Last year's Executive Budget addressed key issues central to the improvement of the quality of life of every South Carolinian: control of one's own destiny, a good job and access to quality education. This year's goal is the same.

We are fortunate in South Carolina to have a healthy economy. That means we have more and better jobs for our citizens and the potential for unprecedented success for our children. But as leaders we must not allow our growth to become stagnant. We must grow our economic base. We have to enhance our pro-business environment. After all, this is what brings us the good jobs. We must constantly seek to provide challenges to our best and brightest -- and hope and opportunity to those temporarily in need.

This budget reflects those goals.

There are many critical issues facing our state and they must be addressed by all of our state's leaders in a responsible and reasoned manner. To that end, this budget message proposes significant changes to the budget process -- bringing it up to speed with the reality of South Carolina's needs today -- so South Carolina can meet its challenges tomorrow.

One such challenge is our highway infrastructure needs. Our bridges and roads are our economic pipelines. They deliver people to and from work every day. They can help our children arrive safely at school and they play a critical role in the ability of our companies to transport their goods to market.

And they are in critical need of attention.

There is no single quick fix. But I will be addressing this critical need in a separate forum with a separate proposal within the next few weeks.

In this budget, however, we first and foremost address an issue which can -- regardless of the state of our infrastructure, our pro-business environment and the goodness of our people -- make or break the future of our children: their education.

The 1997-98 Executive Budget builds on last year's historic increase in K-12 appropriations. Over the last two years, K-12 appropriations have increased nearly 15 percent -- the largest dollar increase since the infusion of the penny sales tax from the Education Improvement Act. And all without a tax increase.

There is general agreement that dollars alone can in no way address many of our most critical education issues. And while this budget addresses many financial issues, the other, more basic issues will also be addressed in another forum later in January.

This budget:

• Provides, for the first time ever, a prepaid tuition program that will enable more South Carolina families to send their children to college.

• Provides funding for the expansion of full-day 5-year-old kindergarten in South Carolina.

• For the first time in the history of our state, funds teachers' salaries above the projected Southeastern average.

• For the first time in the history of our state, rewards teachers who obtain National Board Certification with a $2,000 bonus and reimburses them for their $2,000 enrollment fee.

• Expands technology in our schools -- and ensures that teachers are taking the steps necessary to best utilize that technology with our students.

• Fully funds the Education Finance Act.

• Increases the number of credits required to receive a high school diploma.

• Continues to provide that ALL funds generated from Barnwell operations go solely to the Children's Education Endowment for scholarships and school building improvements.

• Increases tuition funds for private colleges by $1 million.

• Continues to provide for and protect the largest tax break in the history of South Carolina.

• Maintains our commitment to bringing in more and higher paying jobs for South Carolinians.

• Expands the number of daily child care slots available to welfare parents participating in training, education or transition as a result of the Family Independence Act.

Introduction
Since the institution of conservative budget reforms in the early 1990s, South Carolina has experienced several years of substantial budget surpluses. These surpluses have allowed the legislature to appropriate large sums of non-recurring dollars for both recurring and non-recurring purposes and indulge in a habit of funding projects that do not undergo proper scrutiny with money that may not be realized.

As part of our ongoing commitment for fiscally responsible government, I am committed to a four point reform plan that requires strict controls and safeguards in spending state funds. These reforms will: 1) eliminate the contingent spending of unprojected surplus funds on a contingent basis -- the "wish list;" 2) consider a bond bill for capital projects, ensuring that projects undergo the stringent criteria already established for the bond process; 3) amend the Carnell-Felder set-aside and dedicate those funds to the Property Tax Relief Fund; and 4) fund the Property Tax Relief Fund at 90 percent recurring dollars. I will safeguard the process by ensuring that the Capital Reserve Fund and the General Reserve Fund remain constant, providing at least 5 percent reserve funds for unforeseen shortfalls.

This represents my commitment to restoring fiscal responsibility and discipline to South Carolina's budget. If any part of this package is compromised, I will veto the entire effort. Specifically: I will veto "wish list" items; I will veto any local "pork-barrel" projects if placed in a bond bill; I will veto any use of the recurring Carnell-Felder funds not used for property tax relief; and I will veto the entire package if the Property Tax Relief Fund is not funded with at least 90 percent recurring funds.

Eliminate Contingent Surplus Appropriations

As part of this package, I will eliminate, by veto if necessary, appropriations of unprojected surpluses.

Funding projects with unprojected surpluses on a contingent basis is an irresponsible practice. This practice stems from the expectation that large surpluses will be realized and the temptation to appropriate those surpluses. This creates expectations for funds that may not materialize and for projects that are largely unexamined (for example, the FY 96-97 "wish list" left $88 million in projects unfunded). Introduction of these projects at the end of the appropriations process virtually ensures that they do not receive the same scrutiny as regular appropriations or prospective bond bill projects. This is the equivalent of large scale impulse buying.

