The ACA Toolbox for Health Reform: What State Health Leaders Aren’t Telling the General Assembly

The Affordable Care Act (ACA) provides health policymakers with a robust set of tools to accomplish important changes to both bring costs under control and improve our health and health care. The coverage expansion which ensures affordable access to this new, high performance health care system is integral to meeting the those goals, not contrary to them as the state’s health leader is telling the General Assembly.

Figure 1 - with permission of the The Commonwealth Fund

Figure 1 – with permission of the The Commonwealth Fund

When South Carolina Department of Health and Human Services Director Tony Keck travels the state, his central argument against the ACA and Medicaid expansion is that Congress and the White House asked the wrong question: “How do we insure as many people as possible in the United States?”[1] rather than “How do we get as many people healthy in the United States?”

Keck then points to the “Triple Aim” of health policy first articulated by Dr. Donald M. Berwick, former Administrator of the Centers for Medicare and Medicaid Services of the federal HHS:

  • Reduce the per capita cost of health care
  • Improve the health of populations
  • Improve the patient experience (quality and satisfaction).

We agree with Director Keck’s central premise that we should be paying for health rather than health care, but we disagree that they are mutually exclusive.

In a recent presentation on The Commonwealth Fund’s new report, Confronting Costs: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System (January 2013), Dr. David Blumenthal, M.D., M.P.P., Chair of The Commonwealth Fund, used the chart in Figure 1 to show that the ACA helps move us towards the critically needed changes to the health care system to achieve Keck’s stated goals with a toolbox filled with tools for stabilizing health spending and moving us toward a high performance health care system.

The Keck argument seems to be that we have a choice: provide health insurance coverage or improve our health. Our nation (and state) is facing a health crisis:

  1. Massive numbers of uninsured who tax our health systems through inefficient and inappropriate use which often comes too late to be cheap—45 % of non-elderly South Carolina adults with incomes below 138 % of the Federal Poverty Level ($15,856 for a family of one; $32,499 for a family of four) are uninsured[2];
  2. Both a very costly and inefficient health system and costs growing faster than the nation’s economy; and
  3. Poor health outcomes when compared to other nations.

There are ways to address these. The Commonwealth Fund Commission on a High Performance Health System observes:

As national policy leaders consider approaches to slow and stabilize the growth of federal health spending in ways that also benefit all payers (state and local governments, businesses, and households), it is crucial that these approaches be developed and applied to adhere to and further the goals of a high performance health system. These goals include providing affordable access across the nation to high-quality, well-coordinated and patient-centered care with continuous delivery system innovation. Achieving the goals of a high performance health system, while stabilizing cost growth, requires a focus on the total health system and health care markets, not just federal programs. (Confronting Costs, pp. 18-19; emphasis added.)

Director Keck, a creative health administrator who is using his position to push many of these changes in both public and private sectors in our state, presents a completely false dichotomy. Coverage which ensures affordable access to this new, high performance health care system is integral to meeting the Triple Aim, not contrary to it. When he suggests to the General Assembly and its committees that the ACA only addresses coverage, that is completely untrue.

We can have honest differences over whether South Carolina can afford it’s four percent contribution[3] to a Medicaid Expansion between FY2014 and FY2020. But the state’s chief health policy officer completely mischaracterizing the ACA to the General Assembly can only lead us to bad policy choices on the expansion.

[1] Unless otherwise noted, all quotes are from Keck’s January 24,2013, presentation to the Senate Medical Affairs Committee’s Affordable Care Act Subcommittee. Video of that presentation is available at: Handouts from that meeting are at:

[2] US Census Small Area Health Estimates, 2010, at

[3] SCDHHS never shows the marginal costs of the Medicaid Expansion, instead lumping in the unavoidable costs of the ACA, to demonize the ACA and to throw every chunk of cheese and baloney it can onto the scale of Medicaid Expansion costs. If you simply subtract from the costs of their scenario covering a reasonable estimate of costs of the ACA including an expansion their scenario without the expansion, you get $13 billion in total marginal spending, of which the State would be on the hook for $570 million, counting only some of the potential savings from an expansion. These are derived from SCDHHS numbers provided in Milliman Letter to Keck re: AFFORDABLE CARE ACT- FINANCIAL IMPACT SFY 2014 THROUGH SFY 2020 (November 30, 2012).

