COVID-19 shrinks SC budget $50 million more but no need for cuts yet, forecasters say
While revenue projections remain well below rosy pre-pandemic forecasts, South Carolina has recovered from the economic downturn more quickly than many other states and lawmakers should still have nearly $1.2 billion to allocate when they return to Columbia in January, according to state budget forecasters.
A preliminary budget forecast released Tuesday projects 1.7% general fund revenue growth, or roughly half the growth seen in a typical year, putting the general fund budget at $9.6 billion for the fiscal year that starts July 1, 2021.
Despite having reduced its general fund surplus estimates tremendously since February — including another projected loss of $49.7 million announced Tuesday — the S.C. Board of Economic Advisors still projects a $36.3 million surplus this budget year.
The state’s revised general fund revenue forecast for this year is now $9.45 billion, down from the $10.25 billion projected in February.
“This is not a budget cut,” said Frank Rainwater, director of South Carolina’s Revenue and Fiscal Affairs office. “But... we’re down over $800 million from where we thought we were going to be in February.”
The reduced budget projections come as a result of the COVID-19 pandemic that hit the state in March. Many businesses closed temporarily, while others have shuttered permanently, and more than 770,000 South Carolinians have filed for unemployment.
The pandemic hit after several years of extraordinary growth in the state, when lawmakers were looking toward the largest general fund budget in state history. At one point, South Carolina was projected to have almost $2 billion in new money to spend.
Rainwater advised caution due to continued uncertainty about the virus and said that while revenue collections had exceeded expectations through October, those gains are not expected to continue.
He said his office’s budget estimate did not anticipate the receipt of any additional federal stimulus funds and assumed the pandemic would continue to restrict economic activity for the foreseeable future.
“We feel relieved that it hasn’t been worse than what it is, but we know we’re not out of the woods yet,” he said. “And until we see COVID in our rear view mirror, we don’t have a lot of confidence in returning to normal growth here some time soon.”
Of the roughly $1.2 billion in new money lawmakers will be able to spend in the upcoming budget year, $182.2 million may be used toward recurring expenses, like salary increases, while $987.4 million is strictly for one-time costs.
The recurring money projected is just a fraction of the $815 million lawmakers expected to have available before COVID-19 hit and prompted lawmakers to delay passing a budget due to uncertainty over the pandemic’s economic impact .
The amount available for one-time expenses, however, isn’t far off the figure budget forecasters projected would be available for this past year’s budget.
That number remains high because it includes past surpluses that were not spent this year after lawmakers opted to continue operating at 2019-20 levels under a resolution passed in May.
It also does not include a roughly $600 million settlement South Carolina is set to receive from the federal government stemming from a lawsuit over plutonium the U.S. Department of Energy left at the Savannah River Site.
How lawmakers go about allocating the nearly $1.2 billion projected to be at their disposal for next year’s budget remains to be seen.
The doomed budget senators passed in September, which included pay increases for teachers, hazard bonuses for state workers and money for prison security upgrades and charter school expansion, could provide a blueprint for what lawmakers may prioritize in next year’s budget.
In addition to releasing its budget projections, the Board of Economic Advisors also reported Tuesday that South Carolina had recovered 70% of the jobs lost earlier this year due to the impact of COVID-19. Forecasters cautioned that employment gains are likely to slow going forward and said they didn’t expect employment, especially hospitality and leisure jobs, to return to pre-pandemic levels until February 2022.
“Until people can get out fully and return to their normal vacation activities and entertainment, we don’t see that sector coming back,” Rainwater said. “That is a major stumbling block to normal growth in this state.”
This story was originally published November 11, 2020 at 5:00 AM with the headline "COVID-19 shrinks SC budget $50 million more but no need for cuts yet, forecasters say."