The recent downturn in our nation's economy has impacted the budgets of nearly every state. At least 48 states are facing budget shortfalls this year, totaling more than $190 billion in lost revenue, according to the Center on Budget and Policy Priorities. The shortfalls amount to a shocking 28 percent of all state budgets.
Revenue that our state uses to provide essential government services continues to be cut. Unlike our neighboring states, we have actually cut government spending instead of raising taxes to make up for shortfalls.
During past economic downturns, holding the line on taxes has allowed our state to recover faster and bigger than our neighbors who chose to raise taxes during these tough times.
This means that difficult decisions must be made. To put in perspective the arduous budget year our state is facing, we have lost 25 percent of our entire state general fund operating budget since 2007.
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As legislative leaders, we are responsible for the financial health of South Carolina's state government, and we are determined to do whatever necessary to maintain the highest bond rating possible. A good credit rating saves taxpayers millions of dollars. In these difficult times, it is essential that we take the proper steps and make the needed reforms to maintain our state's credit worthiness.
To accomplish this, state Treasurer Converse Chellis has outlined some changes we can make to strengthen our state's financial system ("Manage spending and credit, reduce cuts," Dec. 17). These four key actions he identified will greatly bolster our state's fiscal integrity and help preserve our good credit rating.
First, we need to increase the size of our General Reserve Fund from 3 percent to 5 percent. This year's first round of budget cuts completely depleted our General Reserve Fund, highlighting the need for a more adequate reserve.
Second, we need to change how we use our other reserve - the Capital Reserve Fund - so that it can act as an additional buffer. The Capital Reserve Fund functions as a set-aside account, being appropriated for projects but only spent if a shortfall does not occur. And while it is the first line of defense if revenue estimates are too optimistic, it is regarded more as a legislative appropriation tool than an effective reserve fund.
We could better utilize this reserve fund to add more stability to our budget. Moving its use to the end of the fiscal year will better guard against any year-end deficits.
Third, we need to change the process of revenue corrections so that our response is quicker and more decisive. Currently, if our General Fund revenue forecast tracks more than 4 percent below projected collections at the end of the first or second fiscal quarter, the Budget and Control Board has discretion to determine the amount and timing of budget cuts. We can strengthen this process by first making these necessary cuts automatic; secondly, adding the third fiscal quarter to this time frame; and thirdly, decreasing the "trigger" for action to a 2 percent fall in revenue.
Fourth, we need to set up a system that prioritizes programs with the goal of smart downsizing. When faced with budget cuts, we should first target all the government waste we can and then prioritize our remaining resources to core government functions. Because after all, not all government programs are created equally.
It is evident that our state's economy in 2010 will not produce the General Fund revenue needed to fund every program. A general tax increase to make up for this loss would be foolish and would only further hurt our economy. So, the alternative is to carefully examine and eliminate - or privatize - some of the programs we can't afford to fund.
Eliminating a program is never an easy accomplishment and requires that difficult decisions be made. As Ronald Reagan said, "The nearest thing to eternal life we will ever see on this earth is a government program." Establishing a Streamlining Commission to assist the General Assembly in this endeavor will help us to work smarter with the resources we have.
These changes will improve South Carolina's conservative fiscal policies and will greatly stabilize our future budgets. Following through on these responsible government reforms will preserve our state's stellar financial reputation for generations to come.