If the nation tumbles off the fiscal cliff in the next few weeks, the reverberations locally could range from a 2 percent cut in Medicare reimbursements to doctors, a drop in travel because cash-strapped Americans won’t want to vacation along the Grand Strand and cuts to low-income education programs.
That’s not even taking into account less money for future road projects.
So, while the country waits to see if legislators in Washington can reach a resolution before across-the-board cuts split between defense and domestic spending take effect Jan. 2, officials in the Myrtle Beach area are gauging the local impact.
What are local officials doing now to prepare for a worst-case scenario? Some are taking a wait-and-see approach; others are developing contingency plans. And still others -- those in the tourism industry specifically -- are pondering what might happen if a tax increase cuts into the travel budgets of visitors whose spending adds up to a critical cog in the financial future of the area and the state.
The nation’s highway money has become increasingly reliant on the federal general fund to sustain it as Americans spend less on gas and the fuel tax revenues decline.
The 35 percent funding from the general fund to the highway fund will be reduced by 8 percent if the nation tumbles over the fiscal cliff, said Michael Covington, governmental relations officer for the S.C. Department of Transportation. He anticipates future projects like the proposed Interstate 73 will have an even larger hurdle to scale as that initial 8 percent cut creates a snowball effect.
Any reduction has to be seen as bad news for South Carolina. Transportation Secretary Robert St. Onge’s assessment is the state needs $30 billion in new revenue over the next 20 years to pay for highway repairs, replacement of bridges and mass transit, the Associated Press reported.
Covington explained that the U.S. Congress has been supplementing the national highway fund with general fund dollars for years.
The reason for that is a classic good news/bad news scenario.
High petroleum prices, a worrisome economy and other variables have caused the public to not consume as much motor fuels as in the past, Covington said. That’s good news for those who champion less dependence on fossil fuels.
The bad news is as consumption flattens out, Covington said, revenue goes down while inflation continues and the cost of doing business goes up. In response, Congress digs into its general fund to help pay for national highway projects.
Covington said Oct. 1 was the start of a two-year bill in which the national highway program is slated to be 35 percent dependent on the federal general fund. It’s that fund that will be feel an impact if a resolution isn’t reached regarding the fiscal cliff.
“We don’t know what would happen if they hit that cliff,” Covington said.
Covington said federal funding for local projects like the widening of U.S. 501 from Carolina Forest Boulevard to Gardner Lacy Road is around 80 percent. In looking at the U.S. 501 widening, that means $1.44 million comes from a Washington pot. Of that amount, 35 percent, or $504,000 is from the highway general fund.
An 8 percent reduction in that $504,000, would add up to a $40,320 cut.
But such issues won’t arise during this fiscal year, which ends June 30, 2013, he said. Future projects, however, could be a struggle because of the funding component that’s tied to the federal general fund.
Other major road projects coming together in Horry County, such as the construction of an overpass at Farrow Parkway and S.C. 707 at the back gate, won’t be affected because their funding comes from local taxes, said Mike Barbee with the S.C. Department of Transportation.
They are funded by the 1 cent Capital Projects Sales Tax approved by voters in 2006. It went into effect on May 1, 2007 and Horry County is expected to receive $425.3 million over the seven-year lifespan of the sales tax.
Some of the major road projects funded through the sales tax have been completed, such as the $18 million Aynor Overpass. The backgate overpass is budgeted between $115 million and $120 million and is scheduled for completion in August 2014.
Area police officials don’t expect too much impact on their departments under a fiscal-cliff plunge because those budgets are controlled by city and county councils. If it happens, they say they will look to their respective governing bodies for direction .
Other area public safety department officials, including those that receive federal grant funds, also said they don’t expect an immediate impact.
“Our office has two federal grants and both of them deal with our drug court. That should not affect us as we already have that in the budget for this fiscal year (unless they would do some mid-year reductions),” 15th Deputy Solicitor Jimmy Richardson said. “With regard to drug court, the clients pay fees, which cover a small percentage of the budget. Any other grants that we have throughout our offices are state funded grants and they should not be impacted.”
But the impact felt by the state government eventually could trickle to local governments and their budgets, officials said.
