration. However, the plan leaves in place the current Procurement Review Panel – a panel that’s appointed by a new board consisting of the current B&CB plus the attorney general and lieutenant governor – which would hear grievances and appeals from state agencies. The House version, then, would give the governor all the accountability for procurement (the governor would bear the responsibility for any corruption or misappropriation of funds in procurement) but empower a legislatively-influenced board to circumvent the governor’s actual power over procurement. To put it differently: If all a state agency has to do is convince the Procurement Review Panel to second guess a procurement decision by the executive, then the governor would have all the accountability without having all the responsibility.

Board of Economic Advisors

Real reform:  The chairman of the BEA should be appointed by the governor with advice and consent of the Senate.

The House amendment: The House bill puts the BEA under an agency – the Revenue and Fiscal Affairs Office – that’s overseen by the state’s budget-writing committees. But as we’ve pointed out before, there’s an inherent conflict of interest in making the person responsible for telling the legislature how much it can spend accountable to the legislators who are doing the spending.

What we have is another lackluster half-measure that largely ignores the real point of restructuring. To repeat: Restructuring should be about concentrating accountability and diffusing authority, not about reshuffling some state agencies and claiming it’ll be more “efficient.” Once again lawmakers have shut the door on the public, swiftly passed legislation that is not what the people have asked for and are touting it as real reform.

(Download as pdf.)

Our coverage of the health care debate, beginning in October of last year, dispelled the myth of a free market health exchange and highlighted the growing costs associated with the Affordable Care Act, or Obamacare.  It appears the Director of the Department of Health and Human Services (HHS) is on the same page as we are, according to testimony heard this week during a Senate Finance Committee meeting.  During his budget presentation, Director Tony Keck alluded to the current health care system as one of the most expensive and that, due to the passage of Obamacare, costs will not only continue to spiral out of control – they may soon become practically unsustainable.

One interesting fact to point out is that 80% of the current HHS budget is devoted to meeting maintenance of effort requirements for federal grants and programs such as Medicaid.  In addition, we are seeing a substantial increase in new enrollees with levels of participation in future years continuing to grow at accelerated rates.  This will negatively contribute to the already overwhelmed funding obligations associated with the health care system.

According to the Director, if the Supreme Court upholds Obamacare, the state will most likely see an additional 1.8 billion dollars devoted to health care by the year 2020.  He also stated, as we pointed out last year, Obamacare does nothing to control costs of the health care system.  Rather, it merely adds people to Medicaid and private insurance companies.

With the overall state budget comprised of about 40% federal dollars, the time to start making serious decisions regarding budget priorities has come and gone.  State agencies such as HHS, the Department of Transportation, and the Department of Education, are all primarily funding through federal dollars.  As we’ve pointed out, accepting these federal dollars obligates the state to enforce federal standards and spend state money on projects prioritized by the federal government.  Apparently, the Director of Health and Human Services is experiencing this first hand.

Stay tuned for more budget updates at the Senate Finance Committee completes their budget discussions and presents the legislation on the floor in the coming weeks.

You probably are like many other South Carolinians who haven’t heard of the little-known OPEB trust fund.  The OPEB, Other Post Employment Benefits, trust funds consists of:  a health insurance trust fund ($582.4 million) and a life and long-term disability ($35 million) trust fund. Currently, the State Treasurer manages the funds, whose unfunded liability was $9.145 billion as of June 2010.  In a Senate Finance Subcommittee meeting last week, one Senator asked State Treasurer Curtis Loftis about the unfunded liability and why the funds were not managed by the S.C. Retirement System Investment Commission.

It’s a good question, given the role of the Commission is to serve as the fiduciary entity who manages assets held for the participants and beneficiaries of the South Carolina Retirement System.  According to Treasurer Loftis, the funds must be invested with strict restrictions to the types of investments that can be made.  When the Commission was created in 2005, the Chief Investment Officer declined to manage the funds due to the restrictive investment limitations.  A constitutional referendum introduced to alleviate those restrictions failed in 2009.

Treasurer Loftis also indicated his office is more successful in acquiring a higher rate of return on the investments of the fund.  He cited the Commission’s most recent flash report that shows a 5 year annualized return of 6.36%, while the OPEB 5 year annualized return was roughly 6.85% under Treasurer Loftis.

The Retirement Commission is comprised of six members, which includes the Treasurer.  The collective experience of the members logically lends itself to more exhaustive and sound decisions regarding investment.  And, the restrictions the Treasurer references are only placed on the funds because he is the one managing it.  According to the Treasurer, the SC Code of Laws restricts his office’s investments to domestic, investment grade fixed income, whereas the Commission’s fixed income funds can be invested in more diversified investments.

It seems logical, therefore, to move the responsibility of management of the funds to the Retirement Commission.  1)  It’s their job as the fiduciary entity responsible for managing the assets of the members of the retirement system and 2) they can invest in much more diversified investments.

The House, Senate Finance Committee, and Governor Haley all have something in common:  each has expressed a commitment to deepening Charleston’s port.  Although the governor’s conviction fell into question late last year when she backed a controversial decision by DHEC to approve a permit for the Port of Savannah’s harbor deepening project.  None the less, in February of this year, the Governor was in Washington D.C. imploring President Obama to find more funds to the Charleston port and others along the Atlantic.

