By Andy Brack | The good thing about budgeting on the conservative side is that when things go well, there’s a little extra money left over.
On a national level, the stock market is relatively robust. Overall growth is pretty steady. The dollar is strong. And the federal deficit is the lowest since 2007. Things seem to be going so well that the Federal Reserve this week finally lifted its benchmark interest rate from zero to 0.25 percent, a long-expected minor rise intended to rein in the economy a little bit.
Why slow it slightly? Because economists, who thrive on steady growth, say too much growth could lead to more volatility, based on the principle of what goes up must come down. By tapping the brakes, there’s an increase in stability — and an increase in flexibility for the Fed in the event of a slowdown. (One of the tools the Fed has to generate growth is to lower interest rates to encourage growth; if the rate is zero, the Fed doesn’t have this tool in its toolbox.)
Economists say they don’t expect the slight interest rate hike to have much impact overall. Rates to borrow money for people to buy homes and cars are still very low and should be offset by growth. Borrowing costs for banks will rise slightly, which could have a little impact on credit cards and credit rates.
But the cost of the Fed not doing something to raise interest rates might have had a more severe impact, said College of Charleston economist Frank Hefner. Continuing to dangle the possibility of a rate hike after a long period of the rate being zero likely would have created too much uncertainty for the stock market. Had there been no rate increase, the market might have dropped, he said.
“It’s not going to affect businesses that much,” he said, adding that other factors in the mix — regulations, Obamacare and the presidential campaign — may continue to fuel some uncertainty.
Economist Bruce Yandle, dean emeritus of the College of Business and Behavioral Science at Clemson University, said growth should continue in the year ahead.
“If the 2015 economy produced happiness in your neighborhood, you should be happy with 2016,” he wrote in a Dec. 1 quarterly report.
By all accounts, things are going pretty well in South Carolina, too. Gas prices here are below $2 per gallon. Retail sales are steady. The construction industry is building again. Housing prices are higher. The unemployment rate is low, out of the double digits found in the Palmetto State during the Great Recession.
According to state government’s 2016-17 revenue outlook, there will be about $1 billion in extra money to spend, including $440 million in real surpluses from the 2015-16 budget year and $562 million in unbudgeted new revenue for 2016-17 budget because of more taxes collected from growing businesses and more people who moved into the state. Add to that an extra $75 million that will go to education for projected growth from the sales tax for education and lottery sales.
With a billion more to spend, there will be predictable calls by Republicans to refund taxes and cut rates. But after years of government agencies and programs being cut, it would be much wiser to invest now to address persistent problems in education, infrastructure and healthcare. If the state makes too many revenue cuts when times are good, it won’t have the capacity for smart investments when crunch time comes.
Three things state lawmakers should consider in the coming session:
- Rural infrastructure: Direct significant funding to help rural communities keep from withering by steering money into a rural infrastructure loan fund and grants to help with capital investments.
- Education: Pay our teachers more to get a better teach-force and build stability in education.
- Roads: Use some of the surplus to fix persistent road and bridge problems, but also raise the sales tax on gas — popular with a majority of South Carolinians — to create a continuing revenue source for long-term, much-needed improvements.
Investing surpluses will create a healthier South Carolina for the future. Ignoring needs will keep us as a red-headed stepchild.
We Can Do Better, South Carolina!