“Of course the ripple effects could be immeasurable. What I could foresee is the state trying to absorb some of the impact in the short run. Again, this would not directly impact us too much, however agencies throughout the law enforcement umbrella would have a tough time,” Richardson said. “We have not made contingent plans regarding the possibility of impact on drug court; however, depending on what happens, we may be able to address drug court shortfalls through state and local budget plans.”
Any type of tax increase would directly affect tourism to the Grand Strand, Myrtle Beach officials said.
If taxes increase, the amount of disposable income available to American families decrease, Myrtle Beach Mayor John Rhodes said.
“If they raise taxes ... the resort areas take a heck of a beating because it’s discretionary funds they use (to get here),” he said. “We just try to concentrate on letting people know what we have to offer and hope like the devil that people still come.”
Rhodes said the City Council had not yet discussed a plan in case of a worst-case scenario, but would likely look at what they could do at Tuesday’s meeting.
“All of this really has just come up (seriously),” he said. “We don’t even have our elected congressman (Tom Rice) in office – he hasn’t been sworn in yet.”
Rhodes expressed frustration with those who already are in Congress.
“I wonder sometimes, have the people forgotten that no matter what party they represent, they work for the people?” Rhodes said. “I think it’s time for elected officials to take care of business.”
Myrtle Beach spokesman Mark Kruea said he thinks most people expect Congress to make a deal.
“I think we’re all optimistic that common sense will prevail and a workable solution will be found but it’s early December and time is ticking,” Kruea said. “We’re hoping for the best and would expect something other than the worst to occur.”
Kruea said the city has seen record growth over the past three years.
“We’re in a reasonably good position for continued growth. The tourism sector of the economy has led the recovery here,” he said. “If we all fall over the cliff, it easily could halt that recovery.”
In many ways, the city is taking a wait-and-see approach to determine how they’ll react and Rhodes said he is trying to remain positive and hope for the best.
“Let’s not jump out there and start to think about all of the negative things,” he said. “We have to wait and see what direction they’ll go in and try to cap it off as quick as possible.”
Physicians will face a 2 percent cut in Medicare payments unless the cliff is avoided, but that’s not what really worries Pawleys Island physician Dr. Gerry Harmon, a former president of the S.C. Medical Association.
Congress must also deal with the issue of the Medicare sustainable growth rate by Dec. 31, and if it doesn’t, Harmon said Medicare payments to physicians will be slashed by 26.5 percent.
The sustainable growth rate – a formula devised in 1997 to calculate cuts or additions to physicians’ payments from Medicare – is completely separate from the fiscal cliff, Harmon explained, but its alignment with the potential fiscal cliff timing could strangle already-limited access to Medicare.
Harmon said he won’t stop treating Medicare patients, because he believes it’s the right thing to do. But he predicts that a 30 percent drop in Medicare payments to physicians would mean that more would not accept new Medicare patients.
“I don’t know how long I can go broke,” said Harmon.
It’s not just physicians that face a cut. Unless legislators can reach a budget solution before the deadline, 2 percent would automatically be cut from the federal Medicare budget, a move that would affect hospitals and nursing homes as well. Additionally, those making $150,000 or more a year will pay higher-than-expected taxes to fund the Affordable Care Act.
The sustainable growth rate is meant to reduce physicians’ Medicare payments if the prior year’s Medicare payments exceed the gross domestic product growth for that year, which has happened from inflation every year since the formula was devised.
Every year as well, Congress has put off the SGR decrease in physician payments, and the delays have resulted in an accumulation of the cut to the point where it is now.
Despite the presence of a compromise that could zero out the accumulated SGR increase, Harmon thinks he knows this year’s outcome.
“What will happen is what always happens,” he said. “No one wants to deal with negative financial issues today that they can put off until tomorrow.”
Beyond that, though, he said the overall Medicare program must be dealt with so that it will be fiscally sustainable for the long term.
The resolution likely will include unpopular moves such as means testing Medicare coverage for individuals, with those at higher incomes paying more of their own healthcare costs, or increasing the age at which people can enroll in the program.
“We have to have economically sound decisions,” Harmon said, “in order to sustain the system.”
