Non-Tax Revenues: It’s Really About Making Higher Education Unaffordable

In a recent editorial in The State, Cindi Ross Scoppe points to the highest in the nation share (48.4 %) that non-tax revenues made in 2010 of state and local revenues. “Our non-tax revenue in 2010, the latest year analyzed, was the highest, by far, of any state. And it was up from 37.8 percent in 2000 — the largest increase, by far, of any state.” Scoppe took the numbers from a distributional analysis of taxes in South Carolina by the D.C. based Institute on Taxation and Economic Policy (ITEP).

Taxes as a share of own-source revenue have dropped from 62.2 % to 51.6 % of own-source revenues from 2000 to 2010, reflecting, as Scoppe observes the General Assembly’s focus on cutting income tax rates while “averting their eyes while all those user fees, fines and other “non-tax revenues” keep skyrocketing, making our tax system even more regressive — and more opaque.”

Our colleagues at ITEP based their Appendix B: Changes in Composition of State & Local General Own Source Revenues on the US Census Bureau’s State & Local Finance Surveys. Own-source revenues include taxes, charges and miscellaneous general revenue but not utility charges ($3.1 billion in South Carolina in 2010) or payments into trust funds like those for state retirement, unemployment insurance and workers compensation ($5.7 billion). Own-source revenues made up $25.5 billion of the total of $42.3 billion in revenues. Future references to revenue, mean own-source revenue. See our compilation here.

There are perils in comparing summary numbers among states. Here, the driver of South Carolina’s especially high non-tax portion of state and local own source revenues is charges paid to public hospitals—19.9 % of South Carolina’s 2010 revenue and 41.2 % of non-tax revenue. That compares to a national average of 5.6 %, where the states range from 0 % in Vermont to 18.9 % in Mississippi.

That is more a function of the mix of hospitals, demographic shifts and changing health economics than anything structural to our tax or finance systems. If you don’t have many public hospitals, you don’t have much Public Hospital revenue. If you remove Public Hospital charges from the analysis, South Carolina’s percentage of non-tax revenue drops to 35.5 %, substantially below Delaware’s 44.9 %, although still seventh highest. In 2000, that percentage of non-tax revenues, absent charges by Public Hospitals, was 27.7 %.

The next largest category in the non-tax revenues for 2010 is charges by institutions of higher education (8.5 %), an increase from 5.2 % in 2000. Looking at state revenues, alone, higher education charges made up one in six dollars (16.0 %) of revenue in 2010, up from 8.9 % in 2000.

Next in size is Other General Revenue (7.9 %) which includes Fines and Forfeits, Rents, Royalties, Donations From Private Sources, Net Lottery Revenue and unclassified General Revenue. In 2000 that category made up only 4.0 % of revenues in South Carolina, but the Lottery was not yet operating. Fines and Forfeits increased by 284 % from 2000 to 2010, while General Revenue Not Elsewhere Classified grew by 158 %. Together, those two items made up 4.9 % of revenues in 2010, up from 3.0 % in 2000. The growth of revenues from Other General Revenues is especially strong in state revenues with 10.5 % of revenues in 2010, compared to 4.4 % in 2000.

Even in 2000, own-tax revenues made up the larger portion (50.7 %) of local revenues. But those proportions did not change significantly from 2000 to 2010 (50.9 %). In fact, if you remove hospital revenues, local governments in South Carolina became more reliant on tax revenues between 2000 (54.0 %) and 2010 (55.3 %).

As Scoppe observes: “[The General Assembly’s] main interest, besides carving out new specialized exemptions for most-favored donors, is to lower income tax rates, which would get us even further out of [distributional] balance.”

Although increasing fees and fines are a substantial, regressive contributor to the shift at the state level to non-tax revenue, the biggest contributor (leaving aside public hospital revenues) is tuition and fees charged for higher education. As we have moved towards quasi-privatized higher education with rapidly declining shares of state funding, a national trend as well, state appropriated funds for higher education have declined from $7,399 per FTE in FY2007 to $4,095 in FY2012. At the same time, tuition per FTE increased from $4,534 to $6,937. From a distributional perspective, it appears that those tuition increases are not so much regressive as repressive. Lower-income South Carolinians are increasingly unable to afford higher education. That’s a problem.

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