Posted in Health Care, SC Budget | Tagged , , , | 1 Comment

Who Pays State and Local Taxes in South Carolina?

Low-income and middle class taxpayers in South Carolina pay a larger share of their income to support our public structures and systems than do our wealthiest taxpayers.

Figure 1

Figure 1

The quality of life we all enjoy in South Carolina is directly connected to those public systems and structures. Our schools, hospitals, social services, parks and infrastructure are what make our communities good places to live and work. But according to Who Pays? (4th ed., 2013), released Wednesday by the Washington-based Institute on Taxation & Economic Policy (ITEP), the top five percent of taxpayers, and especially the top one percent, are not carrying their share of ensuring that our communities are good places to live and work.

As this chart from the report shows, all of us contribute through our taxes, but while our poorest families pay 7.1 % of their family income in state and local taxes, our wealthiest citizens pay only 5 %.[1] This disparity has grown from 1.6 % in 2007 to 2.1 % today when comparing ITEP’s 3rd edition of Who Pays? to the 4th.

All of us are taxpayers. As Figure 2 shows, all of us, but especially our lowest income families, pay a significantly higher share of family income in sales taxes (5.1 % for the lowest 20 %) compared to the hi

Figure 2 - South Carolina Sales Tax

Figure 2 – South Carolina Sales Tax

ghest 1 % (.7 %). As we have shifted more of our taxation from the relatively neutral property tax and the more progressive income tax, that increases the overall difference between our worst off and best off families—shifting ever more of the responsibility for our community well-being onto lower-income families. The top 1 % pays a smaller share in income taxes even than others in the top 20 %–3.6 % to 3.8 %.

Part of the favorable income tax treatment of the wealthiest 1 % flows from the favorable treatment South Carolina gives capital gains income—a 44 % discount for capital gains as opposed to income from actual work. We are one of only eight states with such notable capital gains preferences.

The wealthiest also benefit more from federal deduction offsets to federal income tax for state and local taxes, cutting 1.4 % from their overall contribution. The more you make, the more the federal tax code subsidizes your state and local taxes—an upside-down subsidy.

An article in last Friday’s The State suggested that the annual legislation conforming South Carolina’s income tax code to changes in the federal tax code might cost the wealthiest income taxpayers an additional $200. The average taxpayer in the 1 %, making $775,700 a year, would see a whopping increase in share of family income going to support our community of .03 %.

South Carolina’s tax structure is, from a fairness perspective, better than average.

Figure 3

Figure 3

In all income categories, South Carolina families pay a smaller portion of their income to support state and local public systems and structures than do the average American family. And our overall tax structure is less tilted against lower income taxpayers.

A recent editorial in The State describes South Carolina policymakers’ “tax-by-tax” fixation—looking at one tax at a time.

Figure 4 - South Carolina Income Taxes

Figure 4 – South Carolina Income Taxes

Many in the House declare “flatter is fairer”— but only when they are talking about income tax rates. Making the income tax flatter only makes the system less flat and less fair.

This report from ITEP, the fourth in this widely-used, highly-respected series, shows how important it is to look at taxes as a system and not just at each of its pieces. Most of the proposals being discussed on personal taxes—to raise the very regressive sales tax by eliminating exemptions or to cut income tax rates—make our tax system less fair.

In South Carolina our wealthiest five percent and, especially, the one percent are not contributing their fair share. That’s troubling when our revenues have in recent years not adequately supported the public systems and structures we have built up over decades to ensure that South Carolina is a good place to work and live. Rather than focusing on tax cuts, we should tell the wealthiest to step up to keep our state functioning well, now and into the future.

[1] “The report measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia.”

Posted in SC Budget, Taxes | Tagged , | 1 Comment

A Tale of Two Maps: Misdirection in the Medicaid Expansion Debate

As SCDHHS Director Tony Keck travels the state arguing that South Carolina should not do a Medicaid expansion, a central argument is that the Medicaid expansion under the Affordable Care Act does not put the money where it’s needed. He illustrates this with two maps. Adam Beam, a reporter for The State tweeted these two maps after a briefing by Keck to the House Ways and Means Committee explaining: “Map on left [Figure 1] shows where Medicaid expansion $ would go in SC. Map on right [Figure 2] shows where S.C. has the most health issues.” That is exactly what Keck argues, but it’s not really true.

