South Carolina has an extra billion dollars. Here is how Governor McMaster wants to spend it.
With $96 million, South Carolina could purchase 1,100 new school buses, build two interstate interchanges or provide a one-time bonus for state employees worth five percent of their salaries.
Or state legislators could give it back to taxpayers who could buy what amounts to a tank of gas and a fast-food lunch.
That second option — to return $96 million in extra state money to every S.C. taxpayer in a flat $50 rebate check — is gaining steam.
South Carolina has nearly $1 billion in new money to play with in next year’s budget.
Most of that money has been set aside to pay for rising education, pension and health care costs, and raises for state employees, including teachers, among other priorities, Republican state legislators say.
Those same lawmakers say the rest of the new money — $96 million — should go back into taxpayers’ pockets.
“When you look at one billion new dollars in South Carolina’s economy ... to take 10 percent of that revenue and return it back to the taxpayers, I think, is a good thing,” said House Majority Leader Gary Simrill, R-York.
“It’s both symbolic and a goodwill gesture back to the people of South Carolina who worked hard to fill the (state’s) coffers.”
‘Not even a drop in the bucket’
Republican Gov. Henry McMaster first proposed the idea of a rebate in his executive budget in January, which called for returning $200 million to taxpayers.
“We keep telling the taxpayers that our jobs in state government is to find ways to save money, to spend money wisely and, whenever we can, return their tax money,” McMaster said at the time. “This is the right year to make good on that promise and return that money to the citizens.”
It’s not an uncommon request, especially coming from GOP leaders who campaign on promises to keep government lean and taxes low. The state’s economic and population growth has meant more money flowing into the state’s coffers each year — and more money to spend.
Republican lawmakers supporting the rebate say struggling South Carolinians would benefit from it regardless of the size of the check. Anyone who paid state income taxes in 2018 would receive a $50 check in the mail from S.C. Department of Revenue.
“It moves the needle in a family that is struggling, who works every day to put food on the table,” Simrill said.
But critics of giving that extra money back to taxpayers argue the new money is needed to provide services to a growing population in a state that a decade ago suffered massive recession-era budget cuts and is still recovering.
Democrats say the tax refund will do little to move the needle in a state, where persistently low pay for teachers and state employees has led to schools and agencies struggling to hold on to talented employees and fill vacancies. Opponents of giving the refund also say the money would be better spent on employee bonuses and a backlog of deferred road, bridge, prison and state building upgrades.
The economy also won’t see much of a boost from returning $96 million to consumers so they can spend it. Consumer spending in the state totaled more than $169 billion in 2017, according to the U.S. Bureau of Economic Analysis.
“It’s not even a drop in the bucket,” state Rep. Gilda Cobb-Hunter, D-Orangeburg, said.
“A one-time shot of $50 is not going to have any permanent impact. And all it does is allow politicians to thump their chest, and say, ‘Oh, look at us. Didn’t we do good?’ ... When, in reality, all we are doing is make ourselves feel better.”
The millions of dollars, Cobb-Hunter and other Democrats contend, could help shore up chronic funding woes at state agencies that would lead to improved safety and services to South Carolinians.
For example, one year after a deadly riot at Lee Correctional Institution where seven inmates died, S.C. prisons still lack modern equipment and standard safety features, such as automatic locks. Prison staff currently must manually lock and unlock cell doors, which takes up the majority of their day, Corrections Director Bryan Stirling said. Currently, if there ever was a serious fire at a prison, it would be difficult for staff to evacuate all inmates from danger, he said.
The $96 million lawmakers want to return to taxpayers would cover the $40 million Stirling requested for detention services and equipment upgrades for state prisons. The S.C. House only approved $10 million in the state budget, now under consideration by the state Senate.
The surplus $96 million would also:
Put a large dent in the $101.3 million needed to pay for deferred maintenance at state-owned and maintained buildings; or
Buy roughly 1,100 new school buses. The state fleet has 5,600 buses with 752 of them 22 years and older. A South Carolina school bus carrying kindergarten students to a field trip caught on fire Monday, according to Richland 2 School District; or
Help clear a backlog of interstate interchange improvement and road widening projects. Specifically, $96 million could pay for two new interstate interchanges, two to three major road widening projects, or one intersection improvement in each of the state’s 46 counties, according to the S.C. Department of Transportation.
A 2017 gas tax increase put the state on the right path to address a backlog of deferred maintenance on S.C. roads and bridges, but “it will not be able to fund the much needed road projects to deal with congestion in our rapidly growing state,” the Transportation Department said in a statement to The State.
Cobb-Hunter, vice chair of the House’s budget-writing committee, introduced failed proposals that would have used the one-time rebate to help further shore up the state’s underfunded pension system and provide a one-time bonus for all state employees.
The House-approved budget includes $41 million to give 2-percent pay raises to nearly 32,000 state employees. Cobb-Hunter, though, said she worries that isn’t enough to slow turnover at state agencies. Roughly 75 percent of those workers earn less than $41,000 a year.
A 2016 state study found the pay of state workers lags 15 percent behind that of other states and 18 percent behind the private sector.
Over the last year, about 5,000 state employees have left S.C. agencies for better pay elsewhere, according to the S.C. State Employees Association. And about 8,000 vacant position needed to be filled at state agencies as of December, said Executive Director Carlton Washington.
“Certainly, taxpayers would benefit from improved services of employees who feel they’re being paid competitively,” Washington said.
Economic impact will be low
While a one-time rebate will provide some relief for consumers, it will be modest, said Richard Auxier, a research associate at the nonpartisan Tax Policy Center who tracks state tax policy. For some lower-income households, however, such as a single-parent home, the extra money would be helpful, but of little economic benefit for the state as a whole.
“It’s hard to see how handing each person $50 will have a major effect on South Carolina’s economy,” Auxier said. “The South Carolina economy is very big. And $50, while it may seem like a lot to some, it’s definitely not an economic growth strategy.”
One-time tax relief tends to be less effective than a more systemic approach for returning a budget surplus to taxpayers, Auxier said. Oregon and Colorado, for example, have enacted triggers that provide automatic refunds if revenues exceed projections.
“Again, these are more budget programs than rebate programs. The rebates are a tool to keep revenue in check,” not stimulate the economy, Auxier said.
Last year, former Wisconsin Republican Gov. Scott Walker pushed for and signed into law a one-time tax payout for families, using a state budget surplus to give parents a $100 bonus per child.
Critics and economists, including Auxier, saw the move as a political stunt by Walker in a tough re-election bid, with no clear long-term economic purpose, the Washington Post reported.
“Think of your school system, your workforce and transportation system,” Auxier said of investments that would have a more meaningful impact on the state economy. “A one-time jolt in the form of $50 doesn’t measure up to other economic growth strategies (including more comprehensive and long-term tax reform). When you’re thinking about economic growth, you want to be thinking of these far larger ideas (that impact business development), not these one-time infusions.”
University of South Carolina research economist Joseph Von Nessen, however, argues offering rebates from new money flowing into the state — including a $61 million lottery jackpot windfall — would generate “new economic activity that would not exist otherwise.”
“Typically, taxpayers will spend it on a number of consumer goods in a variety of retail sectors,” Von Nessen said. “That generates a ripple effect. ... In general, for every dollar of new consumer spending in South Carolina, an additional $0.60 is generated in economic activity through the multiplier effect, for a total of $1.60.
“The impact is relatively small, but it’s nice to have. It’s an extra tank of gas for each taxpayer,” Von Nessen said. “It is going to generate a positive ripple effect for South Carolina and positive economic impact.”