This will instill common sense into the budget process by prohibiting the spending of unprojected surpluses; however, if that surplus is realized at the close of the books, then the legislature can appropriate it as a cash surplus during the next legislative session after the State knows it has the money and has time to carefully examine the projects during the full appropriations cycle. These surpluses are certified by the Comptroller General in late August, just two months after the end of the fiscal year. If a surplus occurs and the contingent surplus is eliminated, the state will, in effect, create a reserve account. For the last three years, the state has realized substantial year end cash surpluses. The state had available cash surpluses of $23 million in FY 94-95 and $88 million in FY 95-96. In FY 96-97, this cash surplus would have been $97 million if it had not been appropriated in advance for the contingent wish list. These equal .6 percent, 2 percent and 2.2 percent of that year's appropriations, respectively. Therefore, if this proposed prohibition was in effect, the state would have $97 million (2.2 percent of FY96-97 appropriations) in certified cash surplus four months before the beginning of the next legislative session in January 1997. When coupled with the Capital Reserve Fund (which the legislature cannot expend until March 1997), this cash surplus would help cover any budget downturns that might occur mid-year.

Total General Funds have been growing over the last three years, especially all types of surpluses. The graph entitled "Recurring and Non-recurring Funds" at the end of the budget text shows this dramatic growth.

Consideration of a Bond Bill

I will consider urgently needed capital projects for higher education and public safety. The pent-up demand for more projects than can be reasonably funded in one budget year requires that focus be placed on projects that benefit the state as a whole. I will veto projects that have not undergone a thorough examination. By prohibiting wasteful spending, the State will more efficiently utilize its resources and have funds available for debt service on higher education and public safety capital projects.

Property Tax Relief Fund

In 1995, I proposed, and the General Assembly delivered, the largest tax reduction in the State's history. The proposal focused on paying for the tax relief with largely recurring dollars; however, given the expected (and subsequent) availability each year of the Carnell-Felder set-aside, the General Assembly supplemented recurring appropriations for the Property Tax Relief Fund (PTRF) with the non-recurring funds gained from the set-aside. In essence, the state returned some of the substantial surpluses (that were the result of applying a very conservative spending limit) to homeowners as relief for school property taxes. These funds, combined with other non-recurring funds and General Fund appropriations, have helped relieve the property tax burden for the taxpayers. The Children's Education Endowment --a major statewide primary and secondary school building fund to assist local school districts with building projects -- has also helped relieve financial pressure on local governments. This fund is derived from a non-recurring source and is not a part of the General Fund.

Strengthening Funding of the Property Tax Relief Fund

I propose to amend Carnell-Felder to dedicate recurring general fund dollars to the Property Tax Relief Fund. This change will enable the state to use a dedicated fund to ensure that the Property Tax Relief Fund is almost fully funded with recurring dollars and will protect the fund from budget shortfalls. Using the formula from Carnell-Felder provides a method to maintain the proper amount of recurring dollars in the Fund and ensures the taxpayer that the current tax relief fund will be protected. In addition, the appropriation of recurring instead of non-recurring dollars (as is now the practice) to the Fund helps resolve the historic structural imbalance between recurring and non-recurring funds.

Currently, the recurring portion of the Property Tax Relief Fund is only at 60 percent. This amendment puts the $80 million of recurring funds from Carnell-Felder into the base of the Property Tax Relief Fund. With the additional appropriation of $1.6 million in recurring dollars, the Property Tax Relief Fund will be funded at 90 percent. Moreover, by using the Carnell-Felder formula for the Fund, future incremental growth in recurring dollars in the formula will help to support property tax growth. Given the robust condition of the South Carolina economy over the past two years and the conservative budget projections for next year, this is a reasonable method to ensure that the Property Tax Relief Fund is funded with recurring dollars in future years.

This step protects the taxpayer. If the legislature chooses to endorse this plan, it endorses that protection. The alternative is uncertain tax relief in the future.

The two graphs entitled "Current Funding of the PTRF" and "Funding with Carnell-Felder" indicate the current and proposed distribution of recurring and non-recurring funds in the Property Tax Relief Fund.

As noted earlier, a substantial portion of the non-recurring surpluses over the last two years and projections over the next several years are in part the result of this overly rigid set-aside mechanism. Amending Carnell-Felder in this fashion, combined with the current reserves, the state's strong economy, and conservative economic projections for FY 97-98 will enable the state to eliminate excessive surpluses yet retain adequate reserves should any unforeseen recession arise.

Unintended Consequences of Carnell-Felder

Currently, the Carnell-Felder set-aside limits state General Fund appropriations to 75 percent of the difference between the projected growth in revenues from actual recurring revenues in the fiscal year two years prior to the budget year. In computing the difference, any recurring enhancements by the General Assembly are added to actual revenues. This formula essentially leaves 25 percent of projected new revenues over two years as a set-aside. Revenues normally grow approximately $200 to $250 million per year, which over a two year period amounts to $400 to $500 million, leaving $100 to $125 million of set-aside funds. This set-aside is in addition to a Capital Reserve of 2 percent of revenues and a General Reserve of 3 percent, which together amount to $217.2 million in 1997-98.

