Treasurer Loftis addresses H. 3066, Department of Administration and Bonding Review

Wednesday, April 11, 2012

I campaigned on and wholeheartedly support, the abolishment of the South Carolina Budget and Control Board and have been unwavering in my support for those efforts. I support any measure that brings greater transparency and accountability to state government. When it comes to the mechanism by which this reform takes hold (H. 3066) I believe the finance/debt/pension side of the Budget and Control Board should be handled differently than the more straightforward and more administrative items such as fleet management, IT, buildings maintenance, etc. There is little question that those programs should go to the Department of Administration at once.

Simply put, long term decisions with massive financial ramifications such as state debt, pension plans and long range finance should not be made by a single office holder with a short term view. The bill as written is in adequate when it comes to these complex functions. I suspect these sections would not survive a legal test, nor does it meet the best practices the taxpayer deserves.

As written, the debt/pension/finance areas do not adequately address the needed reform, and in some cases, go the opposite way of transparency and accountability, which was the original purpose of this reform bill. Most of the functions relating to debt/pension/finance are not transferred to the governor; rather the bill as written sends them to various boards with less transparency and little accountability. For example, one of the boards in question, the Rural Infrastructure Authority, would have tremendous bonding capacity and no one in government has authority or veto power over that debt which would be payable by the taxpayer.

Think about that for one second. A board that most have never heard of and the members of which are not accountable to the people of this state, can put the entire state in debt without asking a single person’s permission and with no consequences for their actions. That is unacceptable.

The General Assembly decides large issues of public policy and rightfully so. While they often depend on the Executive Offices to assist them, they are more apt to rely on the people they represent for guidance. So in the spirit of transparency, I have asked my staff to place these sections on the Treasurer’s website today so that it is possible for you to read them for yourself.

My battles to enhance transparency, accountability and a businesslike efficiency in state government are not easy ones and this will be no different. But please know that my recommendations on this bill are not to assist or please anyone...except for the taxpayers of South Carolina.

Below you will find our recommendations to the Speaker of the House of Representatives for the areas of H. 3066 that pertain to the Treasurer’s Office in full:

  • We support the establishment and transfer of many of the offices and divisions of the Budget and Control Board to the Department of Administration, along with any other measures that will promote greater transparency, accountability and efficiency throughout state government.
  • While the bill creates a Bond Review Authority and appears to envision oversight of all debt issuance by that Authority, the bill transfers the boards of certain entities in some cases to the Department of Administration, and another to the Rural Infrastructure Authority, including the Tobacco Authority. These boards have powers to incur debt in their own name but their bonds have no subsequent oversight or approval requirement since their boards are under existing law comprised of the members of the current Budget and Control Board, which will no longer exist.
  • We believe that it is imperative that all debt issued by the state and the entities authorized to incur debt be subject to the rigors of uniform state debt policy and subject to the review of the Joint Bond Review Committee and the Bond Review Authority. To this end, we believe that a thorough statutory review of all bond enabling acts is essential to ensure conformance with the Bond Review Authority oversight described above. We further encourage amending the bill to remove the exemption of the South Carolina Jobs-Economic Development Authority from such oversight for the same reason.
  • Bonded indebtedness, which is authorized, constrained and protected by the constitution and contractually binds the State to significant long term liability, must be judiciously undertaken and vigilantly administered. Pension and certain other long-term obligations, because of their debt-like characteristics, must be managed with the same level of oversight and degree of care.
  • The model must promote swift and responsible action in response to unexpected changes in economic circumstances, and must withstand the constitutional test of separation of powers.
  • Matters with broad public policy implications must be carefully deliberated and conducted in ways that promote public confidence, transparency and accountability. To the greatest extent possible, the model that emerges must be devoid of singular oversight and political influence.
  • The Governor’s executive budget specifically identified the functional areas of “procurement, technology, budgeting, facilities and real estate, and a number of other critical back office functions” for transfer to the Department of Administration, and cited that “citizens often call for government to be run more like a business”. We agree with and advocate for this general proposition, but also observe that well-run businesses vest general oversight and their most important policy and management decisions in boards of directors. All of South Carolina’s AAA-rated peers have an entity that provides oversight most notably to matters of public finance and debt policy, extending as well in various cases to such matters as state and retirement investments and other matters of statewide significance.

 

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