The state is shackled by debt, and our policymakers like it that way.
On Wednesday The Nerve reported that a credit downgrade in 2005 by one of the nation’s premier credit rating agencies still stands in 2015. Many officials, and especially lawmakers, are eager to raise it again.
The downgrade was the result of several developments, but one key factor was a proposal by then-Governor Sanford to cut the state’s income tax. A simple letter threatening the downgrade – because the tax cut would reduce revenue on hand to repay bond debt – was enough to sway lawmakers against the governor’s proposed reduction. And since that time, the General Assembly has failed to signficantly reduce the income tax burden on some of the nation’s poorest earners.
You may have wondered: Why has GOP-dominated South Carolina failed year after year to do anything about the state’s high income tax. (It’s currently the thirteenth highest in the nation.) Both chambers in the State House are led by Republican majorities, and every single constitutional officer is a Republican who favors – at least on paper – tax cuts.
The reason? They’re also big spenders, and cutting taxes means less money to spend.
That’s where borrowing comes in. For years our elected officials have operated under the “why pay cash when we can charge it?” mentality. With interest rates down, the inclination is to issue bonds for everything, even core services. Lawmakers have issued bonds for roads (nearly half a billion dollars), university buildings, economic development projects – you name it and they’ve borrowed money for it. At the same time, they’ve have appropriated every dollar they’ve had on hand and even drafted plans to spend money the state has yet to receive (i.e. anticipated surplus revenue).
As the state’s Comptroller General, Richard Eckstrom, told The Nerve, “rating agencies and their investors don’t want states to curtail spending on services … they make money when states borrow … they want to see states engaging in a borrowing that maintains services.” South Carolina, then, should be a credit rating agency’s dream: (a) state officials won’t cut the tax base that credit rating agencies consider when determining the state’s ability to repay debt, and (b) officials borrow money to fund core services, and (c) lawmakers have flatly rejected all proposals to cut spending.
Lawmakers, lenders, and investors are the only ones who care about the state’s credit rating. People outside the State House and its environs would like to see the state reduce its dependence on borrowing and reduce the burden it has brought on the state’s finances. The state’s general obligation bond debt is at well over $520 million, and other outstanding liabilities push the state’s debt closer to $70 billion.
In short: South Carolina is shackled by debt, and its policymakers like it that way.
South Carolina lawmakers and other elected officials would chase federal funds and low interest rates all day because it makes their job easier. They can just as easily fund core government services (infrastructure especially) with borrowed money as they can with cash on hand. But it’s catching up to us. It means higher debt service, for one thing. For another, it encourages dependency on federal money, which in turn gives federal bureaucrats the power to make decisions about what’s best for South Carolina citizens and taxpayers. And borrowing money hand over fist has negatively affected the ability of lawmakers to cut taxes and reduce the burden the state has placed on its citizens. South Carolina has to get out from under the mound of debt it’s in, and our politicians are going to have to cut back and start making tough budget decisions in order to keep us out of debt.
Jamie Murguia is Director of Research at the S.C. Policy Council, The Nerve’s parent organization.