The debate regarding Carnell-Felder has turned from a debate about the quantity of money available in the set-aside to one of the quality of the money in the set-aside. The 25 percent spending limitation of Carnell-Felder effectively turns recurring dollars into non-recurring funds.

The current Carnell-Felder limit will create unintended and excessive surpluses beginning in FY 97-98. After the set-aside was implemented, it reached $55 million in FY 94-95 and $64 million in FY 95-96, which was approximately one-half of the level that would be set aside in a normal growth year. This was because in earlier years there were substantial amounts of enhancements added by the General Assembly which increased the base level and decreased the set-aside. One addition was the inclusion in the General Fund of approximately $92 million in license fees collected by the Department of Transportation following the restructuring of state government. Another was the inclusion of $112 million in recurring funds gained from the Medicaid Disproportionate Share program. The net effect of these two actions was to artificially reduce the set-aside by roughly one-half of its normal growth level.

Current Financial Situation

Over the last three years, the Board of Economic Advisors has instituted a conservative forecast approach. The difference between the previous and reformed board has been dramatic. These reforms included the development of a professional staff, the requirement that enhancements be certified by the Board, monthly work group meetings of the Board and staff to monitor economic conditions, and a much more conservative philosophy by members of the Board. South Carolina and the State of Washington are the only states to have formal, independent revenue forecasting boards. The graph entitled "Historical Perspective of BEA Estimates" indicates the percentage the BEA has been above or below their estimate.

Our State is accruing another surplus this fiscal year (FY 96-97). Based on growth since July, the Board of Economic Advisors has certified that by the end of this fiscal year, revenues will be approximately $50 million above the revenue estimate in the Appropriations Act. Despite the fact that revenues grew at a modest rate of 3.6 percent the first five months of this year (compared to the same period last year), they need only grow at a rate of 1.9 percent to meet the estimate over the full year. This is a result of conservative budgeting by the state.

Projection for FY 97-98

Projected revenue growth for FY 97-98 is 3.6 percent -- clearly within the range of the state's historical growth. The Capital Reserve and General Reserve Funds will be funded at $217.2 million, or 4.7 percent of allowable spending. Because FY 97-98 will be the first year that there will be little in the line of enhancements added to the base, the Carnell-Felder set-aside would reach its normal two-year growth level of approximately $80 million. Including the Capital and General Reserves, the total amount of funds available to cover a recession shortfall will be $298 million, or 6.5 percent of the spending limit. These reserves are most likely beyond the level needed to cover a recession and certainly sufficient to allow the state ample time to correct for any possible shortfalls in the FY 98-99 budget. The graph entitled "Reserve Funds (Current and Projected)" indicates these levels.

Conclusion

We have consulted with leaders of the General Assembly on this plan and they have agreed to these reforms. This plan, with its strict controls and safeguards in spending state funds, corrects several major problems as it eliminates the undisciplined spending of unprojected surplus funds in contingent bills; addresses urgent infrastructure needs with a bond bill for capital projects (ensuring that projects undergo the stringent criteria already established for the bond process); and amends the Carnell-Felder set-aside and dedicates those funds to the Property Tax Relief Fund -- establishing a stable source of funds to protect property tax relief and funds the Property Tax Relief Fund with 90 percent recurring dollars. These actions will take place in the context of ample reserve funds and a conservative budget forecast.

The FY 97-98 Executive Budget commits $44.1 million to constitutional, statutory and other statewide obligations which represent approximately 7.8 percent of the total available funds.

• $3.3 million in General Reserve Fund Contributions. There is a constitutional and statutory requirement that the General Assembly provide for a General Reserve Fund. This is comprised of 3 percent of the General Fund revenue of the latest completed fiscal year.

• $2.2 million for the Capital Reserve Fund. There is a constitutional and statutory requirement for the General Assembly to provide a Capital Reserve Fund equal to 2 percent of the General Fund revenue of the latest completed fiscal year (96-97).

• $7.1 million for debt service payment.

• $26.8 million for the Local Government Fund (Aid to Subdivisions). Title 6, Section 27 of SC Code requires the State to appropriate not less than 4.5 percent of the previous year's General Fund revenues to local governments. This amount maintains last year's funding level and adds the necessary growth to comply with the Code.

• $1.4 million for Homestead Exemption growth. This maintains full state funding of the $20,000 exemption for persons 65 and older and disabled.

• $2.5 million for the fifth and final payment of the settlement with the Catawba Indians.

• $625,000 for the required 25 percent match to federal funds for Hurricane Fran recovery costs.

EDUCATION

There is, quite simply, no more important purpose for government than the education of our children. Aside from the tangible effects like better jobs, higher incomes, less crime and safer streets, we must never forget the intangible results of learning simply for the joy of learning. One of the greatest gifts we can give our children is the appreciation of knowledge -- and of the realization that the world is full of experiences, books and people to add new dimensions to their lives.

However, in order to do this, we must commit to teaching the basics in education and fall less prey to every new trend and education fad. This budget is but one step in that direction: getting back to the basics of reading, writing, math and science.

