Under a provision in the budget that Sanford proposed Thursday, the state would cut $3.7 million in spending to cover costs at the Department of Insurance and would replace those dollars with fees charged to licensed insurers doing business in the state.

That means the industry would pay for its own regulation, a plan that received mixed reaction Thursday.

"I call it the old Reagan sleight of hand," said Frank Hefner, an economist with the College of Charles-ton. Hefner said that while the governor's proposal could mean savings for taxpayers, it would rely on user fees that the insurers ostensibly would pass along to their customers.

Nevertheless, he said the plan hasmerit because it charges the specific users of the system rather than the public at large. In this case, it would be the insurance industry paying for the right to sell insurance services in the state.

Hefner likened it to the funding of toll bridges, which largely are paid for by the commuters who use them.

Others say it is a bad idea.

Robert Hunter, director of insurance for the Consumer Federation of America, said the governor's plan initially would drive up costs for insurers, who then would pass those increases on to consumers.

He said the industry already pays a portion of its own regulatory costs through insurance premium taxes and that any additional fees would be tantamount to an overall tax increase, unless accompanied by a tax cut somewhere else.

The governor's plan made no mention of a reduction in premium taxes or other industry taxes.

"It's a shell game where you hide the regulatory costs by moving them around," Hunter said. "In the end, the cost goes up and consumers pay twice."

The fee system would by no means make South Carolina unique. According to the governor's office, 30 states already have similar systems. Under Sanford's proposal, Insurance Director Ernie Csiszar's salary of $128,095 would continue to be paid out of the state's general fund.

To cover the department's other costs, the governor's proposal envisions the creation of a trust fund to collect and manage insurance companies' fee payments. That fund would hold about $7 million raised annually in fees paid by the roughly 2,000 licensed insurers in the state.

Representatives of the industry said that while they are open to the governor's plan, they aren't sure how it would affect their cost of doing business.

"In theory, there is nothing wrong with the plan," said Susan Biggers Merrill, a spokeswoman for South Carolina Farm Bureau, an insurer. "But we would need more details on the mechanics of how it would work in order to make further assessments."

One major consideration is whether premium taxes would be reduced to offset any additional user fees, she said.

Don MacMeekin, a vice president with insurer Palmer & Cay in Charleston, said he expects no net gain or loss from such a change and thinks state insurance departments are by and large moving in the same direction.

Ann Roberson, a spokeswoman for the Department of Insurance, said the approach could streamline the process of funding the agency.

Others were more skeptical.

"The one thing that would concern me is the question of who gets to monitor the level of growth in those fees and other related expenses," said Hunter Howard, president of the South Carolina Chamber of Commerce.

He said he is concerned that businesses are paying an increasing level of fees to the state and that could affect growth if left unchecked.

CLOSING THE GAP

Gov. Mark Sanford's executive budget proposals trim the state's $350 million budget shortfall through government restructuring and targeted cuts. Here is a breakdown of how and where he plans to save money.

Improved asset utilizations (use of excess funds, sale of state fleet vehicles and surplus land): $94 million

Federal relief funds: $65 million

Other sources of funds and fees (Lottery, EIA, user fees): $52 million

Operational efficiencies: $45 million

Targeted program cuts: $37 million

Savings from restructuring: $26 million

Growth in recurring revenues: $25 million

TOTAL: $344 million

Source: Office of the Governor

KEY POINTS OF SANFORD'S EXECUTIVE BUDGET

-- Add $31.7 million to the state's Base Student Cost, raising spending to $1,810 per student from the current $1,743.

-- Add $19 million to the Department of Corrections. Corrections has been hit hard during the budget crisis, having its budget cut by 18 percent since 2001.

-- Cutting the number of state agencies from 87 to 72, eliminating some and consolidating others.

-- Requiring state agencies to cut phone and travel expenses by 15 percent.

-- Generate $31.7 million through the sale of nonessential state property.

-- Cut annualizations (the use of one-time money to fund recurring expenses) by 40 percent.

-- Fully fund Medicaid with $140 million in recurring funds.

-- Restructure the executive branch of state government by having the governor and lieutenant governor run on a single ballot.

-- Making the following constitutionally elected positions appointed positions: adjutant general, commissioner of agriculture, comptroller general, secretary of state, state superintendent of education and state treasurer. And adding duties to the secretary of state, making it the chief election officer of the state.

Click here to return to story:
http://www.charleston.net/stories/010904/bus_09budinsure.shtml