Friday, March 27, 2009

South Carolina's Dilemma

Governor Mark Sanford (Republican) of South Carolina makes a strong case for using his state's share of stimulus money to pay down state debt. He argues that using that South Carolina spends eleven percent of it's budget servicing debts of assorted varieties and he fears that funding programs with Federal stimulus monies means that in two years when the stimulus is scheduled to run out the state will be back where it is now, if not in worse shape.
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His idea is to use the Federal funds to free up South Carolina from its debt burden releasing monies back into the general fund. The problem with this approach is that if the state's budget structure isn't also changed the debt will slowly return and Sanford suggests, in a news release from his office that he would do that:
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Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.
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If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.
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If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money -- not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years -- just as paying off a family's mortgage early frees up money for other uses.
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Sanford goes on to suggest that party politics are in play and the Democratic National Party is directing the President to say because he is a Republican. Whatever the case a debate on a sensible proposal like this would show the President cutting across party lines and entertaining ideas. God knows what happens when the stimulus runs out in one year or two because nobody at the top is restructuring anything and all these debt chickens are going to come home to roost one way or another.

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