Friday, June 22, 2007

State Budgeting and Finance – Question 4

Question for Warren K and Randy L. South Carolina uses an annual budget process (versus a biennial budget such as N.C. uses) with a single appropriations bill (excluding supplemental bills that are sometimes passed when there is additional revenue, or when the Budget and Control Board makes mid year cuts where there is a shortfall). The state budget uses the line item format (as opposed to more modern formats like program budgeting). The line item format allows for control in details on spending when “proviso’s” are included in the appropriations bill, but usually the lines are fairly general which allows agency discretion. Within this budget bill, four major legal limitations exist. Describe each of them. In this discussion, make sure that you include the justification for the state creating debt in a “capital budget.”
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3 comments:

Anonymous said...

The 4 major legal limitations are:

1) The state constitution requires that a balanced budget be passed and maintained for each fiscal year – that is monies allocated in the appropriations bill are not supposed to exceed the revenue forecast.

2) South Carolina law forbids the state to incur general obligation debt in excess of 5% of the previous year’s revenues.

3) Constitutional limit on the amount of money the state can spend in a given year – The limit only applies to state funds.

4) (This one wasn’t clear to me if it was a limitation or not but I’m assuming it is one) Capital budget - This is items that cost large amounts of money and last for many years. The state often borrows money by issuing bonds in order to finance such projects and examples of capital expense might be renovations to the state capital or the construction of a new building for the highway patrol.

Randy Lucas

June 26, 2007 at 7:34 AM
Robert Botsch, USCA Political Science said...

Randy is close, getting the first three correct, but not the fourth. The fourth limit is on the total number of state employees that are allowed. The number is based on a formula that ties the # to the total population. The limit is high enough so that the state is well under the limit.

You can see from all these limits that the elite who ran the state were concerned about the size of the state government, and valued a small government over a government that provided a wide range of services. Of course, elites do not need as many services!

Now, on what Randy has as his fourth one, capital budgets. This really falls under the second one, the limits on debt. While the state cannot borrow money to finance its annual operating budget, it can borrow money to build things like roads and bridges and buildings, including buildings on college campuses.

This kind of borrowing is in a separate budget called a capital budget. It is borrowed by selling bonds on the open market and repaid over a long period of time. This kind of borrowing makes sense in that those who benefit later in time from the construction will also be paying for it (as opposed to having just those living and paying taxes in one year). The text uses the term "intergenerational euqity" for this justification.

Bob B

June 26, 2007 at 1:46 PM
Warren B. Knightner said...

The major legal limitations are
1. A balnced budget must be passed an maintained each fiscal year. The money that is alloted to tthem must not go over the proposed budget.
2.SC does not allow the state to get a debt over 5%of what last years revenue was.
3.Constitutional limit only applies to the state funds. But the constitutional limit is the amount of money that the state can spend in a years time.
4.Capital budget is like a market place for the government. There is buying and selling of bonds over a period of time.

June 28, 2007 at 1:39 AM

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