Education officials in Horry County say they are closely watching Congress’ movements and hope a plan will be hatched by the deadline. Even if the worst occurs, however, they say the effects would not be immediately felt.
“We’re not burying our heads in the sand, but we just realize that right now is the time to monitor and review,” said Jeff Riddle, chief finance and human resources officer for Horry County Schools. “We’re just starting our normal budgeting process. In three weeks, we may tighten up and look more seriously to go bare bones, but we don’t want to start that discussion yet.”
Riddle said the district did extremely well over the last few years in being prudent to get through the tough times, and as a result, it has an undesignated fund balance of about $25 million to $30 million.
That cushion, he said, should at least get the district through the next school year. He stressed that without an agreement in Congress, the ramifications would be severe.
Experts are predicting it would lead to a recession and he couldn’t put a dollar amount on what the ripple effect might mean to the district, Riddle said.
Many areas could take a hit in the worst-case scenario because of a loss of funding at the federal, state and local levels. He said the biggest chunk of federal money the district receives goes to Title I and Title II programs, which would affect the schools with large numbers of low-income children and teacher preparation programs, respectively.
The state also would receive less money, and with education being one of its largest expenditures, he said it would be hard to avoid education cuts.
Riddle said locally, people would have less money to spend, sales tax revenues would drop and property values would go down. He said the district would still be required to fund federally mandated programs – for example, those that fall under the Individuals with Disabilities Education Act – which would lead to cuts in other services.
“It’s almost overwhelming to think how this could hit us at the local school district – it would be like [Hurricane] Sandy,” Riddle said. “I think we’re prepared to do the things we’d need to do between January and April 15 for continuing and employee contract issues, but it would be painful.”
At Horry Georgetown Technical College and Coastal Carolina University, officials are taking a wait-and-see approach and are optimistic that an agreement in Congress will be reached.
“We’re not panicking at this point, but we’re following the negotiations closely,” said Eddie Dyer, CCU executive vice president and chief operating officer. “I think there will be some brinkmanship and jawboning and posturing, but they’ll come toward the middle. I don’t think they have a viable alternative at this point.”
Dyer said without an agreement, CCU would feel the affect that hits the general economy. He said a little more than 90 percent of the university’s revenue comes from tuition, and falling off the cliff would affect how federal financial aid is administered, in turn affecting the large number of CCU students who borrow money to come to school.
Dyer said most of CCU’s students come from the upper and middle class, and their families would see higher taxes, but they wouldn’t be exorbitant. He said for most of those families, every dollar spent at the school is counting, so the university should be OK.
At HGTC, about $15 million to $20 million out of the college’s $50 million to $60 million budget is federal funding the school receives through grants or from the tuition of students with financial aid, said Harold Hawley, chief financial officer. He said in theory, a lack of action by Congress could have far-reaching implications for HGTC’s programs and initiatives, but this situation has come up before, and he believes the politicians have a mutual interest in reaching a resolution.
Hawley said in an absolute worst-case scenario, he doesn’t think students or HGTC would feel the effects for seven or eight months. He said in the prior situation, he understood that the national perspective was to not harm those pursuing higher education, but he is optimistic the situation will be resolved.
“We are acutely monitoring any feedback we get,” Hawley said. “We hope it will be resolved in a timely manner and with few implications.”
Though the Department of Defense could take a major hit as a result of a the fiscal cliff, with some accounts seeing up to 9.4 percent in cuts, the Department of Veterans Affairs won’t be included, according to the National Military Family Association (NMFA).
By law, TRICARE for Life – the military health insurance – also cannot be cut, said Maranatha Bivens, communications editor for NMFA.
Military pay and allowances, military retiree pay and social security payments are also exempt. In general, Medicare is exempt, but there would be a 2 percent reduction in provider payments.
Finally, federal civilian pensions, health care and pay rates also won’t be cut.
That doesn’t mean military health care will be completely unscathed.
The Defense Health Care Program accounts would have fewer funds from the DoD for purchasing medications, paying civilian doctors for care and operation of military hospitals or clinics. Those cuts likely won’t have a direct impact on the Grand Strand which does not have a military hospital or clinic.