Figure 1

Figure 1

The first (Figure 1) shows by county DHHS’s estimate the number of people enrolling because of the Affordable Care Act and an expansion. Those include 352,000 eligible because of the expansion and an additional 161,000 who are already eligible but not enrolled. Not surprisingly, the highest numbers are where the most people live rather than in the low-population, high-poverty I-95 Corridor.

Prevelant Diseases Among SC Medicaid Recipients

Figure 2

The second (Figure 2) shows the prevalence of what may fairly be described as a hodgepodge of diseases and conditions among current Medicaid enrollees showing (in Z-scores, standard deviations) how far above or below a random distribution of those diseases statewide a zip code falls. Only the darker two reds and blues are significantly different from a random distribution at the .05 level. Not surprisingly, the sickest Medicaid recipient communities are in the I-95 Corridor, while the healthier Medicaid recipient communities are in more urban areas. That, however, is different than saying that the comparatively healthier urban areas don’t have lots of sick people … probably many more than the low-population rural areas. We have requested the underlying incidence data from Professor Ana Lopez-DeFede of the Institute for Families in Society who prepared the map.

Leaving aside the fact that the two maps provide information on two separate populations (those currently enrolled[1] and those who might enroll), the maps can’t be compared because you are then comparing incidence (how many) to prevalence (the proportion) .

Figure 3

Figure 3

We created the map in Figure 3 to show SCDHHS estimate of FY2014 enrollment, assuming a Medicaid expansion and including currently eligible folks who enroll, as a percent of the population 18 and above from the 2010 Census. The large urban counties no longer jump out at you. Clarendon and Williamsburg (with projected enrollments of only 2 % of the statewide estimate) do.

Figure 4

Figure 4

The map in Figure 4 shows the potentially eligible uninsured population as a proportion the non-elderly adult population. Although neither of these maps is on the same scale as the disease prevalence map (Figure 2), each shows a very different picture than Figure 1 and a picture closer to the prevalence map (Figure 2).

Director Keck juxtaposes these maps for two purposes. The first is to suggest that insurance is not the answer because all of the folks have coverage through Medicaid and yet are still sick. Something else (the “Social Determinants of Health”) explains the hot spots in the I-95 corridor. Hardly so based solely on this evidence. It shows that among folks with Medicaid, there are differences in health status defined by a measure lumping autism and Alzheimer Disease in with cervical cancer and HIV/AIDs and other ailments which appear to correlate with overall levels of poverty in those communities. However, absent more data we can’t tell what it means. Are there particular diseases driving the prevalence in some areas? Is this the result of differential age composition?

The second thing that Director Keck suggests is that because among current Medicaid enrollees County A, a rural, low populated county with a higher than average proportion of those recipients with this collection of diseases and conditions and in County B, an urban, highly populated county, with a lower than average proportion suffering these ailments, the state should put its health care dollars into County A. Governor Haley’s decision to reimburse rural hospitals for all of their uncompensated suggests this approach. Clearly, rural hospitals have a harder time shifting costs than urban hospitals. But that doesn’t mean that we should ignore the health needs of low-income South Carolinians because a hot spot map of a hodgepodge of diseases among current Medicaid enrollees shows that prevalence of that hodgepodge of diseases is higher in rural areas. It probably only suggests more severe problems with health delivery systems in those rural counties … something that could much more readily be fixed with the additional dollars a Medicaid expansion would bring to them.

[1] It is unclear which age groups are included in the prevalence map. It likely includes children and seniors, even though the expansion principally relates to the non-elderly adults who are not eligible for CHIP coverage or Medicare. In testimony before the Senate Medical Affairs Subcommittee looking at the expansion, Director Keck said, “I’m not sure of the age distribution of this group.”

Posted in Health Care | Tagged | 3 Comments

The Haley Budget Translated: Blame It on Obamacare

To listen to Governor Nikki Haley, a core budgetary problem facing our state is Obamacare. “Every dollar that Washington forces us to spend on a still-inefficient Medicaid program is a dollar we can’t put into our schools, into our roads and infrastructure,” her Executive Budget transmittal letter tells us.

