All of us as soon as we are old enough to purchase items and establish credit receive a "credit rating," usually by each of the three national credit rating companies. The better your credit, the higher your rating and the easier and less expensive it is to borrow money.
The same holds true with governmental entities. The state of South Carolina, like all states, has to borrow money from time to time in order to pay for certain projects. And like individuals, the state's credit worthiness is ranked by three national rating agencies. Rather than being rated with a numerical number like 600 or 750, states are rated with letters. The highest rating a state can have is AAA. South Carolina currently has two AAA ratings and one AA+. This places South Carolina as one of the nine best rated states in the nation.
It has taken a lot of hard work for South Carolina to remain highly rated. With the dramatic downturn in the national and state economies, it is becoming harder to keep this coveted rating.
There is no question that South Carolina is and will be facing tough economic times for a number of years to come. If we are to remain a highly rated state and weather any future economic downturn, we must move to implement a number of fiscally conservative initiatives that will keep our state on a steadier financial path. As the state's chief financial officer, it is incumbent upon me to offer a financial legislative agenda that not only will help our state through the next several years but will serve as a conservative fiscal plan under which we can operate for decades to come. I am asking the General Assembly to consider four items, some of which will require constitutional amendments:
- Increase the size of the General Reserve Fund. The state constitution requires the state's General Reserve to be funded at 3 percent of the previous year's general fund revenue. I propose that be increased to 5 percent. We need this higher level of funding to promote a greater financial cushion for economic downturns.
- Delay the use of the Capital Reserve Fund during the fiscal year. The Capital Reserve Fund is constitutionally mandated to be funded at 2 percent of the previous year's general fund revenue. I propose that this reserve fund must be set aside and untouched until the end of the fiscal year to cover any year-end deficits. This will ensure that the fund becomes a budget reserve fund of last resort. In addition, no expenditures could be made from the Capital Reserve Fund if the General Reserve Fund was funded below 5 percent, a move that would promote faster restoration of the General Reserve Fund.
- Respond more quickly to reduced revenue projections. The Budget and Control Board has the responsibility to make budget cuts during the first two quarters of the year if revenue projections are 4 percent below expected general fund revenue collections. I propose that the trigger be reduced to 2 percent and extend the process to three quarters. This will enable the state to react more quickly to anticipated shortfalls in revenue.
- Create a government streamlining commission. South Carolina has experienced a dramatic decrease in general fund revenue collections. This seems to be more of a permanent situation than a cyclical event. We must identify and eliminate waste and duplication of services within agencies of state government. We also must look at functions, activities and programs that are of lesser value to citizens. A streamlining commission would determine activities that are to be eliminated, streamlined, consolidated, privatized or outsourced.
These four initiatives will help our state function in a more fiscally conservative manner, allow South Carolina to better weather any future economic downturns and promote preservation of the state's high credit rating. I will work hard through the legislative and constitutional process to ensure that they are implemented.