Gov. Nikki Haley’s money tree blossomed on Friday as the state Board of Economic Advisors added $163 million to the state’s budget.
The new money means lawmakers have $6.9 billion to spend in the state’s general fund for the fiscal year that starts July 1. House budget writers meet next week to begin deciding how to spend that money.
The board added the money to the state’s projected income because, so far, corporate and individual income-tax collections have beaten projections. But, thus far this fiscal year, the state is missing its projected sales tax collections by $4.3 million, the result of weak Christmas tax collections.
Also, economists predict growth in South Carolinians’ personal incomes will slow because of the federal tax increases that went into effect in January. The tax changes mean many people changed their behavior, including selling stocks before higher tax rates took effect in an attempt to minimize their taxes.
The result? The state collected a lot of money in January that it is not likely to continue to collect again.
“The combination of increasing taxes and reducing federal spending, we think, will create some headwinds for state revenues,” said Chad Walldorf, chairman of the Economic Advisors.
One theory for why the state’s holiday-shopping tax collections fell flat is the rise of online shopping. The state cannot force online retailers to collect state sales taxes, meaning the state loses income from online sales.
Robert Martin, a state economist, said the most recent U.S. retail sales report indicated nonstore sales – including Internet sales – increased 16 percent. “So guess where Christmas was purchased?”
The increase in state revenues widely was expected.
Haley predicted Thursday the board would add at least an extra $100 million to the state’s projected income for next year – what she refers to as the “money tree.” In the state’s budget process, Haley prepares her spending proposal first, then the House prepares its plan followed by the Senate. Haley then signs off on the final plan, with the power to veto certain parts of the budget she does not agree with.
The board issues its revenue estimates three times each budget cycle: once for Haley, once for the House and once for the Senate. Haley and lawmakers use those estimates to prepare their spending plans. Historically, the board has added more money to the state’s revenues each time it has updated its forecast.
This year, Haley’s executive budget used historical averages to estimate how much more money the board would add. She also recommended how lawmakers should spend the money.
Haley wants to use the first $26 million of the new money to cut state income taxes for the average South Carolinian by an average of $29. She wants to use the rest of the money to repair the state’s infrastructure, focusing on the 421 bridges that the state maintains that are so structurally deficient that they have load restrictions.
House budget chairman Brian White, R-Anderson, said Friday he would like to see some of the extra money used to pay for roads.
But he also cited other needs, including upgrading the state’s cyber security following the theft of sensitive financial information belonging to 3.8 million taxpayers with 1.9 million dependents as well as nearly 700,000 businesses from the state Revenue Department.