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To assist House members with upcoming speeches, newsletters and constituent correspondence, background information on the issues ranked in this year's survey is provided below. The summaries are listed by the order in which the issue was ranked; for example, since Block Grants finished first in the survey rating, the summary of that issue listed below also is listed first. Thanks is given to the staffs of the six House standing committees for providing the information and preparing the summaries on these issues.

1. BLOCK GRANTS

In funding such federal programs as welfare and Medicaid, Congress has begun to send states less revenue but is allowing states to have more control over how these programs operate. Legislatures will have the flexibility to appropriate the money as deemed most appropriate for that state. Thus states need to have technical expertise and a greater understanding of these programs to make decisions which fulfill federal requirements while meeting states' needs.

2. PROPERTY TAX RELIEF

In the Fiscal Year 1995-96 Appropriation Act, the General Assembly provided significant property tax relief to homeowners. Specifically, the General Assembly appropriated $195 million to provide a $100,000 homestead exemption from school operating taxes for FY 1995-96. This homestead exemption does not include taxes for debt service or lease purchase. For the elderly, this exemption is in addition to the $20,000 homestead exemption they currently receive.

Overall, total property tax collections for FY 1995-96 are estimated to be $2.6 billion. This total includes taxes for operations and debt service. Homeowners account for about 22 percent of this total or $570 million. Of the homeowner taxes, $490 million is for operating purposes and $80 million is for debt service. The total school operating portion is estimated at $251 million. (By January 1996, a more accurate figure should be available.)

To completely phase out homeowner property taxes for schools during FY 1996-97 would cost about $76 million, with an annualized cost of $13.3 million.

3. AUTO INSURANCE

Again, efforts to change South Carolina's automobile insurance system shall surface during the 1996 session. On July 1, 1995, the annual recoupment fee for a clean driver (having no insurance surcharges) increased by nearly $15.00, from $34.00 to $49.48. The annual recoupment fees for pointed drivers also rose significantly as a result of higher losses to the facility of almost $40 million after three years of annually lower recoupment fees (and facility losses). Perhaps no other issue has been the source of continuing concern and debate in South Carolina than insurance.

The issue of "automobile insurance reform" was actively debated and studied in the House and Senate during the 1995 Session. This past year, the General Assembly enacted legislation to prohibit any insurance company from surcharging or increasing premiums for an accident resulting in bodily injury damages of no more than $600 or property damages of no more than $1,000. Previously, a person's auto insurance premiums could not be increased due to a chargeable accident resulting in no more than $300 in bodily injury or $750 in property damage. Not only does H.4188 change the dollar amounts for the first time since the 1980s, but it also provides a mechanism for these thresholds to be adjusted at the rate of inflation based on the Consumer Price Index by the Chief Insurance Commissioner.

There are several comprehensive auto insurance bills pending in the General Assembly. In response to the public's outcry for automobile insurance reform, the Senate Banking and Insurance Committee formulated a legislative initiative (S.628) to alter the current vehicle insurance system. Similar proposals were studied in the House and one of these bills, H.3827, sponsored by Representative Cato, is pending on the House Contested Calendar. In addition to many technical changes in the insurance laws, S.628 eliminates the current `two' rate system by January 1, 1996, with rating tiers in the voluntary market and a uniform facility rate for business ceded to the Reinsurance Facility. Member companies of an affiliated group of automobile insurers, commonly referred to as `pup companies', are granted the ability to use different filed rates (and rating plans) for auto insurance coverages which they are mandated by law to write. The mandate to write physical damage coverage in the voluntary market is repealed; however, designated agents must write such coverage for all persons in the Reinsurance Facility who request coverage at the self-sustaining "facility physical damage rate." For fiscal year 1995-96, the recoupment fee charged to drivers is frozen at the amounts charged for the period of July 1, 1994 through June 30, 1995; thus attempting to avert the increases realized by the driving public on July 1, 1995. The increased recoupment fees effective on July 1, 1995, which are attributable to increased losses of approximately $40 million in the Reinsurance Facility, would not have taken effect and would have been "unrecouped". However, these unrecouped losses would have been spread out evenly over a three year period beginning July 1, 1996, for collection, in addition to any annual facility losses. As you may recall, the increased losses attributable to "Hugo" were recouped over a three year period.

However, S.628 will reduce -- NOT ELIMINATE -- the overall recoupment fees paid by drivers and it will mean rate increases for those currently in the facility -- approximately one (1) million (982,240) people, of whom 77 percent are clean risk drivers. Overall, S.628 provides greater flexibility on the rating practices of companies when underwriting a person and creates a "friendlier" environment to attract more insurance carriers in the state.

