Tale of Two States

Sunday’s editorial offers an analysis of the current trajectory of South Carolina government.

For those who see South Carolina government as a massive, bloated monster, 2010 is shaping up to be another good year, as the state legislature prepares to trim another 7 percent of the beast.

The state’s general fund revenue (the money the legislature has control over) reached its $6.7 billion zenith in 2007, and this year will fall to $5 billion. That’s about the size of the general fund in 2000. Adjusted for inflation, we’ve not seen so little revenue since the early 1990s.

Let’s consider what we may no longer get for that money: special-needs and mental-health workers whose home visits allow the parents of disabled children to have jobs, jobs they’ll soon have to quit without someone to watch their children. We’re going to let thousands of nonviolent offenders out of jail - the “harmless” guys who only steal lawnmowers or sell a little bit of drugs - and we’re going to have 100 fewer probation officers to keep an eye on them. We won’t buy new textbooks for our schools, and public-school teachers will be spend less time in the classroom.

What, in that list, is waste?

Higher education has been cut so deeply that Coastal Carolina University’s budget now includes only 7 percent of state spending, $10 million and dwindling. Our flagship school, the University of South Carolina, receives 12 percent of its funding from the state. In-state tuition at CCU is $4,475 per semester; at the University of North Carolina in Wilmington, tuition is $2,355, nearly half that for a comparable education. The difference, of course, is how much of a student’s bill each state picks up.

The budget must be balanced, which in South Carolina means that it must be cut. The other option - raising revenue through higher taxes - is so politically unthinkable here that the state’s budget-writing staff doesn’t even bother suggesting it. Instead, what is the legislature planning to do? The House has passed an absolute cut in the corporate income tax, notching it down by $17 million a year for 10 years until it disappears altogether. The Senate, meanwhile, is on track to approving caps in total spending that would only allow state government to grow each year by the sum of inflation plus population growth.

And the next year, the problem will be worse. Federal stimulus money (that our governor fought so hard against) will dry up, sucking another $350 million out of the general fund. More cuts.

This is not a temporary problem; it’s the expression of our state’s governing philosophy. We are striving valiantly and intentionally toward less taxes and fewer services. This paradigm is so dominant in South Carolina that raising taxes just isn’t even on the table, except maybe - maybe - a paltry increase in cigarette taxes. In fact, the most aggressive tax-hike proposals getting serious consideration is simply a higher cigarette-tax hike, and while it’s the right thing to do, it won’t solve our larger problems.

A large part of the reason this thinking is so pervasive in South Carolina is that we have such an effective spokesman for it: Gov. Mark Sanford. Don’t laugh. Despite our governor’s now-notorious personal foibles, he has an air of commanding the table when it comes to policy issues. No elected official speaks more authoritatively about the budget, using concrete data and robust economic theory, and no one else has the wherewithal to carry that message around the state. Eight years ago, Sanford’s intellect-based approach to government was refreshing, part of the reason he was endorsed by editorial boards around the state (including this one) despite significant philosophical differences with him.

Yet Sanford’s legacy for the state has been backwards from what we had hoped for. His structural reforms - those that would have ironed out the wasteful idiosynracies and redundancies in state government - have largely failed in the Statehouse, while his vision of an ever-shrinking government have taken deeper and deeper root. That’s not all his fault; the Statehouse has taken the politically popular tax cuts without surrendering any power.

When you think about it, spending caps - Sanford’s crusade for years - could not come at a more ingenious time for proponents of his philosophy, when state government has already been slashed to a shadow of its former self. It’ll now be frozen at this tiny size.

As we examine our budget this year, the prevailing argument (that we don’t want to hamper any recovery from the recession with higher taxes) may be persuasive on its face, but it’s not entirely supported by the facts. Last year, North Carolina raised income and sales taxes, and yet every week, it seems, the Gov. Perdue’s office is announcing new jobs somewhere else in the state: 825 jobs in Charlotte on Thursday, 500 in Catawba County last week, 84 jobs in Johnston County on Feb. 22, 346 jobs to Greensboro Feb. 11, and on and on. From a statistical standpoint, the nonpartisan Center for Budget and Policy Priorities (a national poverty-focused think tank) argues that states that raised taxes during the post-9/11 recession did not see significantly less growth in personal income, median wages or employment than states that did not raise them.

Further, South Carolina has had plenty of tax cuts - swapping sales taxes for property taxes and cutting income taxes, just in the last few years. And yet the state remains at the top of the nation in unemployment, just underneath Michigan, California and Nevada - without any of those states’ obvious challenges. In fact, we’ve risen to the top of the list over the years that these tax cuts have been implemented: in the late 1990s, the state’s unemployment rate was a full 1.5 points beneath the national average.

Only three other states - Georgia, Ohio and Michigan - are cutting services without raising taxes. South Carolina is truly becoming a laboratory for a theory of absolute self-sufficiency, that the state has no role in promoting a man’s prosperity, but should merely avoid reducing the prosperity of those who already have it. The cartoon future of this project is a return to Dickensian London, where the haves all wear top hats and the have-nots toil for crumbs in the debtor’s prisons where they are born, and the only way out is through the rare magnamity of anonymous, private benefactors. But with no money for social workers, for higher education, for keeping criminals off the streets - how inaccurate a caricature is it?