Even if we let the Feds run our Health Benefits Exchange and even if we refuse to expand Medicaid, the Affordable Care Act will still cost South Carolina $67.4 million next year because “of the people that the Feds are driving into the system for Medicaid” she told the Thursday presser.

Who are these folks that the Feds will “drive” into Medicaid? SCDHHS estimates that “162,000 people currently eligible, but unenrolled will enroll in Medicaid even without the Medicaid expansion.” So, this $67.4 million is not for some new group of people that Obamacare just made eligible but mainly very-low-income parents and low-income children that SCDHHS has failed to enroll over the years.

The Governor and SCDHHS assume a welcome mat effect as the federally-run Health Benefits Exchange goes online and currently eligible people finally enroll. The agency projects that 60 % will come because employers drop coverage—a fallacy considering people making so little they qualify for the Low-Income Families program likely don’t have access to employer-provided health benefits.

Those currently eligible will come onto the rolls at current federal match rates, not the 100 % declining to 90 % rates[1] that will apply to newly eligible enrollees under the ACA Medicaid expansion to 133 % of the federal poverty level (FPL).

Haley’s budget increases spending on health care by $173 million according to her slideshow. Of that $79 million is for employee and retiree health benefits and $74 million to SCDHHS for Medicaid. Admirably, $11million additional goes to Mental Health, and $5 million to DDSN. Haley blames most of the DDSN increase on new Medicaid rules.

So, health care is a large part of new funding. But the question we must ask is “Will it really suck up dollars that we would otherwise spend on schools and infrastructure?” Not likely.

Nikki Haley is not going into the history books as The Education Governor.

Last year, with a billion dollars added to state budgets, Haley argued that the Base Student Cost, the core of state funding of local schools, should drop to $1,766, lower than the previous year’s BSC funding of $1,880. The General Assembly fixed it at $2,012, well-below the FY12-13 formula requirement of $2,790 per pupil. Maintaining last year’s BSC is her proposal this year. Twenty percent of new General Fund funding for schools goes to charter schools. The additional $16.3 million for the Education Finance Act noted in her slideshow only covers student population growth. Faced with new dollars last year, the Governor proposed that they go to tax cuts and not education.

“Is health care funding sucking dollars from infrastructure?”

South Carolina has a desperate need to improve our infrastructure. SCDOT recently reported that we need $30 billion in new revenues for road needs over the next 20 years. Add to that ports, water and sewer needs and the investment need nearly triples. We have more than 1,000 bridges in need of repair or replacement. For years, the business community and others looking at infrastructure needs have called for a significant increase in our fourth in the nation lowest gas and diesel taxes. The fact is that business recruitment is much harder when we as a state fail to provide adequate water, sewer and roads.

While declaring “infrastructure means jobs,” the Governor categorically rejects a gas tax increase. The Governor’s budget proposal is to take the new dollars that will appear as the BEA updates its revenue estimates in coming months (“the money tree” to Ms. Haley) and apply those first to a modest tax cut ($26 million) by eliminating the 6 % tax bracket and then to infrastructure. Haley claims that spending General Funds on infrastructure is tax relief because it avoids the badly needed increase to the gas tax and, although she didn’t mention it, borrowing for infrastructure needs.

She expects about $100 million in new dollars by the time Senate Finance and the Conference Committee get hold of the budget.  After giving 74 percent of income tax filers a tax cut of about $2.50 a month, that should leave roughly $74 million for infrastructure … against a need of tens of billions to raise the basic safety standards of our state’s roads and bridges.

Misplaced Blame—Federal Health Improvement Efforts Are Not our State’s Economic Pothole

Rather than simply admitting that improving human capital through public education (other than charter schools) is not her priority and that she is unwilling to do the things that are needed to provide the physical infrastructure which underlies economic development, Governor Haley blames Obamacare for our troubles. This is not the leadership our state needs as we make critical budget choices that will frame our state’s priorities in the coming years. As we face the challenges of attracting businesses and keeping our most talented minds engaged, we must admit that our priorities are reflected in our state’s budgeting, and place South Carolinians’ safety and future before blame-game talking points as the gubernatorial election cycle begins.