Other pending automobile insurance measures being studied by the House Labor, Commerce and Industry Committee, call for the repeal of the mandate to write physical damage coverages (comprehensive and collision); the abolishment of the compulsory insurance system (H. 3157, Rep. Cromer); and mandatory driver education (H. 3124 - Rep. Cromer). Before the end of session, Representative Harry Cato introduced H.4301 which proposes to (1) eliminate any recoupment charge for drivers with no merit rating points (i.e., the "safe or clean" driver); (2) cap the recoupment charge for drivers with one merit rating point at $150.00; and (3) spread the remaining recoupable losses among drivers with from two to ten merit rating points using relative percentages contained in the existing recoupment formula. Thus, zero and one pointed drivers would see a decrease, while drivers with from two to ten merit rating points would see their recoupment charges essentially double.

Also, there is a good possibility that there will be legislation introduced in or debated by the House that would move South Carolina into a choice no-fault automobile insurance system or some other form of "no-fault" insurance. There is currently a choice no-fault bill, S.361 (Martin), pending the Senate Banking and Insurance Committee. Proposals to revise the merit rating system and to adopt a "Virginia" type insurance system which will still require insurance but allow the registration of uninsured vehicles may also be considered in 1996.

4. PUBLIC SCHOOL FACILITY ASSISTANCE

A 1994 statewide school capital needs analysis survey identified in excess of $2 billion in facility replacements, repairs, renovations, and/or new buildings required to meet student growth projections over the five year period from school year 1993-1994 through school year 1998-1999. The study reflected the extent of deferred maintenance, delayed renovations, extensive use of temporary, relocatable classroom units as permanent facilities, and inadequate new facility building programs to meet growth and replacement requirements.

In the spring of 1995, Dr. Barbara Nielsen appointed the School Building Finance Committee to further examine school district capital needs and to build consensus around an appropriate strategy to meet the needs identified in the above mentioned survey. When the General Assembly voted to establish the Educational Assistance Endowment Fund, which would allocate 70 percent of the money for public school facility assistance for K-12 school capital needs, the committee (composed of superintendents, local school board members, school business officials, education association representatives, State Department of Education staff, and an attorney specializing in bonds) went to work to develop a distribution formula.

The committee agreed on three primary factors to be considered in the distribution plan. In the interest of fairness and balance, the committee chose the factors of need, wealth, and effort as the primary components of the formula. They concluded that 50 percent of the entitlement for each district should be based on need, 25 percent on effort, and 25 percent on wealth. The proposal calls for the leverage of revenue bonds to obtain a funding level of $200 million annually for three years. After three years, a reassessment would be undertaken to redefine appropriate funding levels. The committee also recommended establishing an annual set-aside of funds to be used for school districts with special needs, i.e., rapid increases in student population, natural disasters, grants based on the state's most critical needs. The committee also maintained that land acquisition, furnishings and equipment, administrative and athletic facilities (other than physical educational facilities), and relocatable classroom units would not be eligible for funding through this program.

Because of rumors indicating that money from the endowment fund may be transferred to highway construction and/or prison construction, the committee developed the distribution plan mentioned above. On September 6, district superintendents voted to endorse the plan. With the help of legislative staff, legislation is being prepared to reflect the contents of the plan with the intent of having it introduced during the 1996 session. The major opposition to the plan has come from districts involved in the equity lawsuit. Upon the advice of their attorney, the 40 districts were urged not to support the plan. However, because the endowment fund is special revenue money, many of the 40 districts believe the plan can be supported without endangering the lawsuit. Some districts also have indicated a preference for the money to be distributed on a per pupil basis.

5. STATE GOVERNMENT ACCOUNTABILITY AND EFFICIENCY

To continue to make state government smaller, more efficient and effective, we must analyze the way government operates and eliminate processes and procedures which do not add value. These processes and procedures are expensive and take resources away from activities which government should be doing. There are several simultaneous actions which can be taken to meet this objective:

• Total Quality Management: TQM offers many benefits: 1) Customer service; 2) Efficiency; 3) Improved employee morale. A Total Quality Management work force would allow the size of government to be reduced over time without a loss in needed services. Typically, administrative and middle management resources can be moved to direct customer services. An annual appropriation of $582,669 is now provided. Top level commitment and support, not more money, is needed.

• Performance-based pay increases: We must get away from the concept that all employees, whether they are productive or not, get the same pay raises. Across the board pay increases sends the message to employees that we don't value hard work.

