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Columbia Business Monthly

Budget Surplus Evaporates Due to Covid-19

By Kevin Dietrich

Less than six months ago, officials were expecting the largest budget surplus in South Carolina history, with an anticipated $567 million in excess revenue forecasted to fill state coffers. Today, nearly all that projected excess is gone.

Revenue for this fiscal year is now anticipated to be just $40 million more than the $9.39 billion originally estimated by the state's Revenue and Fiscal Affairs Office, due to effects from the coronavirus. Beginning in March, the pandemic sharply curtailed business and travel, along with associated tax revenues.

What that means going forward is that the FY 2021 General Fund budget will likely be closer to $9.6 billion instead of the $10.2 billion lawmakers were anticipating prior to the pandemic. As a result, funding for additional items such as raises for public school teachers and infrastructure improvements are in jeopardy.

The state's fiscal year ended on June 30, but officials will have to wait longer than usual to learn actual revenue-collection totals. Tax filing and payment deadlines were extended until July 15 in response to difficulties caused by Covid-19.

"Everything is up in the air right now," said Rep. Murrell Smith, R-Sumter, chairman of the House Ways and Means Committee. "We're all just taking a wait-and-see approach, to see if the economy is going to recover, or if the downturn associated with the pandemic is going to go on."

Officials will have a better idea of actual collections when the state Board of Economic Advisors meets on Aug. 27. That will take place after the comptroller general closes the books for the fiscal year earlier that month. The BEA has another meeting scheduled for Sept. 17, at which point it should have a firm idea of state revenues for FY 2020, and what it means for FY 2021, Smith said.

Officials are estimating approximately $250 million in delayed tax payments because of extended tax deadlines, according to information released June 11 by the Revenue and Fiscal Affairs Office.

Normally, the upcoming budget would already be in place. The FY 2021 budget was passed by the House, but the legislative session was interrupted in mid-March when Covid-19 cases began popping up around the state, and the General Assembly adjourned before the Senate could put together its budget. 

The General Assembly met again on April 8 and May 12 to discuss the budget bill and sine die resolutions that determined future legislative activity. The legislature plans to return in September and finish the budget.

If revenues come in at or close to projected levels, Smith anticipates that the FY 2021 budget will remain similar to that of FY 2020.

"There may be some minor changes, depending on what issues are out there, but by and large, if revenues stay flat, the budget would look remarkably similar to what it is right now," he said.

While the downturn in projected surplus revenue isn't positive news, the state is still on course to come in at or above original projections. That means despite the downturn brought on by the pandemic, South Carolina isn't yet facing the sharp budget cuts it went through during the Great Recession a little more than a decade ago.

However, earlier optimism that the state will bounce back quickly in the second half of 2020 may have to be tempered. Economic restrictions for health and safety reasons, enacted in the spring, were eased sooner than expected, allowing many businesses to reopen, but may be re-evaluated with the recent spike in Covid-19 cases.

Since June 10, South Carolina hasn't registered fewer than 575 Covid-19 cases daily, and the state hit a high of 1,599 cases on June 27, according to the S.C. Department of Health and Environmental Control. Compare that with March, when, between the first reported case in the state on March 14 and the end of the month, South Carolina averaged approximately 70 cases daily. 

Regardless of the path the pandemic takes going forward, its impact will be felt on the budget.

The House's FY 2021 budget will likely lose a significant portion of its additional funding, which was to come from the hundreds of millions of dollars in additional revenue.

The House budget calls for $213 million to be allocated to give every public school teacher in South Carolina a $3,000 raise, $100 million for repairs to rural highways, $100 million to improve safety at state prisons and $248 million to go toward income tax relief.

South Carolina has approximately 50,000 public school teachers. The state ranked 42nd for average starting salary for teachers and 36th for average salary for teachers, according to 2019 data released by personal finance website WalletHub.

The S.C. Department of Transportation is moving forward with $3.2 billion in construction projects statewide, including $50 million a year for improving rural roads, where a disproportionate percentage of fatal accidents occur.

The money for state prisons would go to physical improvements such as replacing and repairing facilities and control systems, including a new electronic cell locking system to replace the key-based system used now.

In FY 2019, actual revenue collections exceeded estimated growth by $407.4 million, or 4.5 percent. The previous year, actual revenues exceeded estimated revenues by $171.6 million, or 2 percent.