In FY 97-98, over 44 percent of all funds available to appropriate will be dedicated to education -- totaling $249 million.

Primary and Secondary Education

This budget provides an additional $179.9 million for primary and secondary education.

Full-Day Kindergarten

In FY 96-97, I committed to the Optional Full-Day Kindergarten for critical needs students. This budget recommends an expansion of the program by providing an additional $16.8 million for approximately 16,000 more five-year-olds to participate in the program. Full phase-in of the program will occur next year. It is important that it be completed in stages to allow local school districts ample time to provide adequate facilities.

My unwavering support of this program goes hand-in-hand with the fact that it remains optional. It is the unquestionable right of parents to determine whether or not to send their five-year-olds to full day kindergarten.

Teacher Pay

There are many changes which must be made in our schools. While we continue to demand higher results and increased innovation, we must also recognize that our teachers are our unsung heroes. That is why, for the first time in the history of South Carolina, I propose that South Carolina teachers be paid above the projected Southeastern average. I am recommending $9.1 million above the amount requested for teacher salaries by the Department of Education.

National Board Certification

While we work to increase salary for all teachers, we must also encourage professional growth and reward excellence. Therefore, I provide for the reimbursement of the entrance fee to those teachers who seek and obtain National Board Certification. In addition, we will provide a $2,000 bonus to those teachers who successfully obtain this certification. This process has established high and rigorous standards for what teachers should know to best teach our children.

Education Finance Act

This budget fully funds the Education Finance Act at $51 million. The base student cost is increased to $1,852 over last fiscal year's $1,760.

Increase in High School Credits

Parents tell me they want their children to learn more and better. Young people ask for more opportunity and business leaders tell me they need workers capable of dealing with tomorrow's technologies -- and with people worldwide.

These are critical and laudable concerns which must be addressed.

As a beginning, I propose to increase from twenty to twenty-four the number of credits required to graduate from high school in South Carolina. The increase will begin with ninth grade in the 1997-98 school year. Each of these additional credits must be taken in math, science, and computer technology. An option will be given either for an additional credit of a foreign language or a vocational course to prepare students from school to work.

School Technology Initiative

In FY 96-97, we committed $20 million dollars to the first phase of our school technology plan. My 1997-98 Executive Budget builds on the success of FY 96-97, which premiered an unprecedented public-private commitment to bring technology and opportunity into every South Carolina school.

Now, telecommunication lines are in place. Internet access is available for all schools and video/broadcast infrastructure is near completion. In FY 97-98, I recommend $30 million dollars to address phase two of our technology initiative ($20 million in new funds and $10 million annualization). We must support the current infrastructure, increase workstations for students and provide critical training for teachers and instructional staff.

EIA - ADEPT

This is a new program which will replace the APT as the evaluation program for teachers. The ADEPT Performance Dimensions will establish higher expectations for what all teachers should know and be able to do. This program takes into account the rapid increase of technology in our schools and the need for our teachers to be proficient in its usage. This program elevates expectations for teachers and provides more local flexibility to truly meet teacher needs.

Children's Education Endowment

The Children's Education Endowment, funded through Barnwell-generated revenues, is projected to be $62 million in FY 97-98. After a statutory reduction of 5 percent for Barnwell County, 70 percent of these funds ($41.2 million) will be solely dedicated to school building improvements in South Carolina. Over $58 million in funds have been allocated so far from the Barnwell funds for the construction and renovation of schools throughout the state. Additional funds from Barnwell are allocated for the schools each quarter. Thirty percent of the funds are dedicated to college scholarships.

Governor's schools

Last year we committed $5 million for the Governor's School for Science and Mathematics and over $9 million for the Governor's School for Arts and Humanities. These specialized schools are wonderful opportunities for our children -- and with our new technology initiatives, students in all of our schools will soon be able to benefit from their programs.

In this budget, I commit an additional $300,000 to the Governor's School for Science and Math. The funding is for facilities, outreach and research, residence hall advisors, and transportation and technology upgrades.

For the Governor's School for the Arts, I recommend an additional $1 million for increased operating costs and additional equipment for the start-up of the school's new, year-round structure.

Other Education Items

• $8.5 million to fund fringe equity for school districts adversely affected by the change in fringe distribution in the FY 94-95 Appropriation Act.

• $13.6 million to annualize instructional materials.

• $736,500 to improve the fire safety program at the South Carolina School for the Deaf and Blind. Funds will be used to develop an early warning, rapid response and immediate evacuation system.

• $377,884 for the State Library to improve delivery of services by increasing Aid to County Libraries from $1.35 to $1.45 per capita.

Education Improvement Act

• $5.8 million to fund inflationary increases for Act 135 (Early Childhood and Academic Assistance Act).

• $177,050 inflationary increase for high school diploma requirements.

• $717,368 inflationary increase for the Gifted and Talented Program.

• $110,320 inflationary increase for handicapped students.

• $678,308 to fund inflationary increases for four-year-old Early Child Education program.

• $91,821 to fund inflationary increases for Principals' salary supplements.