[1] The Governor misstates the match rates for a Medicaid expansion which start at 100 % and decline to 90 % in 2020 for the newly eligible. Haley asserted that it will start at 10-1 (9 %) and then decline.

Posted in Economy, Education Funding, Health Care, SC Budget, Taxes | Tagged , , , , , , | 1 Comment

Medicaid Expansion: Costs or Savings for South Carolina?

Will a Medicaid expansion under the Affordable Care Act (ACA) cost South Carolina $1.085 billion or save us somewhere between $59 million and $679 million. Those are two numbers on the table as South Carolina begins a debate on whether to expand its Medicaid program to cover all adults up to 138 %[1] of the Federal Poverty Level (FPL).  And we need to understand what those numbers mean to truly debate the future of healthcare for the least prosperous of our state.

The SC Department of Health & Human Services (SCDHHS) contracted with the actuarial firm, Milliman, to estimate the net cost of expanding Medicaid under the Affordable Care Act. The projected cost to South Carolina was $1.085 billion through State Fiscal Year 2019-2020 (SFY ’20). However, a July 2011 study by researchers at The Urban Institute suggests that South Carolina could save between $59 million and $678 million from 2014 through 2019 because of the same Medicaid expansion. Those are big differences with significant policy implications for the state.[2]

Why so different? Milliman estimates include half of calendar year 2020 when state costs for the expansion population will go up a little. From 2014 through 2016, the federal government will pay 100 % of those costs, declining to 90 % from 2020 on.

Good news is that more people will be covered under the program, and though it will cost more in Medicaid, it will mean savings elsewhere for South Carolina.  Although the Milliman report includes significant state savings from increased drug rebates ($335.5 million), lowered costs for uncompensated hospital care ($217.5 million) and four years of enhanced federal match for the Children’s Health Insurance Program (CHIP) ($130.2 million), it does not look at state savings outside the SCDHHS budget. Those would include significant increases to the number of Department of Mental Health patients made eligible for Medicaid, meaning that the feds would pick up at least 90% of costs now paid by state dollars. Nor does it address eliminating coverages for those currently eligible at above 138 % of FPL. That includes pregnant women who would be eligible for subsidized private insurance through the Health Benefits Exchange, so no longer need Medicaid coverage

Much of the difference in calculation is because we have to estimate how many people will sign up for Medicaid—especially among those currently eligible. Two-thirds of the added costs posited by Milliman are for folks who could walk into SCDHHS tomorrow and sign up regardless of whether South Carolina expands Medicaid. Milliman estimates twice as much cost from currently eligible families ($1.032 billion) as from the newly eligible ($429 million). The federal government will only cover the current match rates for those currently eligible, roughly 70 % for adults and 80 % for children eligible under the Children’s Health Insurance Program (CHIP).

There is a large body of academic research on participation rates, discussed here. The Milliman estimates are, to be generous, at the high end of the evidence on actual participation rates. Milliman asserts: “… the participation rates were reviewed for consistency with participation in the Medicare program which exceeds 95% and the Medicaid / CHIP programs for children which exceeds 85%.” In Medicare a large portion of enrollees are automatically enrolled as seniors eligible based on age, so these take-up rates are largely irrelevant to the more stigmatized Medicaid program. Child take-up rates will exceed those of adults.

Milliman argues (more strongly in public presentations than in their written report) that the personal responsibility requirement, the mandate, will drive eligible persons to sign up. But what is frequently ignored is that the mandate the Supreme Court dubbed a tax will not apply to persons who are not required to file federal income tax returns—which is just about anyone who is a parent with children living at below 50 % of FPL.

Yes, there will be a welcome mat effect which will see many currently eligible parents and children enroll because they are made aware of their eligiblility and enrollment is made easier. The high levels of already-eligible children enrolled when we opened our CHIP program were the result of very intensive outreach efforts. Any welcome mat effect here is likely to be more a product of consumer education efforts through the Health Benefits Exchange than through a Medicaid expansion—a cost of the ACA but not of an expansion. If we eliminate costs for those currently eligible, the multiyear Milliman estimate drops to $53.5 million.

And there will be some “crowd out” as newly eligible persons who currently have private insurance opt for Medicaid coverage. The research literature is pretty clear that there is practically no crowd out below 100 % of FPL. People paying below poverty wages (aside from public employers) don’t provide health coverage and private coverage is completely unaffordable. But Milliman shows large crowd out effects for those currently eligible.

