January 14, 2002


FOR RELEASE: IMMEDIATELY


South Carolina Comptroller General Jim Lander recognized as early as March of 2000 that the state's economy was slowing down. At that time the state's economic advisors had decided to hold the line on the state's revenue estimate due to its anticipation that with an upcoming Presidential election the Federal Reserve would not raise the interest rates any higher.

Lander wrote to Federal Reserve Chairman Alan Greenspan asking him not to raise rates any more. In his letter of March 10, 2000 (see Exhibit A), Lander wrote, "Please take a little time to evaluate the impact of the rate hikes you have already implemented. I believe you will find that after the data filters through to Washington, you will see the slowdown I have already seen."

Greenspan took little heed of Lander's warning. Instead he raised rates twice again - on March 22 and May 17 of 2000. In April, the state's Board of Economic Advisors warned the Governor and General Assembly of the slowdown. In fact, after the May increase, the BEA began a series of lowered estimates as revenues began to shrink.

The events following the lowered estimates have been well publicized. Asked if he thought that it would have made a difference if Greenspan had not raised rates after receiving his letter, Lander replied, "It would not have changed the effects of the events of September 11, that is for sure. But, I feel we may not have slipped into a recession so quickly and we may have responded to the subsequent lowering of the interest rates by the Fed and to the income tax re-funds more positively. I think the bottom of the recession would have been closer to the top."

State government has suffered a series of budget reductions that began last year as a double digit cut for most state agencies. This year the Budget and Control Board had to call for an additional four percent across-the-board reduction in order to balance further declines in revenues.

Lander stated, "Many of those whose programs were affected by this last reduction thought that the Budget and Control Board should have prioritized the cuts in order to give protection to various necessary functions of state government. That is also what I think would have been better. But, state law requires the Budget and Control Board to cut when the books are not in balance and requires those reductions to be across-the-board."

State agencies are looking at still deeper reductions in their budgets for next fiscal year. "These cuts could equal the cuts of last year," said Lander. "There is no doubt that the public will experience a significant impact from the next cut, although many have already experienced service reductions."

The Fed, on December 11, 2001 cut the interest rates another quarter point and rates are at their lowest level in 40 years.