Gov. Mark Sanford, state lawmakers and the state's top finance officers must wrestle with debts past due, a sputtering income stream, deep cuts in spending and a reduced work force that has gone without a raise while paying ever higher health insurance costs.

It could get messier.

Revenues aren't picking up, budget leaders have already exhausted the reserve fund, and a seventh round of cuts in four budget years is likely.

State agencies say there's real pain ahead, and, to top it off, lawmakers aren't expected to come to the rescue with higher taxes because next year is an election year.

Just last week, the state robbed a $98 million rainy day fund to pay for lower revenue estimates this year and ordered state agencies to set aside 1 percent of their budgets to pay for a $22 million shortfall in last year's $5.3 billion state budget.

Still unaddressed is a $155 million deficit left over from 2001-2002. It has to be paid back. Where will the money come from?

"It has to come out of the general fund," House Speaker David Wilkins said.

The Greenville Republican plans to introduce legislation next year that outlines a repayment plan. Gov. Mark Sanford recently slammed lawmakers for not already addressing the deficit and wanted it paid off at once.

But given the state's other fiscal challenges, that's unrealistic, both Wilkins and House chief budget-writer Rep. Bobby Harrell, R-Charleston, said.

"In a perfect world, we would have a very strict time period," Wilkins said.

Harrell believes the $155 million will have to be paid back over several years. "A one-time impact would be pretty dramatic," he said.

And don't look for higher taxes to help pay it off. Next year, all 170 state House and Senate seats are up for election.

"Part of the reason we are in this budget mess is election-year politics," Sanford spokesman Will Folks said.

TAX INCREASES DOUBTFUL

Lawmakers normally don't raise taxes in an election year, and even if someone tried, the anti-tax, Republican-controlled General Assembly could snuff it out. Sanford's mantra of not raising one tax without lowering another offers little hope for more revenue.

"The House took a strong stand last year against raising taxes," Wilkins said. "I would think we would be consistent with that next year."

Lawmakers won't know until November how much money the Board of Economic Advisors predicts the state will have available to spend in 2004-2005, but ever since the fall of 2000, the old board missed the mark each year, resulting in a punishing series of budget cuts and layoffs.

Budget leaders soon will know if another trim is needed.

The board meets Sept. 12, and its recommendation on revenue estimates will then go to the Budget and Control Board on Sept. 30. If another mid-year budget cut is needed, it could come then.

The outlook isn't promising.

"It would not surprise me if we had to reforecast revenues," BEA Chairman John Rainey said. "I think it's unreasonable for August not to be a mirror of July. Those figures were not good. They were still trending down like May and June. If there's another cut, it will go straight to the budget. We have no reserve left."

Many state agencies are holding their breath.

AGENCIES ON THE LINE

Further cuts could affect everything from tanning bed inspections to accident response times and narcotics enforcement. It could mean fewer revenue officers collecting less money at a time the state needs it most.

Two years ago, lawmakers bit the hand that feeds them when they cut the Revenue Department's budget by $5 million, forcing the agency to lay off 108 workers, including 46 auditors and 18 revenue officers. Those are the people who visit businesses and individual taxpayers, look at their finances and order them to pay up. With fewer auditors, the Department of Revenue became the department of lost revenue.

Last year, legislators realized the mistake and gave the agency $1.3 million to bring back eight auditors, five revenue officers, support staff and equipment. Those eight auditors brought in $11 million the state might not have otherwise seen, Revenue spokesman Danny Brazell said. The officers netted another $1.2 million each by knocking on doors and chasing down delinquent taxpayers.

"It makes no sense to find tax debt if we have no means of collection," Revenue Department auditor Bob Hatcher said.

"I think we should ask for more auditors, and I would hope that the General Assembly sees that it's important to the state to collect the money," said Joe Kirby, Charleston Revenue Department regional manager.

If the financial situation at the Department of Public Safety doesn't improve, it will rely more on local police and sheriffs to patrol the state's roads and respond to accidents, said Don Royal, chief financial officer.

"There just aren't as many officers on the road," he said.

The Mental Health Department is working with $37 million less than two years ago, with 250 fewer beds and people waiting as long as a week in emergency rooms to be admitted to one of the state's psychiatric hospitals.

"If we don't at least keep it where we're at now, it could get worse," said Kenneth Long, deputy director of administrative services.

The state's $3.7 billion Medicaid program has, for the most part, avoided the budget ax in the past three years, though it has been at the center of considerable debate every legislative session. Next year should be no different since lawmakers plugged the hole last year with one-time money.

All health care agencies in the state could end up reckoning with a big change. To streamline efficiency, Sanford has indicated that he favors merging at least some of the state's eight agencies that deal with health care into a single department with a Cabinet member.

Without increased funding, the Department of Transportation may have to start turning down federal dollars for road projects for lack of state matching funds. The state gasoline tax has not budged from 16 cents a gallon since 1987.

"The downturn in the economy is aggravating an already insufficient funding formula," said Michael Covington, DOT director of governmental affairs.

The Corrections Department expects a $12 million deficit at the end of this fiscal year as utility costs rise, aging vehicles get replaced and 1,200 new inmates enter prisons, Director Jon Ozmint said.

"We are going to be in a desperate spending situation unless the Legislature passes a law saying we can release people," he said.

The Department of Natural Resources, which is closing 17 offices because of the budget crunch, is still evaluating items such as wildlife and natural resources education programs, spokesman Mike Willis said. Some will go.

"Further reorganization and downsizing will accommodate future budget reductions," Willis said.

The Forestry Commission has realigned its work force to cover losses.

The agency is doing more cross-training, especially in fire protection. While nonfire employees are on fire assignments, their normal jobs will not be done, spokesman Ken Cabe said. The commission has not been able to replace its aging firefighting equipment.

"The long-term ramifications are increased danger to firefighters and less-efficient forest fire protection for South Carolina landowners," Cabe said.

Additional cuts could thin the number of front-line firefighters.

"Response time will increase and forest fire losses will increase as well," Cabe said, noting that South Carolina has 12.3 million acres of forestland, 65 percent of the total land area in the state and timber is the No. 1 cash crop.

Over at the State Law Enforcement Division, if things stay stable, Chief Robert Stewart doesn't foresee cutbacks in critical services such as big investigations and aiding local agencies, but the cuts could affect narcotics and alcohol enforcement.

'A VERY PERILOUS SITUATION'

Supreme Court Chief Justice Jean Toal is making do with $11 million less since she was named in 2000.

Federal dollars have helped stem some of the loss, but she's worried she can't squeeze out any more efficiency for the court system.

"We're all going to do everything we can to make sure the system continues to operate, but we are in a very perilous situation at the moment," she said.

Without more dollars, the State Election Commission may lack money to train workers on election procedures and updated technology, Director Marci Andino said.

If funding stays the same, the Department of Health and Environmental Control will continue to realign staff as needed, but at the current rate, the agency will have to stop providing some services, said spokeswoman Jan Easterling.

"We are evaluating all programs for possible elimination, among them tanning bed inspections, surf water monitoring, the asbestos program and swimming pool inspections," she said.

The Department of Agriculture echoes the sentiments of many state agencies.

"I don't know how you can get blood from a turnip," spokeswoman Becky Walton said.

Harrell believes otherwise.

"There are always places you can find to become more efficient and reduce costs," he said. "The biggest complaint we used to hear was DMV. I'm not hearing that much any more. DMV has fewer employees, but it became more efficient."

3rd of a three-part series
Part I - Sunday - Budget crisis slices away at state's work force
Part II - Monday - As state money evaporates, many left high and dry