Why South Carolina Doesn’t Want ‘Stimulus’

By Mark Sanford
Governor of South Carolina

America’s states are laboratories of democracy. They are both affected by, and relevant to, the larger national debate. What we’ve found in our own corner of the country is that carrying a substantial debt load limits our options when it comes to running government.

A recent report by the American Legislative Exchange Council ranked us 47th worst in the nation for annual debt service as a percentage of tax revenue. Our state dedicates nearly 11% of its annual tax revenue to paying debt. On top of that, South Carolina has another $20 billion in unfunded, long-term political promises for pensions and other liabilities. The state budget has already been cut four times in recent months as the national economic downturn has impacted South Carolina and driven down tax revenue.

President Barack Obama recently signed a “stimulus” bill that will spend about $2 billion through “programmatic means” in South Carolina. In other words, the federal government will put this money directly into existing funding formulas and programs such as Medicaid. But there is an additional $700 million that I as governor have influence over, and it is the disposition of this money that has drawn the national spotlight to South Carolina.

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.

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.

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.

When you’re in a hole, the first order of business is stop digging.

South Carolina is in a hole, and it’s not a shallow one. Spending stimulus money on ongoing programs would mean 10% of our entire state budget would be paid for with one-time federal funds — the largest recorded level in state history.

Also, spending stimulus money will delay needed state restructuring. General Motors recently found itself in a similar spot. It needs to be restructured if it is to prosper, but a federal bailout enabled it to put off hard decisions. Likewise, taking federal stimulus money will only postpone changes essential to South Carolina’s prosperity. Though well-intended, it forestalls hard choices we must make.

One of Mr. Obama’s central campaign themes was his pledge to do away with politics of the past. In his inaugural address, he proclaimed “an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics.”

This idea connected with millions of voters, myself included. I’ve always believed ideas should rise and fall on their merits. In fact, I saw such historical significance in his candidacy and the change he spoke of that I published an op-ed on it before South Carolina’s presidential primary last year. It was not an endorsement, but it did note the historic nature of his candidacy and the potential positive change in tone it represented. That potential may now be disappearing.

Last week I reached out to the president, asking for a federal waiver from restrictions on stimulus money. I got a most unusual response. Before I even received an acknowledgment of the request from the White House, I got word that the Democratic National Committee was launching campaign-style TV attack-ads against me for making it.

Is this the new brand of politics we were promised? Instead of engaging with me and other governors on the merits of our dissent, I am to be attacked in television ads? In the end, I just don’t believe a problem created by too much debt will be solved by piling on more debt. This doesn’t strike me as an unreasonable or extremist position.

Nevertheless, the White House declined my request for a waiver yesterday afternoon. That’s unfortunate. But in coming months we’ll continue advancing the debate at the state level about the merits of debt repayment. The fact remains that while we’d all like to spend unlimited dollars on the very real needs that exist in our state, we must spend in the context of what is sustainable.

This originally appeared online at The Wall Street Journal. Reprinted with permission from the governor’s office.

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