• Self-sufficiency: Let appropriate programs collect and operate off their own revenue. These programs have a built-in sunset feature: If customers don't buy the product or service, then there is no money to continue the program. Also, customers who pay for a product or service, as opposed to those who receive free services, tend to be more vocal when they are not satisfied.

6. AGENCY RULE MAKING

The South Carolina Administrative Procedures Act establishes the process for the General Assembly's review of rules and regulations promulgated by state agencies. Some interest in amending this process has been indicated. Generally, the objective of these changes would be to improve the Legislature's ability to manage the growth of state government and ensure that state agencies comply with statutory authority and intent.

7. POST CONVICTION RELIEF

During the 1994 session, the General Assembly enacted the Criminal Justice Reform Act, (Act 7 of 1995), which established a one-year statute of limitations for initiating post conviction relief proceedings. See section 17-27-45. The one year statute of limitations became effective on July 1, 1995. This provision should have a significant impact upon the lengthy appeals process, at least until post-conviction relief applicants adapt to the shorter period for filing.

According to the National Association of Attorneys General, 17 states that have legislation aimed at limiting state habeas corpus. Those states are Alaska, Arkansas, Georgia, Idaho, Indiana, Iowa, Louisiana, Maryland, Minnesota, Mississippi, Montana, Oklahoma, Tennessee, Texas, Utah, Virginia and Washington. In addition, the California Attorney General has been outspoken on habeas corpus reform and has some proposals.

8. HIGHER EDUCATION

$595 million in state funds help to offset the cost of higher education and provide for the operation of 33 public colleges and universities. An additional $15 million in state funds are provided for student tuition assistance for private colleges. During the 1990s, less "new" revenue has been available to increase agency budgets, leading to concerns about whether the state is adequately funding higher education. At the same time, colleges and universities have increased tuition and fees, and debt for student loans is also increasing. According to the Commission on Higher Education, $260 million would be required to bring higher education funding up to full formula.

For FY 1993-94, in the southeastern states, the state appropriation per full time equivalent student (FTE) averaged $4,704, while South Carolina's was $4,479. Although the state appropriation per FTE is less than six of the 15 southeastern states, from a tax burden point of view, South Carolina is about average. State appropriations provided for higher education in FY 1993-94 averaged 25.7 percent of per capita income in the southeast, while in South Carolina it was 26.5 percent.

When compared on a per capita spending basis, state appropriations for higher education in the southeastern states during FY 1993-94 averaged $125, while in South Carolina, per capita spending was $124.

From another perspective, the Southern Regional Education Board reports that from FY 1981-82 to FY 1991- 92, the portion of the total state budget appropriated to Higher Education dropped by 1.9 percent. During the same period, student enrollment increased by 25 percent.

Some argue that the solution to this problem is for the state to increase funding for higher education. Others say that the institutions should become more efficient with tax dollars by eliminating unnecessary duplication. While the mission of the Commission on Higher Education includes "to study and submit recommendations concerning financial affairs... of the public postsecondary education institutions" and " to review the annual appropriations requests", its statutory authority does not include provisions for controlling spending by the autonomous public colleges and universities.

Since the General Assembly funds colleges and universities on a lump sum basis, they have the budgetary flexibility to manage their programs for efficiency and effectiveness. Public College and University Boards should work together more closely to not only ensure excellence in education, but to ensure that the state "system" of Higher Education provides educational programs that are provided at the least possible cost to the citizens of the state.

9. CASH BUDGETING FOR CAPITAL PROJECTS

Historically, capital projects have been financed through the issuance of State General Obligation Bonds or Capital Improvement Bonds. These bonds typically have terms of 15 years at various interest rates, depending on market conditions at the time the bonds are sold.

In order for the State to meet its debt obligations, an annual State Appropriation is made for "Debt Service". For Fiscal Year 1995-96, the State appropriated $130.5 million in order to make principal and interest payments due during the year on previously-issued Capital Improvement Bonds.

If these projects were financed with cash instead of with bonds, the State would avoid interest costs as well as the cost of issuing the bonds, resulting in a cost savings. Cash budgeting could be achieved through the use of monies in the Capital Reserve Fund or any surplus funds realized after the close of a fiscal year. For example, if $87 million in bonds were issued at a 5 percent interest rate, the total interest due over the life of the bonds would be $38.7 million and the annual debt service payments would be $8.3 million. These costs would be avoided if surplus funds were used, as opposed to bonds.

The same example using the Capital Reserve Fund monies of $80.5 million would result in avoiding total interest costs of $35.8 million and annual debt service payments of $7.8 million.

| Survey | Issues 1-9 | Issues 10-19 | Issues 20-29 | Issues 30-34 |