• $200,000 for the Teacher Grant Program.

• $89,400 to support the expansion of the Adult Education Program.

• $402,300 to fund Advanced Placement Program (AP).

• $998,300 to support the Gifted and Talented Program -- to support students identified as having high performance in academic or artistic areas.

• $50,000 operating expenses for DARE program established within the State Law Enforcement Division.

HIGHER EDUCATION

A total of $66.5 million is recommended for higher education in this Executive Budget.

Governor's Tuition Prepayment Program

A college education is an opportunity which many parents struggle to provide for their children and some ultimately forego because of financial considerations. This budget proposes, for the first time in South Carolina, the avenue by which families can begin early to pay for their children's college education -- at today's costs rather than tomorrow's.

A parent, a grandparent, a family friend -- can establish a college account for a child and pay the college tuition over a period of time -- or all at once -- in advance and fixed at a guaranteed level for the duration of a regular undergraduate enrollment.

This is a comprehensive investment program administered by the state and to be guided by an advisory board of eminent financial advisers. It provides families with a vehicle to invest more easily in the future of their children.

The program will be administered by the Budget and Control Board, and after the initial start-up costs of $400,000, the program will be self-sustaining.

• Children's Education Endowment. Thirty-percent of all revenues from Barnwell will be used to fund the scholarship program. Over $17.6 million is estimated to be available from FY 97-98. In FY 96-97, over $21 million has been allocated for college scholarships. A total of 12,299 students received scholarships during the Fall 1996 semester.

• $33.7 million for formula funding. Of the total, $18 million will be placed into the base as recurring funds.

• $1 million to expand the Tuition Grants Program. This year, 9,500 students received assistance from this program and this recommendation could increase the number of students receiving assistance up to 370.

• $10 million to fund Special Schools at the State Board for Technical and Comprehensive Education (SBTCE). Special Schools train students for placement in business and industry.

• $2 million to fund critical equipment needs identified by the SBTCE.

• $300,000 to complete funding for the Physical Therapy Program at Greenville Technical College.

• $337,500 to renovate quarters and facilities associated with women cadets attending The Citadel.

• $39,150 to continue FY 96-97 Southern Regional Education Board contract funding.

• $2.6 million in matching funds to continue the fourth year of South Carolina's participation with the National Science Foundation in EPSCOR (Experimental Program to Stimulate COmpetitive Research) and SCAMP (South Carolina Alliance for Minority Participation).

TAX RELIEF

Economic growth benefits everyone in a society, but it should never benefit the government more than the taxpayer. That is why I remain firm in my commitment to reduce government growth and provide more tax breaks to our citizens.

One of my primary goals remains the protection of the taxpayer.

The taxpayers of South Carolina deserve and will receive ongoing property and other tax relief. After all, they earned the money and they own it. Government must overcome its tendency to believe that it deserves the money our families have earned. Twenty one percent of total available funds recommended in this budget are for tax relief. After funding the constitutional and statutory mandates, approximately one-half of the new recurring state funds are dedicated to tax relief.

The total new tax relief I am recommending in this budget exceeds $118.4 million.

In the last two years, over $421.5 million in property tax relief has been realized by the homeowners of South Carolina. Over eighty-seven percent of homeowners are exempt from paying the school portion of their tax. The third year of tax relief at the level I am recommending to protect the current exemption brings the total to $656.3 million in tax relief to homeowners.

My recommended changes to the budget process will protect this tax relief for South Carolinians.

Property Tax Relief

In 1995, we initiated the largest tax break in the history of South Carolina through property tax relief. Last year, we continued the commitment to property tax relief by setting the exemption level for all owner-occupied homes at $100,000. Total funding for the Property Tax Relief Fund for FY 96-97 was $213.7 million.

In order to protect property tax relief at the established level, I recommend an additional $21.1 million. This funds the Property Tax Relief Fund at $234.8 million for 1997-98. Since only $129.3 million was funded last year in recurring dollars, the amount needed to annualize the fund and bring it to the required exemption level of $100,000 is $105.5 million in recurring and non-recurring dollars.

Last year, the Legislature increased the amount of recurring dollars in the Property Tax Relief Fund by only $11.8 million -- bringing the total to $129.3 million. Only 60 percent of the total is in recurring dollars. This budget raises that percentage to 90 percent by recommending the appropriation of $82 million recurring dollars into the Property Tax Relief Fund. This will protect property tax relief for the people of South Carolina.

Senior Citizen Income Tax Relief

I propose a phased-in increase to $50,000 in the income tax exemption for seniors. By FY 2001-02, seniors will pay no income tax on their first $50,000 of income.

Many seniors struggle to meet the constant increases in the cost of living -- not to mention escalating medical costs -- on fixed incomes. This break, along with Property Tax Relief and the Homestead Exemption can make a substantial difference in their quality of life.

This year's first phase recommends an increase of $2.7 million in the income tax exemption for seniors (65 and over). Over 131,500 senior citizens will pay no taxes at all on the first $11,500 of income.

