Legislators must cut millions more from budget

A $59.8 million processing error means lawmakers will have to cut the current year's budget again.

It also pushes next year's budget gap to more than $600 million as Senate lawmakers begin drafting their version of the state budget this week.

The money, generated through increased tax auditing at the Department of Revenue, was supposed to be set aside in a special account but was counted among general fund revenue.

That means lawmakers were told they had $59.8 million more to spend than was actually available.

The result is lawmakers must cut more than 1 percent from the state budget in the final quarter of the fiscal year. Those cuts could be offset if auditing efforts continue to collect more taxes than were budgeted.

The shortfall also carries over to the budget year that begins July 1, and compounds problems for lawmakers trying to balance a budget that has declined to $5 billion from $7.1 billion since June 2008. The budget has been cut three times since July.

Senate Finance chairman Hugh Leatherman, R-Florence, said the processing error and the Department of Health and Human Services' spending $67 million more than expected from a reserve account means the Senate will write its budget with $126 million less than the House had for its $5 billion spending plan.

The Senate took one step toward future budget shortfalls Wednesday, giving final approval to raising the state cigarette tax by 50 cents per pack. The estimated $136.1 million generated will help pay for health care services when federal aid runs out in June 2011, lawmakers said.

The bill passed by a 32-14 vote, a margin that would be enough to override an expected veto by Gov. Mark Sanford.

State officials struggled to explain why the money - earmarked to supplement local government budgets, save for pending retirement system expenses, fund Senate reapportionment and offer $500,000 in needs-based college grants among other expenses - was never set aside.

"This is one of those things that shouldn't have happened," said John Rainey, chairman of the Board of Economic Advisors, who voted to cut revenue estimates Wednesday. "This isn't going to be perceived with joy in the Senate Finance Committee."

State officials said the oversight seems to be a miscommunication among a handful of agencies.

Treasurer Converse Chellis' office provided letters between it and the comptroller general showing the account was created in September. Department of Revenue spokeswoman Adrienne Fairwell provided e-mails from February that showed agency staff members were asking when the account would be opened.

"I need to know what sub fund/roc you want me to transfer the money into," a Department of Revenue employee wrote. "Let me know when you are set to receive it." The money was transferred March 30.

Fairwell said the agency was tracking the money and had told the BEA the money was included in its revenue figures. The agency could not deposit the money until the account was created, she said, and no one told the agency the account was ready.

"It was there; it was ready to be transferred," Fairwell said. "The problem is a communication issue."

Comptroller General Richard Eckstrom discovered the issue during a monthly balancing of the state books. He agreed that state agencies had communicated poorly.

"I don't see how the Treasurer's Office could have had any idea that something was amiss," he said. "We need to be a lot more coordinated on stuff like this."

A new state accounting system could help avoid these mistakes, Eckstrom said. That system should be fully installed within a few months, he said.