Economists fear huge deficit looms for S.C.

Posted on Fri, Oct. 12, 2007
By JOHN O’CONNOR
joconnor@thestate.com
South Carolina could face a $430 million deficit next year, according to the state Board of Economic Advisors.
The deficit means the state will have a more difficult time paying the growing costs of K-12 education and health care for the poor, and could have to pare spending elsewhere.

Unless the economy improves, the state could collect less money next year than it did this year. That’s happened only twice before in 52 years, chief economist Bill Gillespie said Thursday.

According to estimates released Thursday, during the first three months of the budget year the state collected $29 million less than needed to pay for everything in its current budget.

“To use a (University of South Carolina football coach Steve) Spurrier metaphor,” said Economic Advisors chairman John Rainey, “... we’ve got to make up some ground.”

Tax collections can vary widely from month to month, Rainey said, and the situation could improve — or worsen — by the time the General Assembly reconvenes in January to begin work on the state’s budget for next year, which starts July 1.

The Board of Economic Advisors will make its first official budget estimate next month but tentatively had expected about $250 million in revenue growth this year.

Instead, the state is showing negative income growth, the board said Thursday.
There are three reasons for the budget crunch, state economists said:
• The economy. Booming growth has ebbed. State economists predict a recession could begin as early as January.
• Budget costs. Lawmakers will need to pay for $270 million in projects that were funded this year with one-time money. Also, K-12 education and Medicaid costs are expected to grow by $160 million.

• Tax cuts. South Carolina will collect $240 million less in taxes this year, thanks to the elimination of the grocery sales tax and $86 million in income tax cuts.

Gov. Mark Sanford said an economic slowdown was inevitable, which is why he has urged the General Assembly to cap state spending.

“We’ve been saying, ‘It’s coming,’ and here we are,” Sanford said. “There is serious stuff getting ready to go on with regard to the national economy. You can’t grow at the rate we’ve been growing and not go off the cliff.”

The budget crunch, Sanford said, could cause “needless” pain for residents who depend on state services. The cause, Sanford said, is not cutting taxes, but spending too much.

The total spent in the state budget has grown by 32 percent in three years. Lawmakers agreed to spend $1.38 billion more this year than last.

House Ways and Means chairman Dan Cooper, R-Anderson, said it was not time to overreact. Lawmakers will have to wait and see later state revenue estimates before knowing the impact on the budget, he said.

“I like to cut taxes, but I was concerned about the impact,” Cooper said. “I didn’t think it would catch up to us in the current year.”

State Rep. Gilda Cobb-Hunter, D-Orangeburg, said she and others warned about the impact of the tax cuts.
“Unfortunately, the BEA’s estimates are on track with what some of us knew during the discussion on tax relief,” Cobb-Hunter said.

Reach O’Connor at (803) 771-8358.