Tax Exemption for Children Under Six

By the end of this budget year, we will have doubled the personal exemption for families with children under six. Now, South Carolina families will keep $182 for each child under six. Statewide, this amounts to $38.4 million more in family budgets -- rather than state coffers.

We allocate $10 million in this budget to fully fund the final year's phase-in of this investment in our families.

Soft Drink Tax Exemption

• $4.6 million to fund the second year of a six year phase-out of the Soft Drink tax. The tax will be repealed by 2001. This action was taken in the FY 95-96 Appropriations Act, Part II, Section 48.

Reduce Manufacturing Depreciation

Last year we began to equalize the treatment of industrial and commercial properties in South Carolina. For the 1997 tax year, the maximum depreciation rate on manufacturers' machinery and equipment will increase from 80 percent to 83.3 percent. Over the next two years the maximum depreciation will increase to 90 percent, comparable to other commercial equipment in South Carolina.

This critical step gives employers (who provide jobs to hundreds of thousands in South Carolina) the flexibility to retool, expand and seek new investment. Each year of this phased-in reduction will save businesses $10.2 million. This translates into more jobs. The third year of the phase-in will bring over $33 million in tax relief to business.

Since this results in a revenue decrease for local governments, I have allocated $10.2 million in the Depreciation Property Tax Reimbursement Fund to compensate local governments.

ECONOMIC DEVELOPMENT

Department of Commerce

• $350,000 for administrative match rate increase for the Community Development Block Grant Program. This maintains the current level of CDBG grant funding.

• $453,678 to annualize funding for marketing and advertisement related to interstate business relocations.

• $194,772 to annualize funding of the European Office.

• $264,000 to annualize funding shortfall in the Tokyo and Frankfurt Offices created by currency fluctuations.

• $300,000 community revitalization effort.

Department of Revenue

• $320,000 to replace and upgrade obsolete equipment.

• $550,000 to develop and implement Integrated Print Management.

• $425,000 to develop a client service platform for database research.

LAW ENFORCEMENT AND CORRECTIONS

While progress is being made in law enforcement and crime prevention, we still have much to do. I am totally committed to returning our streets and neighborhoods to our families. To do this, we must provide law enforcement with the appropriate tools. And, we must continue to provide for adequate resources in our Corrections system.

State Law Enforcement Division (SLED)

• $1.5 million to SLED for vehicle rotation on a five-year schedule. These funds will enable SLED to replace approximately 75 old, high mileage vehicles. Approximately 150 vehicles (25 percent of the fleet) have an excess of 80,000 miles and need replacement.

• $110,000 annualization to match the DNA Data Banking Grants.

Department of Public Safety

• $3.9 million for necessary employer contributions as a result of restructuring.

• $3 million for a new computer system for driver records.

• $300,000 to supplement base for license plate replacement program.

Department of Corrections

In a perfect world, all of our resources could go to education, health care and the like. But the realities are that while we are making our streets safer, we must still provide for adequate corrections facilities for those who choose to break our laws. We will not for one minute compromise the safety of law- abiding citizens because of a lack of adequate resources for our prison system.

• $12.5 million to relieve overcrowding in the adult prisons by funding operating expenses agency-wide and, specifically, operating funds for four, 256-bed additions at four existing institutions.

• $15.5 million for annualization and operating expenses for Kershaw prison.

• $780,000 to maintain health care contracts for medical services provided outside of the correctional institutions.

• $650,375 to provide funding for the Rehabilitation Substance Abuse Facility at the Manning Correctional Institution. These funds replace a terminated grant.

• $1.5 million for 56 security staff to serve statewide.

Department of Juvenile Justice

There have been great strides made in the Juvenile Justice system in the past 12 months: reduced overcrowding, updated assessment and classifications systems, new wilderness programs, greater structure and discipline. And we must continue in our work to help these young people turn their lives around while we are also protecting the public.

• $14.4 million for the annualization of the contract with Corrections Corporation of America, which has enabled the relocation of 400 juvenile offenders to Craft Farrow and an ongoing program of sending juveniles to wilderness camps.

• $1 million annualization for the Upstate Evaluation Center.

• $304,488 for operations of assessment and classification.

• $679,380 to fund additional Juvenile Correctional Officers (JCO) and Public Safety Officers (PSO) and to annualize the JCO pay increase.

• $1.1 million for operation costs of the pre-existing Marine Wilderness program.

• $179,000 to annualize medical services for CCA.

• $960,000 for provision of medical services at all other facilities.

• $763,000 for ongoing attorney fees stemming from class action litigation over institutional conditions.

• $559,000 for detention center.

• $3.7 million to fund programs and services. $1.8 million to develop and implement community-based programs and services that meet the required services; $1.6 million for institutional program development; and $400,000 for motor vehicle fleet replacement.

Department of Probation, Pardon and Parole

• $1.6 million to fund an existing complement of 51 offender supervision officers. These officers have been funded for the last two years with non-recurring funds.

• $1.3 million to create a system for the collection and distribution of victim restitution.

• $350,000 to establish pay equity for parole agents.

