NEWS: This ‘Black Friday’ could stretch for years in state budgeting

How much: $2.2 billion + “a whole lot more” every year

By Bill Davis, senior editor  | South Carolina is looking at a massive shortage of revenues in the face of mounting annual needs that could affect taxation and programs such as K-12 education, roads and more.

How much does the state need annually that it doesn’t currently bring in? More than $2 billion more a year – every year — Statehouse insiders said.

In fact after years of ignoring the magnitude of the state’s growing challenges from roads to education to health care, things have  gotten so big that one key state lawmaker joked it might take a Christmas miracle to make things right.

Background on state budgeting

For the current fiscal year, legislators and the governor have just over $26.3 billion to spend from federal sources, state taxes and various fees. At $7.6 billion, the smallest third of that is the General Fund budget filled with revenues from taxable items like sales and incomes.

Next up are federal pass-through funding that makes up $8.4 billion.  Then comes “other funds,” a huge category worth $10.4 billion that includes license fees and college tuition.

No doubt, it’s a lot of money. But there’s a bevy of annual and one-year expenses looming that won’t be covered by what state government has been funding in the past.  Just look at what’s looming every year:

• Roads: If the state needs $40 billion over the next 25 years to get its roads system up to snuff, that’s roughly $1.5 billion a year.
• Schools: To fully fund K-12 education at mandated levels, the state would take an extra $450 million or $545 million a year, depending on whom you ask. Call it a half-billion.
• Local government fund: The Great Recession sure took a bite out of the state’s  annual contribution from state government. While legislators have tried to refill this coffer passed onto cities and other smaller political organs, it’s still down as much as $100 million annually.
• Scholarships: A decision to shift what is considered an “A” from  93-to-100 to 90-to-100 and so on will soon cost the state an additional $88 million a year, as state lottery college scholarships are based on high school students’ GPAs, not numerical averages.  In other words, devaluing grades will mean that GPAs will rise, which will mean more graduates will end up with lottery-backed scholarships.

So far, that’s a total of almost $2.2 billion in just four categories —  and this  doesn’t include other, costly one-challenges that lawmakers must deal with:

• 

  Hurricane Matthew:  While expected to be much lower than costs associated with flooding from October 2015, it will still cost millions to repair damages.

• Rural schools:  The state’s equity-in-education Abbeville lawsuit drags on still and while there’s no hard number on what it will cost to bring rural schools up to par, all agree that it likely will be expensive.
• Medicaid:   This is moving target, thanks to ever-increasing need with the most recent ask for more health care matching money coming on Nov. 18.
• State pensions:  This challenge could  be a biggie, as the pension system is faced with three decades of underfunded payouts that could cost the state hundreds of millions of dollars to shore up going forward.

Totaling how much these four “one off” expenses is harder to calculate. Put them at “a lot.”

So, the state is down roughly $2.2 billion plus “a whole lot more” Annually.

Here’s the bad news:  The annual growth of South Carolina’s taxable Gross Domestic Product is projected to be between 4 and 5 percent, according to state numbers.  Five percent of the state’s current $7.6 billion General Fund represents close to $380 million in new tax dollars.

Bottom line:  $400 million of new tax dollars every year may be a sizable chunk, but it’s nowhere near what the state needs to fix its challenges ($2.2 billion + “a whole lot more”).

Even worse:  Wall Street is expected to be delivering relatively flat returns for the next five years, according to state projections, making it even harder.

Solutions:  Everything is on the table

House Ways and Means Chairman Brian White (R-Anderson) is known for his sense of humor. And as one of the most powerful authors of the state’s annual budget, he’s going to need it to find more money to fix state problems.

“Scratch-offs? Christmas Day miracle?” White joked this week driving to work.

Jokes aside, White has been hard at work this year trying to come up with a solution, “or a series of solutions” to the continuing money issues.

White said South Carolinians needed to understand another complicating issue: the state doesn’t get to spend every new tax dollar that is generated.

White’s point was that inflation reduces the actual worth of any lump sum, which is further whittled down by automatic contributions to rainy-day funds and prudent reserves and the like.

As a result, White said that less than half of any new tax dollars generated ends up in the General Fund. That means the projected “natural growth” of the state’s GDP might only deliver one-tenth of the looming hard costs.

When asked if that meant tax increases should be discussed, White said that everything’s on the table. But first, he said the legislature needed to address current funding formulas and programs across the state, including K-12 education, which eats up more than half of the state’s General Fund budget.

Non-starter for some: Tax hikes

State Sen. Thomas Alexander (R-Walhalla) said tax increases were a “non-starter” for him. Alexander not only serves on the Senate Finance Committee, but is also the chair of the Labor, Commerce and Industry Committee in that chamber.

“Increasing taxes is nothing I’m interested in – we will just have to learn to live within our means,” said Alexander, who added that key going forward would be for the state to come up with good polices that create new jobs.

Like White, Alexander said that K-12 funding formulas would have to be reviewed. “It’s got to be part of the discussion. … I don’t think additional money equals better education, we’ve got to get that understanding in our heads.”

The state has only fully-funded education a handful of times over the last quarter-century, and has one of the worst-regarded school systems in the country.

State Rep. Rita Allison (R-Lyman), chair of the House Education and Public Works Committee, said the legislature would need to “prioritize the real needs” in its budget when it returned in January.

Leadership, she said, would have to be shown in setting those priorities. “If we can all tighten our belts, hopefully we’ll get through.”

Allison added that the coming Trump administration could mean more jobs and taxes collected in South Carolina, as she believes “made in the USA” will be a bigger deal.

State Rep. Leon Stavrinakis (D-Charleston) served this past year on Ways and Means under White.

Stavrinakis said that that the answer “for now” would appear to be to not fully-fund everything that’s needed. He said there will a “breaking point” in the coming years.

Stavrinakis was hopeful that efforts would be successful to find a designated funding source for roads that would free up more money from the General Fund to cover other needed items.

But he added that the state will reach a “crisis point” with many programs in the coming years, in part of how budgeting cycles are handled. “It’s not the way I would do it if I were in charge, but it’s the way we in the legislature do it.”

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