Taking welcome mat and crowd out effects into account and relying on the available empirical research on participation rates, The Urban Institute estimates that Medicaid costs will increase by $570 million from 2014-2019, not the $1.8 billion asserted by Milliman.

South Carolina’s report is one of a series which Milliman issued across the country. Those reports have come under attack for a number of failings, including especially unrealistic participation estimates. See, for example, health policy researcher Leighton Ku’s analysis of the Milliman report on Nebraska. Milliman estimates that 85 % of expansion uninsured parents and 80 % of expansion childless adults will enroll. The Urban Institute coverage model, based on “take-up rates consistent with the empirical literature,” “achieves an average take-up rate of about 73 percent for the uninsured who are newly eligible.” This is higher than a 60 – 70 % “baseline rate due to outreach and enrollment simplification provisions in the ACA.”

A recent study “… suggest[s] that when Medicaid is expanded in 2014, take-up may be less than anticipated because new enrollees will be offered a more restrictive set of benefits—known as ‘benchmark coverage’—compared to those in traditional Medicaid, and the majority of newly eligible adults will be in groups with traditionally low take-up (primarily nondisabled adults).” (Benjamin D. Sommers et al, Reasons For The Wide Variation In Medicaid Participation Rates Among States Hold Lessons For Coverage Expansion In 2014, Health Affairs, 31, no.5 (2012) 909-919.) Although the low take-up rates (just above 50 percent in 2007-2009) for those currently eligible in our state create greater potential budget exposure, those low rates suggest that, without major changes in outreach and enrollment, South Carolina will never reach the very high participation rates assumed by Milliman and costs will be much lower than they suggest.

Two additional points. First, keep in mind these estimates cover several years, not just a single fiscal year. The highest yearly estimate by Milliman shows an additional $278.4 million in state costs on the Medicaid budget from the Affordable Care Act in SFY20. That is not chump change, but it is within the range of annual increases in the last decade for the Medicaid budget. Secondly, if Milliman’s estimates are correct, the return on South Carolina’s investment is $13.3 billion dollars in federal matching funds, or 1229 %, by SFY20. That is not even counting the multiplier effects of injecting an additional two billion federal dollars a year into our state’s economy in SFY20 and every year thereafter. Nor does it include a calculation of the benefit to small employers being better able to afford group health insurance because some employees are eligible for Medicaid.

In sum, the estimates for costs of a Medicaid expansion being advanced by SCDHHS are higher than those supported by empirical data and fail to take into account additional savings to the State, if not to SCDHHS. We have not begun to address the beneficial effects of expanding Medicaid to as many as half a million South Carolinians. As the General Assembly explores a Medicaid expansion, it should do so with realistic numbers based on empirical research and taking into account all costs and savings directly attributable to an expansion and not just SCDHHS costs and savings. To date, SCDHHS has failed to provide estimates of those other savings.

[1] The Affordable Care Act expands Medicaid coverage for all persons up to 133 % of the Federal Poverty Level, but the calculation of that income includes a 5 % disregard making the effective level 138 %. Base eligibility for the Low-Income Families Program (basic Medicaid) in South Carolina is currently 50 % of the Federal Poverty Level but only available to parents with children.

[2] For a discussion of why estimates of costs vary so much, see The Urban Institute’s report for the Kaiser Commission on Medicaid and the Uninsured at

Posted in Economy, Health Care, SC Budget | Tagged , | 4 Comments

Governor Haley’s Vetoes and Budget Policy: what seventy-four vetoes to the General Appropriations bill and seven in the Capital Reserve Fund bill mean for teachers, the arts and our oceans

The General Assembly’s failure is two-fold—they failed to produce a timely budget and,­ combined with gubernatorial vetoes issued late Thursday, have thrown school districts and at least two state agencies into uncertainty. Governor Nikki Haley’s vetoes would eliminate $10 million of the $49 million appropriated to pay for 2% raises for teachers and funding for the Arts Commission and the Sea Grants Consortium.

In the normal course of legislative business, the General Assembly adopts its budget, waits on the Governor’s vetoes and sustains or overrides those vetoes well before July 1 – the beginning of the fiscal year. Not this year when vetoed agencies are out-of-business until the General Assembly returns on July 17 and 18 to take up vetoes.