For its part, the House has shown its support for the project (see lines 129 – 133) by providing $180 million in non-recurring proviso funding to the State Ports Authority.  That leaves the Senate Finance Committee, which approved a bill in a committee meeting last week that authorizes the State Treasurer to issue a $120 million dollar bond for the project.  That would bring, if the bond were issued, total funding for the project to $300 million dollars.

The BEA estimates the General Assembly has roughly $900 million additional dollars to spend this year.  The Charleston port dredging project seems likely to be one of the areas where lawmakers will spend the additional dollars.

Whether or not you think deepening Charleston’s port should be a priority, borrowing $120 million dollars when you have $900 million dollars in “surplus” funding is, on the face of it, highly questionable.  Also, the arguable logic behind using state resources for the harbor relates to the possible future economic and job development driven by the port.  If the port will have such a tremendous impact that it constitutes appropriating state taxpayer dollars for it, it should be funded in the same manner as other agencies, rather than accruing interest over a 15 year period on a bond. That interest amounts to roughly $11.2 million dollars per year, according to the State Treasurer.

So, while we can’t predict the exact economic impact a 50-foot deep harbor will have in the future, we can predict the $168 million dollars in interest we’ll spend over 15 years for the bond issued to help pay for the harbor, in addition to the $300 million dollars it will cost.

Well, we’ve seen an uptick in employment, or a downtick in unemployment – however you want to think about it. With an unemployment rate of 8.9 percent, South Carolina now ranks at number 42.

Over the next several weeks, therefore, you’re likely to hear South Carolina politicians crowing about how their efforts at job creation are finally paying off. For the last few years, you’ve heard about a lot of “economic development” programs designed to create jobs – especially “high paying jobs” associated with something called the “knowledge economy” – and now those efforts are bearing fruit. So you may hear.

The trouble is that when you take a closer look at the new employment numbers, what you find is that the growth occurred in two main areas: (1) government and government-related fields, and (2) leisure and hospitality. In other words: we got a better employment picture – at least in large part – because government grew and it’s almost summer.

Last month’s total increase of (non-farm) jobs is 17,100. Of that number, 8,400 was in leisure and hospitality, which, according to the Department and Employment and Workforce, “was concentrated in the Food Services and Drinking subsector”: that is, bars and restaurants. The other big numbers are in “Trade, Transportation, and Utilities” – 3,800; and government itself – 1,400.

With apologies to our elected officials, that doesn’t leave a lot of room for grand claims that their efforts in economic development are paying off. And with all due respect to those in the Food Services and Drinking subsector, we can only hope state government isn’t spending around $300 million every year on “economic development” – and handing out untold millions in taxpayer-financed incentives to private companies – in order to boost the number of people employed by bars and restaurants. (Nor, by the way, can we safely discount the possibility that this latter trend may be part of a deeper problem: chronic underemployment. When people can’t find employment in their chosen fields, they often seek work in the food and hospitality sector.)

With all that in mind, we’ve supplied two pie charts below. Both reflect the new employment numbers. The first is based on the categories supplied by government sources. The second is what we regard as a more accurate picture: the pieces of the pie in red are government or government-related jobs.

Enjoy.

The Superintendent of the Department of Education (DOE) and lawmakers had an interesting discussion at the Senate Finance Committee meeting yesterday:  why does the House-passed budget include the First Steps program as a line item? First Steps is a program with DOE whose mission is to develop, promote, and assist efforts (at the state and community level) of early childhood development.  The program is well within the mission of DOE; but the question remains as to whether it should be it own operating entity.

As it stands, the program is governed by a board comprised of the governor, superintendent of education, twenty appointees (by the governor, Senate President and House Speaker), and 11 other non-voting positions representing state agencies and other organizations. If it seems odd that a program like First Steps has such a large board, it should. According to the superintendent, DOE is merely the fiscal agent of the program, with no authority over First Steps’ policies, budget, or procedures.  In addition, DOE cannot fulfill the obligations of First Steps due to the recent merger of that program with the federal “Babynet” program in January of 2010. As one Senator stated, when that happened, First Steps moved from a 20- to 100-person operation.

First Steps is a program devoted to early childhood development and should remain within DOE.  Babynet is a federal program whose funding is dispersed among five agencies (including First Steps) and other non-profit organizations.  First Steps should remain focused on early childhood development and Babynet should be relegated to other agencies whose mission coincides with its own, namely to service developmentally disabled individuals.  Babynet’s services should be consolidated with those of other agencies like DDSN, DHEC, and HHS.

State legislators eager to escape Obamacare’s restrictive mandates have united behind the interstate healthcare compact, a single piece of state legislation they expect to free them from having to obey federal law. S 836, recently passed in the Senate, would make South Carolina an official member of the interstate healthcare compact and associated advisory commission. By joining into a compact, which is essentially a legal agreement between states, each member agrees to work to regain control from the federal government over health care regulation within its own borders.