JUDICIAL

My commitment to working with Chief Justice Finney to meet the needs of the court system remains firm. Expedient trials and reduced backlog remain a priority. I have recommended funding six new judges with staff, court reporters, administrative assistance and annualization of the family court judges' pay equity.

Judicial Department

• $278,464 for funding of second year phase-in of judges salaries.

• $1.62 million for the funding of three new circuit court judges, three new family court judges, three family court reporters, three circuit court reporters, three law clerks for the circuit court judges, six secretaries, and other related operating costs.

• $166,122 to fund four at-large court reporters.

• $37,607 for operating expenses related to increased workload resulting from federal mandates.

Attorney General

I am funding several critical items for implementation by the Attorney General. I recommend $433,442 for increased prosecution of Medicaid Fraud, Hate Crimes, Domestic Violence and Elder Abuse.

• $171,890 to fund the Medicaid Fraud Control Unit. This is required by the federal government to protect South Carolina's Medicaid funding.

• $105,703 to support the Hate Crime Unit.

• $95,849 for a 25 percent match for Violence Against Women Act funds in order to establish a special prosecution unit to combat violence against women.

• $60,000 to fund a prosecutor especially for crimes against the elderly.

Prosecution Coordination Commission

• $1 million for a $.30 per capita increase ($1.63 to $1.93) to support the sixteen solicitors' offices. These funds will be used to hire additional Assistant Solicitors, investigators and other support staff to alleviate the backlog of cases in General Sessions and Family Court.

• $71,373 for a Child Abuse Attorney to replace federal grant position. The Child Abuse Attorney will serve as a special prosecutor across the state on cases involving child abuse. The Child Abuse Attorney will be available to all 16 Circuits.

Division of Victims Assistance

• $1 million to fund Law Enforcement Victims' Advocates in each county located in each sheriff's office. This will ensure that adequate services are provided to victims and will help solicitors comply with the Victims' Bill of Rights.

HEALTH AND HUMAN SERVICES

The Medicaid program is a federal program that provides financial aid to states for payment to health care providers. Eligible individuals include cash assistance recipients, children, pregnant women, and the elderly.

Medicaid expenses are one of the fastest growing, non-discretionary budget items in every state in the nation.

Department of Health and Human Services

• $4 million to provide an additional 4,350 child care slots to support welfare recipients in job and educational placement. This funding will aid recipients in their transition from welfare dependency to self-support.

• $4.9 million annualization of state match to maintain FY 96-97 Medicaid base. This will ensure the same level of client access for the current client eligibility groups.

• $9.4 million for match to meet Medicaid Client growth. Medicaid continues to grow at a substantial rate. This funding is needed to meet the demands from client growth.

• $4.7 million in State match for hospital rebase.

• $2.1 million for premium increases associated with Supplemental Medicare Insurance. This will increase the monthly premium for elderly recipients by $5.00 per month per recipient.

• $1.2 million for Rural Health Clinics.

Department of Social Services

• $2 million annualization for welfare reform initiatives.

• $1.4 million to fund a foster care clothing allowance at $100 per child per quarter and a foster care school allowance at $100 per child per year.

• $1.7 million for the adoption subsidy payments for the adoption of special needs children.

• $165,540 to fund the State adoption program.

• $12 million for emotionally disturbed children.

• $2 million to replace federal reduction in Section IV-A, Emergency Assistance/SSI funding.

Department of Mental Health

• $1.6 million to annualize two residential treatment facilities for juvenile offenders. This is a joint effort between DJJ and DMH to better serve emotionally disturbed juvenile offenders.

• $1 million for a pilot initiative for those institutionalized individuals who might live in the community under special medications.

Department of Alcohol and Other Drug Abuse Services

• $400,000 to maintain "The Bridge," which provides intensive care management and continuing treatment for those individuals discharged from DJJ or other drug abuse facilities.

Department of Health and Environmental Control

I remain committed to our goal of decreasing infant mortality in South Carolina. I want to make sure that every two-year-old in our state gets the recommended vaccines to prevent disease and death. To that end we must fund:

• $4.1 million to annualize the Immunization Program.

• $250,000 for the Healthy Communities Grant Program to help communities improve health in innovative ways.

We must also work together to preserve our natural resources. Beach renourishment is an important part of that effort. I recommend:

• $3 million for 4:1 federal and local match to fund the Beach Renourishment Fund.

Department of Disabilities and Special Needs

• $1.9 million to annualize the program to help keep more individuals at home, with family, instead of in a costly institution.

• $1.2 million to maintain current Medicaid Program. This is necessary due to a reduction in federal matching funds.

NATURAL RESOURCES

Department of Natural Resources

• $1.3 million to establish an equipment rotation schedule for the replacement of one-third of the fleet annually and provide repairs to the patrol aircraft.

• $175,000 for facilities maintenance. The request includes Marine Resources ($75,000), Game ($50,000), and Land Resources programs ($50,000) facilities maintenance.