Annual Arts Tradition

Vetoes of the Arts Commission funding have become a routine of the budget process.  Both Governors Sanford and Haley claim that funding arts organizations is not “a core function” of government. The well-organized arts community rallies and the vetoes are overridden. Having to do that every year risks fatigue and puts arts funding at risk. Since the Governor vetoed both state dollars and authority to spend other funds, the Arts Commission has been told to shut its doors until the General Assembly returns.

We don’t know if the Sea Grants Consortium, which leverages the $428,223 General Fund appropriation into $6 million in total funding and has also been told to shut down, has that kind of support.

Too Bad for Teachers, Says Haley

Haley’s argument against the $10 million in funding for teacher salary increases has merit. The funding is non-recurring dollars. If the General Assembly had rejected Haley’s push for the misguided tax cut for pass-through entities, $20 million would have been available to put this in recurring funds. Still, teachers who have not had raises in several years while also suffering furloughs should get the raises … and the General Assembly will ensure that they do.

In fact, the Governor vetoed only $5.7 million in recurring General Fund appropriations, relative chump change in a $6 billion General Fund budget (or .1%). The majority of the vetoes focused on non-recurring funds. That included vetoes of $10.5 million in the Capital Reserve Fund, a short-term savings account and $20 million in 44 vetoes in Proviso 90.20(B) which allocates the $555 million in funds left-over from FY10-11 and FY11-12.

You can argue for or against many among those vetoes. Some vetoed provisions clearly are pork and some plain attempts to end-run agency priorities.

Sacrificing Health and Safety on the Altar of Political Ideology

Some of the vetoes are particularly troubling for the poorest, most vulnerable and most sickly South Carolinians. For example, five vetoes relate to non-recurring appropriations for the SC AIDS Drug Assistance Program ($200,000), domestic violence and sexual assault centers ($453,680), Kidney Disease Early Evaluation and Risk Assessment Education ($100,000), hemophilia ($100,000) and sickle cell ($100,000). Haley argues that “[e]ach of these lines attempts to serve a portion of our population.” She goes on to assert “these special add-on lines distract from [DHEC’s] broader mission of protecting South Carolina’s public health.” These programs should not be funded from non-recurring funds. They should be part of the core mission of DHEC, even if they serve only “a portion of our population” like those with AIDS and survivors of rape and domestic violence.

Many of the vetoes relate to higher education, some for programs and some for infrastructure.  Haley argues that higher education funding is as good as it should be and growth should be restricted to the annual increase in the inflation index for higher education. We wonder if Boeing, BMW and the high tech businesses she claims to want to recruit share that view. For many businesses, higher education infrastructure is more important than K-12 education to ensure a workforce than can keep their company competitive.

Governor’s Budget Pen: “Blue Line” is potentially devastating amendment to budget process

The most interesting item to come out of Governor Haley’s press conference on the vetoes was not her ad hominem attacks on Senate Finance Chair Hugh Leatherman for “buying votes” on the Department of Administration bill with funding for local projects, but her intent to try to move to “blue-line budgeting.” Apparently she intends a system of amendatory vetoes, allowing the governor to go in and reduce the number on a line or rewrite a proviso, rather than having to accept or reject a line or proviso in its entirety. That will require a Constitutional amendment. In a General Assembly unwilling to enact fairly self-evident legislation giving a governor control over basic administrative functions, this massive expansion of gubernatorial power is not likely to pass. It will, however, give our Governor another example of how “the good ol’ boys” have done her wrong.

Haley: Let’s Repeat Austerity’s Failures or “Tax Cuts or Bust”

Governor Haley continues to focus on tax cuts as the pathway to prosperity, ignoring the clear research that taxes have a very modest impact on economic development, an impact dwarfed by businesses concerns about human capital, infrastructure and quality of life. At this critical stage for our economy, long-term thinking has to be a priority, investment that will lead to growth and cultivating a strong workforce through training and an education system should be an easy political compromise.  Although not attacking the core funding for K-12 education, Medicaid or deferred maintenance in higher education, Haley’s 2012 vetoes undermine our efforts to improve human capital, quality of life and our research infrastructure in the long term.

