After weeks of negotiations among House and Senate leaders, the General Assembly on Wednesday passed a $40 billion state budget for the new fiscal year starting July 1. That figure includes the appropriation of state tax dollars (general funds), as well as fines and fees (other funds) and federal aid (federal funds). The new spending plan is about 5% larger than the current budget of $38 billion.
In an effort to get spending under control, the Policy Council last year launched the sustainable budget project, which seeks to limit state budget increases based on population growth plus inflation.
South Carolina's FY23-24 budget
General funds: $13.7 billion*
Other funds: $13.3 billion
Federal funds: $13.2 billion
*Note: this amount does not include the $1.3 billion in non-recurring funds appropriated for the Scout Motors incentives deal (learn more here), nor does it include Capital Reserve Fund appropriations.
The budget makes some positive investments, such as giving state employees a minimum $2,500 pay raise and increasing teacher base pay by roughly the same amount. But it also spends too much on growing state agency budgets, missing an opportunity to use our massive revenue surplus to significantly cut taxes.
For instance, the budget is bolstered by $1.4 billion in recurring surplus revenue, yet only $96 million is applied towards income tax relief, reducing the top personal rate from 6.5% to 6.4%. If South Carolina doesn't act quicker on tax reform, we could get left behind by our Southeastern neighbors and lose our competitive edge.
We encourage the governor, who has through June 20 to issue budget vetoes, to strike all excessive and unnecessary spending items to free up revenue, so it can be applied to tax relief in the future.
Remove these budget provisos
Provisos are meant to give spending instructions on budget items. For instance, if an agency receives $10 million for a new program, a proviso might set a cap on how much can be used for one specific purpose. However, provisos are often used to make policy changes that have nothing to do with the budget, or simply don't make good use of taxpayer dollars. Based on our review, we recommend the governor veto the following provisos.
49.16 – Waiving a tourism grant match requirement
This proviso suspends the private match requirement for non-recurring funds appropriated to the Destination Specific Tourism Marketing (DSTM) grant program, which funds “convention and visitor bureaus or chambers of commerce in larger tourism markets in the state,” according to The Nerve.
The latest budget appropriates $13.5 million in non-recurring funds to the program, which normally requires a 2:1 private match by recipients, though this has been waived since at least 2021 when the proviso was first introduced. A separate proviso sets the minimum grant amount at $250,000.
Using taxpayer dollars to fund private tourism organizations is questionable enough; however, it becomes wholly inappropriate when these organizations aren’t required to pay their fair share and taxpayers are left with the bill. If the grant program must continue, we recommend 1) striking this proviso to reinstitute the match requirement, and 2) requiring that the annual program reports be made public so that taxpayers can verify a return on investment.
50.22 – Expanding the Coordinating Council for Economic Development
This proviso adds the chairmen of the Senate Finance and House Ways and Means Committees (or their designees) as members to the Coordinating Council for Economic Development (CCED) – a state board that last year awarded hundreds of millions of dollars in taxpayer-supported grants for handpicked business projects.
This is one of the more inappropriate provisos in the budget. First, it would appear to violate the state Constitution's “one subject” rule, which the S.C. Supreme Court has stated requires budget items to be “reasonably and inherently related to the raising and spending of tax monies”. Changing the composition of a state board (even if that board awards public funds) is unlikely to satisfy this rule. Second, these legislators already have tremendous influence over the economy, not only as chairmen of their respective budget committees, but as the chair and vice-chair of the Joint Bond Review Committee(JBRC) and as members of the State Fiscal Accountability Authority (SFAA). This latest role seems to create a conflict of interest, since the SFAA and JBRC are meant to be a check on borrowing and spending (including for economic development), and those are two things the coordinating council wants more of when it comes to business requirement.
108.12 – An outdated COVID policy
This proviso partially suspends state retirement law and lets retired state employees and police officers to return to work and earn a full salary while collecting pension benefits if they are participating in the state’s “public health preparedness and response to the COVID-19 virus.”
It’s not clear what an official state response to COVID could even look like in 2023, or why we would need to suspend state law to support it, given that South Carolina hasn’t been under a COVID-related state of emergency since June 2021. It is also bad fiscal policy to encourage double-dipping when it comes to retirement pay and salary – a policy that has exacerbated the state’s unfunded pension liability in the past.
88.9 - Suspending a term limit
This proviso suspends the statutory term limit for the State Ports Authority board chairman, who may serve in that position no longer than three consecutive two-year terms.
This proviso is unrelated to the spending of tax dollars and appears to violate the state Constitution's “one subject” rule. Moreover, it is simply not appropriate to use the budget to circumvent a term limit statute.