SC could miss out on more than $1B because of the coronavirus, budget forecasters say
The economic downturn resulting from the coronavirus pandemic is taking its toll on South Carolina’s economy.
That downturn means the state will miss out on $507 million it expected to bring in the current budget year, which ends June 30.
And already, state budget forecasters say next year’s budget, which starts July 1, could also take a hit of more than a half a billion — or about $643 million less than what lawmakers expected to have to spend. That projection is a best guess just a month into the health crisis that has thrown the state, its economy and residents into uncertain times.
To arrive at its latest projections, showing less revenue growth than before the coronavirus hit the state, the state Revenue and Fiscal Affairs Office assumed the state would be locked down for three months in an effort to curb the virus’ spread. Parts of that lockdown began mid-March.
The forecast also takes into account a 20% decrease in national GDP, as well as stimulus payments being sent out by the federal government to taxpayers.
The economic forecast is likely to change, as they typically do, as state economists gather more data on how the pandemic is impacting the economy.
One key factor driving uncertainty is the lagging collection of tax revenue as tax deadlines have been pushed back as well as a delay in reporting of sales tax revenue.
“We’re kind of flying in the dark here. (We’re) flying blind on what’s going to happen,” said RFA Executive Director Frank Rainwater.
State economists had predicted that lawmakers would have an extra $1.9 billion to spend in next year’s state budget, starting July 1, including about $815 million of recurring revenue, meaning money from state revenue growth expected to flow into the state budget year after year. However, because of the economic slowdown, $1.2 billion of that extra money is not expected to come in, they said Thursday.
Rainwater said the RFA doesn’t expect an effect on the state’s base budget, but one time projects or one time increases may not materialize.
State Sen. Hugh Leatherman, R-Florence, who chairs the Senate Finance Committee said in a statement he is pleased the RFA did not project a budget shortfall for the remainder of the current fiscal year.
“However, the uncertainty discussed during their meeting today underscores the need for the state to operate under a continuing resolution until we get a better understanding of the COVID-19 revenue impacts,” Leatherman said. “I’m confident a (continuing resolution) will be implemented before the beginning of the new fiscal year. Further, I’m committed to writing an informed budget that meets the needs of our citizens when we have better information.”
Because the economy had been doing well before the slowdown associated with the coronavirus, the state took in $127 million above its previous forecast.
“South Carolina was running at an all time high in revenue collections and we were on a good course,” Rainwater said.
South Carolina’s first cases of coronavirus were announced in early March. Since then, confirmed case numbers have grown to nearly 2,800, though health officials suspect actual cases are far higher.
Restrictions have placed on the economy to slow the spread of the virus. To help slow the spread of the disease, Gov. Henry McMaster has issued a home or work order to limit how often people are out and about. He has closed dine-in service at restaurant and bars and closed non-essential businesses. He also has limited capacity at businesses allowed to stay open.
An existing budget surplus that was already in place and the timing of the crisis, which bloomed at the end of a fiscal year have helped “ cushion the impact” of the virus’ outbreak in the state, Rainwater said.
That surplus will dry up if the state sees revenue reductions amounting to 16% decreases in each of the next three months.
The RFA said it does expect growth by the time the 2020-21 fiscal year ends, but not during the first five or six months of the fiscal year, which begins July 1.
“We’re just not as optimistic things can bounce back as quickly. It’s dependent not just on what South Carolina does, but the rest of the nation,” Rainwater said.
The RFA wants to be cautious with the budget process, as there could be a delay on when the economy starts growing again. There are questions about whether the supply chains around the world will be back to normal and whether tourists will come back quickly to the state, Rainwater said.
“This situation is a lot like a traffic accident that’s backed up the highway,” Rainwater said. “Once that accident is removed, cars can continue to move forward, but not everything is going to move at the same pace. We’ll have to take time and slowly get people back going.”
This story was originally published April 9, 2020 at 2:30 PM.