Department of Agriculture

• $169,000 for National Association of State Agriculture Departments Membership and sponsorship of Annual Spring Dairy Show. Request also includes funding for installation of a Local Area Network (LAN) for the agency lab, equipment for inspections for both livestock scales and LP gas meters.

Adjutant General

• $723,500 to fund 50 percent match for six federal/state emergency preparedness programs.

• $267,316 for a portion of the state share for repair and maintenance of armories.

• $125,494 in state support for McEntire National Guard Air Base.

OTHER STATE AGENCIES

Senate and House of Representatives

• $182,313 to fund increases in retirement contributions for the Senate and House of Representatives.

• $69,555 to fund production of the Code Supplement for Codification of Laws.

Comptroller General

• $18,590 for 10 percent increase for membership in the National Association of Comptrollers, State Auditors and Treasurers.

Election Commission

• $100,000 for increases (from 1.7 million to 2.3 million people) in the voter registration system for future elections.

• $53,250 to remove ineligible voters from the master file.

• $15,000 for training and certification for all members appointed to county registration boards and county election commissions.

Budget and Control Board

• $6.5 million to the Office of Local Government's base budget for local grants.

• $94,500 for increase in office rent, telephone charges and other operating expenses related to relocation due to State House renovations. This also includes restoration of artifacts at the Confederate Relic Room.

• $500,000 to support Statewide Performance Audit.

Employee Pay/Employee Benefits

I challenge state agency directors to adopt several management techniques and concepts used successfully in the private sector. Companies have found that with new technology and increased efficiency, they are able to use the funds saved from natural employee attrition to increase salaries to their remaining employees. If state agencies will take this route, combining those funds with money already being used to give interim employee pay raises (reclassifications, performance pay, promotions), we can provide a 3 percent pay increase to our state employees.

In FY 95-96 state agencies gave their employees $27 million in pay increases over and above the pay plan recommended by the General Assembly...showing already an ability to internally reward employees without compromising service and programs. Agencies are to be commended for their efforts and encouraged to continue efficient use of taxpayer dollars through funding pay increases in this manner.

$11.7 million pay raise annualization for state employees. This completes the annualization of FY 96-97 3.4 percent pay increase.

REVENUE

The Board of Economic Advisors' (BEA) FY 97-98 Preliminary Revenue Forecast projects general fund revenue to be $4,674,511,195. This is an increase of $216,623,950 above the adjusted base from the FY 96-97 Appropriations Act. Moreover, with my recommendation for modifying the Carnell-Felder appropriation limitation --dedicating an additional $80.4 million in recurring dollars for the Property Tax Relief Fund --there will be, less adjustments, a total of $294 million available in recurring revenue from revenue growth.

The BEA forecasts a growth rate in General Fund revenues of 3.6 percent over the revised estimate for FY 96-97. The calculation of recurring funds available for expenditure is as follows:

                                                                            
FY 97-98 BEA Preliminary Revenue Forecast:              $4,674,511,195
Less modified Carnell-Felder dedicated to 
                    Property Tax Relief Fund:             -$80,425,035
Revenue available for appropriation:                    $4,594,086,160
Revenue available for appropriation:                    $4,594,086,160
Less 1996-97 Appropriation Base                        -$4,377,462,210
Recurring funds available for appropriation:              $216,623,950
Recurring funds available for appropriation:              $216,623,950
Less adjustments                                        -   $2,852,500
Recurring amount from modified Carnell-Felder:            +$80,425,035
Recurring Funds available for appropriation in 1997-98:   $294,196,485

This budget uses the following sources of revenue:

• $216.6 million in forecast revenue growth for FY 97-98 (with a total of $294 million in revenue growth gained from modification of Carnell-Felder --dedicating the $80.4 million for property tax relief).

• $84.6 million in the FY 96-97 Capital Reserve Fund available for appropriation in March 1997 for FY 97-98, barring any mid-year budget reductions in the remainder of FY 96-97. Since the BEA is currently forecasting a surplus for FY 96-97, it is likely that the Capital Reserve Fund revenues will be available for expenditure.

• $50 million in BEA projected surplus from FY 96-97.

• $52.4 million from the Carnell-Felder carry forward from FY 96-97. These funds are allocated by statute to fund the Property Tax Relief Fund. This amount of $52.4 million is different from the Carnell-Felder amount of $80.4 million quoted above. The Carnell-Felder figure quoted above is the set-aside calculation to arrive at the FY 97-98 Appropriation limit, while the $52.4 million is from last year's calculation and available for use in 1997-98 as nonrecurring funds.

• $25.0 million in forecast revenue growth for FY 97-98 in Education Improvement Act (EIA) funds.

• $62 million in forecast revenue for the Children's Education Endowment from the Barnwell Low-Level Waste Site.

While none of this amount is available for appropriation, the state also has a General Reserve Fund for emergency purposes of $127 million in FY 96-97. In FY 97-98 there will be $130 million in the General Reserve Fund.

Summary Sheet of Functional Areas - Table Structure, 30K

Summary Control Document - Table Structure, 140K

Last Updated: Monday, June 29, 2009 at 1:21 P.M.