Our neighbors to the north are taking a different route, one of trying to preserve the state’s role in its citizens lives by sustaining vital services through marginal tax increases even despite the recession. Time will tell which state got it right. 

Background and readings:

More links

The state’s general fund revenue (the money the legislature has control over) reached its $6.7 billion zenith in 2007, and this year will fall to $5 billion. That’s about the size of the general fund in 2000. Adjusted for inflation, we’ve not seen so little revenue since the early 1990s.

Let’s consider what we may no longer get for that money: special-needs and mental-health workers whose home visits allow the parents of disabled children to have jobs, jobs they’ll soon have to quit without someone to watch their children. We’re going to let thousands of nonviolent offenders out of jail - the “harmless” guys who only steal lawnmowers or sell a little bit of drugs - and we’re going to have 100 fewer probation officers to keep an eye on them. We won’t buy new textbooks for our schools, and public-school teachers will be spend less time in the classroom.

What, in that list, is waste?

Higher education has been cut so deeply that Coastal Carolina University’s budget now includes only 7 percent of state spending, $10 million and dwindling. Our flagship school, the University of South Carolina, receives 12 percent of its funding from the state. In-state tuition at CCU is $4,475 per semester; at the University of North Carolina in Wilmington, tuition is $2,355, nearly half that for a comparable education. The difference, of course, is how much of a student’s bill each state picks up.

The budget must be balanced, which in South Carolina means that it must be cut. The other option - raising revenue through higher taxes - is so politically unthinkable here that the state’s budget-writing staff doesn’t even bother suggesting it. Instead, what is the legislature planning to do? The House has passed an absolute cut in the corporate income tax, notching it down by $17 million a year for 10 years until it disappears altogether. The Senate, meanwhile, is on track to approving caps in total spending that would only allow state government to grow each year by the sum of inflation plus population growth.

And the next year, the problem will be worse. Federal stimulus money (that our governor fought so hard against) will dry up, sucking another $350 million out of the general fund. More cuts.

This is not a temporary problem; it’s the expression of our state’s governing philosophy. We are striving valiantly and intentionally toward less taxes and fewer services. This paradigm is so dominant in South Carolina that raising taxes just isn’t even on the table, except maybe - maybe - a paltry increase in cigarette taxes. In fact, the most aggressive tax-hike proposals getting serious consideration is simply a higher cigarette-tax hike, and while it’s the right thing to do, it won’t solve our larger problems.

A large part of the reason this thinking is so pervasive in South Carolina is that we have such an effective spokesman for it: Gov. Mark Sanford. Don’t laugh. Despite our governor’s now-notorious personal foibles, he has an air of commanding the table when it comes to policy issues. No elected official speaks more authoritatively about the budget, using concrete data and robust economic theory, and no one else has the wherewithal to carry that message around the state. Eight years ago, Sanford’s intellect-based approach to government was refreshing, part of the reason he was endorsed by editorial boards around the state (including this one) despite significant philosophical differences with him.

Yet Sanford’s legacy for the state has been backwards from what we had hoped for. His structural reforms - those that would have ironed out the wasteful idiosynracies and redundancies in state government - have largely failed in the Statehouse, while his vision of an ever-shrinking government have taken deeper and deeper root. That’s not all his fault; the Statehouse has taken the politically popular tax cuts without surrendering any power.

When you think about it, spending caps - Sanford’s crusade for years - could not come at a more ingenious time for proponents of his philosophy, when state government has already been slashed to a shadow of its former self. It’ll now be frozen at this tiny size.

As we examine our budget this year, the prevailing argument (that we don’t want to hamper any recovery from the recession with higher taxes) may be persuasive on its face, but it’s not entirely supported by the facts. Last year, North Carolina raised income and sales taxes, and yet every week, it seems, the Gov. Perdue’s office is announcing new jobs somewhere else in the state: 825 jobs in Charlotte on Thursday, 500 in Catawba County last week, 84 jobs in Johnston County on Feb. 22, 346 jobs to Greensboro Feb. 11, and on and on. From a statistical standpoint, the nonpartisan Center for Budget and Policy Priorities (a national poverty-focused think tank) argues that states that raised taxes during the post-9/11 recession did not see significantly less growth in personal income, median wages or employment than states that did not raise them.

Further, South Carolina has had plenty of tax cuts - swapping sales taxes for property taxes and cutting income taxes, just in the last few years. And yet the state remains at the top of the nation in unemployment, just underneath Michigan, California and Nevada - without any of those states’ obvious challenges. In fact, we’ve risen to the top of the list over the years that these tax cuts have been implemented: in the late 1990s, the state’s unemployment rate was a full 1.5 points beneath the national average.

Only three other states - Georgia, Ohio and Michigan - are cutting services without raising taxes. South Carolina is truly becoming a laboratory for a theory of absolute self-sufficiency, that the state has no role in promoting a man’s prosperity, but should merely avoid reducing the prosperity of those who already have it. The cartoon future of this project is a return to Dickensian London, where the haves all wear top hats and the have-nots toil for crumbs in the debtor’s prisons where they are born, and the only way out is through the rare magnamity of anonymous, private benefactors. But with no money for social workers, for higher education, for keeping criminals off the streets - how inaccurate a caricature is it?

Our neighbors to the north are taking a different route, one of trying to preserve the state’s role in its citizens lives by sustaining vital services through marginal tax increases even despite the recession. Time will tell which state got it right. 

Background and readings:

More links