Proposal To Raid S.C. Trust Fund

By Ellen Flax — April 10, 1991 6 min read

The education-business coalition that pushed through South Carolina’s landmark school-reform law in 1984 is waging a new fight against a proposal to raid a trust fund established by the law for reform programs in order to pay for general-education costs.

Although the coalition appears to have largely beat back the attempt to dip into the reform fund, observers suggest the controversy raises important questions about whether efforts to earmark money for school improvements will survive when fiscal times get tough.

Until this year, the idea of diverting money from the fund, which receives more than $300 million a year from a 1-cent increase in the sales tax, has never been seriously considered by the legislature.

But an extremely tight budget year, combined with new questions about the effectiveness of the law, known as the Education Improvement Act, made the previously untouchable budget line a tempting target to some lawmakers, many ob servers said.

Under a budget proposal adopted by the House Ways and Means Committee, some of the sales-tax proceeds targeted for programs created by the eia would have been used instead for textbooks, school buses, and teachers’ fringe benefits, which normally are covered by the state’s general fund.

But after an outpouring of criticism from eia backers, the House last month adopted a spending plan that removed most of the general-education costs from the trust fund. Observers said it was unlikely that the Senate, which has just begun its consideration of the budget, would divert any more money from the eia.

The original budget proposal repre04sented a long-term threat to state Lsupport for school improvement, warned Terry Peterson, executive director of the Joint Business-Education Subcommittee, an independent group established by the eia to oversee the implementation of reforms. “If you set this precedent, you might as well kiss the reform fund goodbye,” Mr. Peterson said. “If reform is important in good times, it’s even more important in bad times.”

Tax Hike, Accountability Linked

The eia, in fact, was the product of hard economic times. During the ear ly 1980’s, local businesses becameL0more concerned about the quality of education just as a severe economic downturn hit the state, especially its dominant textile industry.

Under the leadership of then-Gov. Richard W. Riley, the business com munity agreed to support the addi tional 1-cent sales tax that would fuel the eia In return, educators agreed to accept a greater degree of accountability for student outcomes.

With the sales-tax revenue, the eia funds a compensatory-education program, a mandatory exit exam for high-school graduates, and an incentive-pay plan for teachers. This year, out of a total of $1.45 bil lion in state funds for precollegiate education, $303 million comes from the eia trust fund. For fiscal 1992, eia funding is expected to rise to $317 million.

The current recession, meanwhile, is expected to hold down revenue growth in the state’s $3.6-billion bud get to only about $40 million. In the past several years, by contrast, law makers have had roughly $200 mil lion a year in new money with which to expand state programs.

That slowing of revenue growth convinced the Ways and Means Committee to examine diverting money from the eia to other education programs, said Representative Douglas E. McTeer Jr., a member of the panel.

But Mr. Riley, who spoke out against the committee’s budget plan, said using eia money to fund the regular education program would “violate a public trust” made with taxpayers.

“When they pay that penny, they think they are paying something above and beyond for education,” he said.

“There is a trust involved in the whole scheme of how you fund education,” Mr. McTeer countered. “You have to meet the education needs of children. That is the greater trust.”

Questioning Reform’s Value

Superintendent of Education Bar bara Nielsen supported the Ways and Means plan.

The diversion of funds from the eia was necessary given difficult economic conditions, she said in a statement.

“We must remember that the dol lars we spend will still benefit our children, and that is, after all, the point,” she argued. During her election campaign last year, in which she unseated the state’s veteran education superintendent, Charlie G. Williams, Ms. Nielsen frequently questioned the effectiveness of reform measures and made clear that she would apply a critical eye to the eia “We, as taxpayers, have invested over one billion dollars in the eia, and the time has come for us to determine how well it’s working and what new reforms might be substi tuted for any initiatives found to be lacking,” Ms. Nielsen said in her statement on the current budget dispute.

That questioning attitude, some observers noted, may have carried over into the budget debate. Ms. Nielsen’s budget proposal to eliminate or greatly reduce funding for several eia programs was seen “as a green light” by lawmakers who wanted to cut back on the program, said Donald Beers, executive direc tor of the South Carolina AssociL ation of School Administrators.

Ms. Nielsen and others also have questioned whether eia money is distributed fairly. Although basic-education dollars in the state are dis bursed according to a finance-equity formula, eia funds are provided to districts on a per-pupil basis.

Incentive Pay Dropped

The Ways and Means budget plan would have taken nearly $30 mil lion from the eia and given it to programs that educators say have been shortchanged in the budget L over the past several years, including school buses, textbooks, and school construction. After heavy lobbying by such groups as the South Carolina Edu cation Association and the South Carolina Chamber of Commerce, however, the House approved a compromise measure calling for most of those programs to be funded from general revenues. The ex ception would be school construc tion, which would receive $18 million in eia funds.

In order to provide the additional money from the general fund while still balancing the overall budget, the House deliberately underfunded 0 the inflation factor for the education-foundation program by $4 million and raised the tax on cigarettes.

The budget also alters two important elements of the original eia It scraps an incentive-pay program for teachers and principals, which was not popular with educators, and dramatically reduces funding for the Division of Public Accountability. The division, which is part of the state education department, monitors the effectiveness of the eia Ms. Nielsen called during her campaign for removing the office from the department.

Money earmarked for the pay-incentive program, meanwhile, will be split among all teachers, who will receive an average pay raise of a little more than 2 percent.

Dedicated to Excellence

It is too early to tell whether the Senate will include the new tax or further alter the inflation factor, said Senator Nikki G. Setzler, chairman of both the Education Committee and of the Finance Committee’s education panel.

“We certainly intend to protect the integrity of the eia,” he said. “We will certainly not be proposing to take money out of the eia to fund the [basic-education program]. Where this money comes from, we don’t know yet."At the same time, Gov. Carroll A. Campbell Jr. has said he will not support any new taxes, said Tucker Eskew, his spokesman. In his budget proposal, Mr. Campbell left the eia intact while calling for cuts in non-education programs.

“Philosophically, [the Governor] L0 believes the eia should be a dedicated source of revenue for creating excellence,” said Mr. Eskew.

Educators said that while they were not pleased with the House budget, the compromise plan was acceptable.

“I think [this debate] has given us the opportunity to reaffirm the fact that this program is well-supported,” said Joseph Grant, executive director of the scea “Once someone tried to assault the eia, the original players came back together again.

A version of this article appeared in the April 10, 1991 edition of Education Week as Proposal To Raid S.C. Trust Fund