Posted in Economy, Education Funding, Health Care, SC Budget, Taxes | Tagged , , , | 1 Comment

Cutting School Taxes to Fix School Funding?

“[A]n investment in public education is essential to the future economic prosperity of our great state” declare the prime sponsors of a proposal for education funding reform. However, in part because they combine this reform with property tax cuts for businesses, Representatives Jenny Horne and Rita Allison and Senator Paul Campbell acknowledge that the proposal cuts $600 million statewide in school property tax funding. This when South Carolina from FY07-08 cut a larger share of per pupil funding, excluding federal aid, for education than any state in the Union according to an October 2011 study by the Center on Budget & Policy Priorities.

Rep. Horne et al. suggest funding that cut by taking “… sales tax revenues that have been diverted to other purposes and return them to their original purpose of funding education.” There is not $600 million sitting in the spare change drawer. Diverting $600 million in sales tax revenues currently spent elsewhere means dismantling more state programs and cutting the bejabbers out of health care … while still leaving the schools significantly underfunded.

Instead of “our decades-old, antiquated education-funding system, which channels money through 74 categories,” they propose assessing 100 mills ($100 per $1,000 of assessed value) based upon statewide property values. Currently, the value of a mill and the number of mills assessed varies school district to school district.

At the same time they would reduce the taxable value of manufacturing property and business personal property. The appraised value of a property is multiplied by an assessment ratio to arrive at the assessed value on which property taxes are levied. The appraised value of manufacturing property and business personal property is currently multiplied by 10.5 %. This proposal effectively drops that multiplier (the assessment ratio) to 6 %. A manufacturer with a property appraised at $100 million would see her assessed value drop from $10.5 million to $6 million. At the same millage, the property would produce only 57 % of the previous tax revenue.

This is a bipartisan proposal even though the lead sponsors are Republicans. Many Democratic legislators look to a state wide millage to address unequal wealth across the state. That impacts the ability of local taxpayers to support education, but also economic development when companies looking to locate in an Allendale know they will pay higher property taxes than in a wealthier county. Districts lacking significant business investments also look to those with those investments and seek to share the tax proceeds statewide. Fairfield and its nuclear plants especially get attention.

The distributional concerns are valid. Our state’s Education Finance Act (EFA), the base of state funding for schools, is intended to have the state cover, on average, 70 % of the cost of a foundation program. The state EFA funding for a particular school district varies by the wealth of the school district, reflected in assessed values and calculated as the Index of Taxpaying Ability (ITA), and by the cost of educating different kinds of students.

An elementary student with no physical, developmental, emotional or learning challenges is given a weight of 1.0. A hearing challenged child is weighted at 2.57. These produce weighted pupil units which, together with the wealth adjustments, drive the amount each district gets. Within the EFA, there is no weighting for poverty despite ample evidence that poor kids cost more to educate. The proponents of this change suggest that the property tax funds would be distributed to districts based upon tweaked weighted pupil units including a poverty measure.

The EFA has problems, relating to the fairness of the ITA measure of local ability to contribute, the adequacy of the weights assigned different kinds of students and how we should calculate the Base Student Cost to reflect changes since 1977. Those problems and fixes for them are described well by the SC League of Women Voters here. Fixing those so that we better reflect the actual costs of educating different kinds of students and that we more accurately assess district ability to fund education post-Act 388’s would address many of the distributional concerns facing poorer and rural school districts.

The core problem with the EFA, however, is that the General Assembly has not been funding it. In FY11-12, the formula would have produced funding of $2,790 as the Base Student Cost (BSC) rather than the $1,880 actually funded. Although the Governor proposed reducing the BSC, the House has improved the base student cost to $2,012 for the coming year … still nearly $450 million short of the formula. The General Assembly should fix the EFA and fund it.

Trying to fund an already under-funded education system and cut taxes at the same times entails a fundamental contradiction. Thinking that we can make up the $600 million by simply redirecting sales tax revenues not currently going to education is magical thinking. The sponsors of this legislation are supporters of public schools and the proposal is still sketchy. However, as currently outlined, this is a very bad prescription for South Carolina’s public schools and for “the future prosperity of our state.”


Posted in SC Budget | Tagged , | 1 Comment