SC’s budget was full of millions to help teachers, state prisons. Then COVID-19 hit.
This year was shaping up to be a boon for many state employees and agencies, some long neglected since the Great Recession led to massive budget cuts.
State economists had projected legislators would have nearly $2 billion more to spend this year over last year — amounting to the largest annual revenue growth in state history. The money would go toward fixing state prisons and raising teacher and state employee pay and a host of other priorities.
But that was before the COVID-19 outbreak that led to lost jobs, skyrocketing unemployment and a giant decline in tourist travel and economic activity.
Now state budget forecasters say most of the extra cash lawmakers had hoped to spend in the budget ending June 30, 2021, has been cut back dramatically — by an estimated $1.2 billion — leaving lawmakers with about $700 million to spend in the upcoming budget, based on current projections. And this fall the budget could hit another snag if the economy struggles more resulting in the downward revision of that $700 million projection.
What does that outlook mean for some of the costliest budget items included in the House’s spending plan adopted in March?
It means the $213 million plan to give teachers an added $3,000 raise might be off the table.
It means the state’s prisons — in dire need of upgrades — might not get all the $100 million lawmakers intended to spend to fix door locks on cells, for example, and to make other security improvements and millions more to increase staffing.
It means likely doom for a promise by some to send more than $200 million back to taxpayers in the form of tax relief and a one-time tax credit, a move that has come in vogue for Republicans as the state’s economic growth continued to climb until the pandemic.
It means more than half of the money lawmakers thought they’d have extra to spend won’t come in and won’t be available when the Senate gets its hands on the budget this fall.
And it means a battle over $700 million is sure to ensue, with lawmakers having to pick winners and losers.
“My question would have to be what is that?” Senate Finance Chairman Hugh Leatherman, R-Florence, said tongue-in-cheek to The State last Friday when asked if tax relief would stay in the budget.
“In this kind of year, I’ll have to ask you what is that I’m not sure. ... I have no intention of even looking at a tax cut.”
SC’s budget uncertainty
With such uncertainty, state budget writers aren’t saying exactly how they’ll spend money in the year that started July 1. This summer, lawmakers passed legislation to keep state government operating at the same spending levels.
The General Assembly doesn’t return to the State House until September to resume budget negotiations, which also will include how lawmakers spend another more than $600 million for COVID-19 relief. The general fund is expected to be $9.5 billion instead of the $10.2 billion they anticipated back in February.
And Leatherman told The State his committee will not start negotiating on spending until forecasters announce in late August revised revenue projections that, depending on how the months of July and August go, could be lower than expected.
Asked whether the pandemic’s impact on the state budget is anything like the recession-era challenges, Leatherman said no, that there was less uncertainty then.
“Totally different. Back then we could sort of get a feel for when the economy would bounce back, I have no feel for when the economy will come back.”
Leatherman anticipated virtual meetings would start after Labor Day.
“I’ve never seen anything like this before,” said Leatherman, who has been a state senator for four decades.
Depending on perspective, South Carolina is in a better financial position than some other states that have had to cut their budgets amid the outbreak, state economists have stressed, in part, because they did not sign a more robust budget into law earlier this year as the pandemic was becoming more and more of a problem.
Of the $700 million the state has extra to spend, only a portion — estimated about $186 million — is reoccurring dollars the state can expect to bring in again next year, assuming the economy at least stays the same. Most of that money could be eaten up by health care, retirement or other costs, such as those associated with state employees.
The $700 million also includes $486 million only available for one-time spending, based on current projections. And that money includes one-time surplus dollars that are expected to come in at $220 million, up from $40 million projected in May, Frank Rainwater, head of the state’s Revenue and Fiscal Affairs Office, said Thursday, noting an increase in income and sales tax dollars flowing into the state’s coffers.
“My hats off to you,” the state’s accountant Richard Eckstrom told state economists on a teleconference call on Thursday. “I believe you spared us a lot of pain as we move through this ordeal (and) this health crisis.”
There is one pot of money Rainwater said is worrisome.
Economists are watching what could be a shortfall in sales tax revenues — somewhere in the range of $10 million to $20 million — that pays for some education programs through the Education Improvement Act. Funded through a penny sales tax, EIA spending usually exceeds $100 million most years, paying in large part for 4-year-old kindergarten, instructional materials and charter school growth.
Just seven months ago, state lawmakers had hoped to expand the 4K program, a proposal included in the governor’s budget.
“We’re waiting to see, (but) hopefully it will be closer to $10 (million),” Rainwater said on Thursday.
Leatherman said he can’t say what the worst-case scenario for the budget would look like.
“I can’t tell you that,” Leatherman told The State. “(Not) until I get that estimate. I’m concerned that we may have a reduction in the estimate. We don’t know. ... I don’t know. We will deal with it whatever that is. If there is a cut coming, (I’m) not saying there is, ... it will be looked at very carefully.”
Waiting and watching
That uncertainty also has left hundreds of state agencies and universities — which have suffered very large financial hits — waiting on the new August projections before they amend and resubmit their budget requests.
A state Department of Administration spokeswoman said Friday they have not received any amended requests.
“We look forward to working with the governor’s office and the House and Senate, knowing revenue is not where it was going to be,” said Bryan Stirling, the state’s prisons director. “Hopefully we have a productive September at the State House.”
South Carolina’s more than 50,000 teachers, in particular, are keeping a close watch on what lawmakers do this year.
So are advocates for school boards.
“I know school boards are looking at, in the middle of a pandemic, trying to retain the teachers they have given the push to return and the fears are there,” said Debbie Elmore, with the S.C. School Boards Association. “On top of all of that, we’re worried about making sure that our (teacher) salaries remain competitive. It’s understandable given the situation that we’re in. We could be worse off. There’s a lot of states not doing as well.”
As they prepare, in some cases, to return to their classrooms as the virus continues to spread, teachers’ advocates want the Legislature to at the minimum delete a temporary freeze lawmakers enacted this summer on teachers’ yearly salary step increases.
“We want to make sure that that’s made whole and retroactive like they (lawmakers) said would happen,” said Sherry East, head of the S.C. Education Association. “We were sitting in a good spot education-wise ... now it’s just survival that’s on our list.”
This story was originally published July 26, 2020 at 5:00 AM.