Unfortunately, an interstate compact won’t do anything concrete to improve our health care system. Inasmuch as the federal government has clear constitutional authority to regulate agreements between states, the compact must have – but is highly unlikely to get – Congressional approval. It’s even less likely that states will continue to receive their current amounts of federal health care funding under a compact system. Without federal funding, states like South Carolina would fail completely to meet their current level of obligation to Medicaid recipients, sending government-provided health care programs into a financial tailspin.

Those government health care programs need to be reformed, badly, and there’s a long way to go before private and employer-purchased health care can be said to operate in a free market. But the health care compact is a symbolic political statement pushed by national activists, not a real solution to either problem. South Carolina lawmakers would do better to focus their attention on reforming state health care programs, breaking down barriers to the free market for health care within the state, and freeing health care providers from expensive and counter-productive state regulations.

What is a compact?

An interstate compact is a legal agreement between multiple states. Once approved by Congress, whatever is enacted within the compact takes precedence over the federal laws that existed prior to the compact. Member states of the health care compact would thus avoid having to enact current federal health care reforms. The compact proposed in S. 836 would create both the compact and an advisory commission, which would provide non-binding advice to member states on health care reform.

Authority to regulate health care would still fall entirely and solely on the member states of the compact: the advisory commission has no binding authority over member states, and they are free to withdraw at any time. Doing so, however, would return authority over health care regulation within that state to the pre-compact regulatory body, the federal government.

Can it replace “Obamacare”?

The legal wrangling required to establish a state compact for health care would, ideally, provide a barrier between state legislatures and the federal government, allowing the former to regulate health care free from federal mandates. There are a number of interstate compacts, including the Colorado River Compact, the Port Authority of New York and New Jersey, and the Drivers License Compact, in which most states take part. Those compacts share one important feature that the health care compact lacks, however: none attempt to retake authority that has already been claimed by the federal government.

The legality of an interstate health care compact is heavily debated. The definitive ruling on the Compact Clause of the constitution, Virginia vs. Tennessee, states that the type of interstate compacts the federal government can deny are those that are “directed to the formation of any combination tending to the increase of political power in the states.” That is the express purpose of an interstate health care compact. Congressional approval seems, to put it mildly, improbable.

Who designed the compact?

It’s difficult to say precisely where the idea of a health care compact came from, though the text of the compact legislation is disseminated through the Health Care Compact Alliance, a nonprofit organization based in Virginia. You can view the text that made it into the South Carolina Senate bill, S. 836, at their website. A handful of states have already passed similar or identical compact legislation into law, including Georgia, Missouri, and Texas.

How will it affect health care policy in South Carolina?

Simply stated, it won’t: the compact allows member states freedom to determine their own health care policies, leaving full control of South Carolina’s health care regulation in the hands of state legislators. No specific policies are enacted by the compact, though, if passed, it will exempt states from following currently enacted federal reform policies.

What will an interstate compact cost?

The compact legislation attempts to change the current system of federal funding for health care – in which states are reimbursed yearly according to their median income and other demographic factors – into a “block grant” system. A block grant is a fixed, pre-calculated amount of money sent from the federal government to states to spend at their discretion. The interstate compact legislation projects the base funding level South Carolina will receive at $11.14 billion. This rosy projection assumes, however, that the federal government will award in a block grant precisely the amount of money that is typically awarded through the Medicaid reimbursement currently under federal control.

Is it a serious option?

While a compact might be an acceptable way to keep federal regulators out of a state, it simply replaces them with state regulators enumerated with exactly the same powers, which by itself won’t lead to a stronger or freer market for health care. South Carolina policymakers had an opportunity in last year’s Health Planning Committee sessions to work to dismantle the competition-crippling bureaucracy that has made health care unaffordable for so many citizens: yet no state-level health care solutions were put forward, or even seriously considered. It’s extremely difficult to believe, therefore, that lawmakers are suddenly now serious enough about the state’s health care problems to wish to wrest control of reform from the federal government. If state lawmakers were truly serious about creating a free market for health care, they’d propose a piece of legislation that protects the rights and powers of their constituents instead of one that protects the rights and powers of state legislatures.

(Download as pdf.)

The Comptroller General (CG) appeared before the Senate Finance Constitutional and Criminal Justice Subcommittee to provide his budget request for FY 13. When the CG stated he had no request for increases in his budget, but would need additional resources to expand his staff next year, one Senator on the panel raised an interesting point: should the CG’s office and the State Treasurer be combined so there is one office handling state finances? According to their conversation, not many states operate financially with two separate entities. In addition, the CG doesn’t oppose the merger and thinks it would lower costs while combining similar functions of state government.

In addition to the Comptroller General, the South Carolina Center for Fathers and Families also presented a budget request. If that sounds odd to you, it should, and for two reasons. (1) The center is a non-profit organization (not a state agency) that is an outgrowth of the public-private partnership between the Sisters of Charity Foundation of South Carolina and the South Carolina Department of Social Services. And (2) if the agency is already partnered with DSS, why does it need its own special appropriation in the budget? They should be presenting their $500,000 dollar request to DSS, not the Senate.