By Lindsay Street, Statehouse correspondent | Slower growth for state revenues and a projected $40 million shortfall mean the annual state budget is unlikely to satiate many. And caught in the middle is an election-year call for a big tax cut.
Think of the 2018-19 budget not as pie in the sky, but more as a pie with too many plates.
Gov. Henry McMaster on Monday released his 2018-19 executive budget that outlines what he wants to see legislators put on his desk. The governor’s budget, which is generally considered the starting point for the legislature’s annual budget exercise, offers across-the-board tax cuts, investments in technical colleges and raises for some state employees.
But this year may only see core elements of government funded as the state continues to fix problems of the past, such as state employee pensions.
As budget talks begin in the S.C. House, lawmakers are already bracing for constricting revenue growth and an estimated $40 million to $45 million shortfall from the 2017-2018 budget that wraps up in June. These restraints are enough to spark talk of the S.C. Revenue and Fiscal Affairs Office’s Board of Economic Advisors to consider enacting a mandatory cut across all state agencies, a decision that could come in February.
“Although tough decisions must be made to offset the funding shortfall, the state’s budget writers are fully capable of providing for the core functions of government and our citizens’ basic needs,” House Speaker Jay Lucas said in a statement to Statehouse Report. “I am confident Chairman Brian White and the members of the Ways and Means committee will work diligently to craft a responsible budget over the next few weeks as the budgetary process begins to unfold.”
Not a lot of money to fight over
The state’s general fund budget is expected to be around $8 billion. Much of that is tied up in recurring expenses, according to legislative staff.
White, an Anderson Republican, said there won’t be much wiggle room this year for budget writers.
“It’s going to be much like the last couple years,” he said, adding that said pension reform and increases to the state employee health plan would likely take a sizeable chunk — about $100 million — out of any discretionary funds.
Ways and Means Committee Vice Chair Gilda Cobb-Hunter, D-Orangeburg, also said any sweeping efforts for education funding, health care or state employee raises would be tempered by recurring expenses and increasing costs.
The budget originates in the House, but members of the Senate are keeping a close watch as Ways and Means subcommittee meetings are already scheduled in the House for the budget process to begin.
S.C. Sen. Sean Bennett, R-Dorchester, said a tough budget year was the time to evaluate the state’s priorities and to possibly take a look at how government funds schools and local governments — two items White said would begin this session but likely take until next session to enact any change in the state’s education funding formula..
Across the aisle, S.C. Sen. Vincent Sheheen, D-Kershaw, called the coming year’s budget “bare bones.” He said now is the time to question the way that the state generates revenue.
“We have a really great economy and yet we potentially have budget shortfalls and that’s because we have a terrible tax system,” he said.
Are budget chickens coming home to roost?
The governor’s proposed tax cuts could reducing the state’s revenue by more than $782 million, according to data from the S.C. Revenue and Fiscal Affairs. Already, the proposal has some lawmakers balking.
“There is no way the state can afford to give … a tax cut at the expense of state employee salary raises, funding education, dealing with all of the things we have continually kicked down the road,” Cobb-Hunter said. “At some point all of these budget chickens are coming home to roost.”
White, however, didn’t immediately write-off tax cuts, saying they will be looked at as the budget process unfolds.
“When you cut taxes, you decrease your revenue,” he said. “That’s something we’re going to have to look at and have a conversation with the governor, and that’s part of the budget process.”
Budget musts
With all that said, what are some of the items that lawmakers say have to get funded this year? There are two big ones: phase two of the state’s pension reform fix and an increase in the state’s health insurance plan.
“You’re talking the request is about $100 million, so those are things we have to do,” White said. “That’s your priorities. What you have to do.”
The state health plan costs $270 million per year and there could be a $60 million increase this year as health insurance costs increase Additionally as the state continues to pay down its commitment to its retiring workers, $36.8 million will likely be funneled into the pension system, according to staff numbers. Other state expenses are also predicted to increase, such as Medicaid, White said.
Two other items will also increase this year: another $20 million to cover the newly eligible state scholarship recipients after the legislature softened the high school grading scale system, and and another $25 million for paying into a federally- mandated child support system.
Extra dollars would go to tech colleges, workforce development
White said this year’s budget could put extra emphasis on technical colleges and workforce development in this year’s budget, something that aligns with the governor’s vision.
“It will continue to be one of our priorities,” he said.
Pay raises, fixing the state’s ailing school bus fleet and other issues may also receive some attention. For Cobb-Hunter, she wants to see all state employees receive a raise, not just a handful. Bennett agreed that the state’s teachers and public safety employees also needed an increase in pay to prevent shortages.
But White was cool on pay raises.
“We got to see what the revenues are first and if they’re continuing to be soft then the things we have passed legislatively (take priority),” White said. “Not that we don’t want to. It’s that we don’t have the money for it.”
Sheheen said a borrowing bill working its way through the Statehouse may help satisfy some of the state’s many needs. A bond bill could help repair and maintain state buildings and college campuses, he said.
We Can Do Better, South Carolina!