State economic Board slices more from S.C. budget forecast

COLUMBIA -- South Carolina's financial shortfalls grew deeper Friday afternoon when the state's leading economists cut revenue estimates an additional $135 million.

The news comes at a time when state agencies already are dealing with deep cuts and furloughing workers to keep from laying off employees.

Friday was the third time the S.C. Board of Economic Advisors slashed revenue projections for the state since the budget went into effect in July. Those cuts total more than $640 million. The new estimate reduces the budget for the fiscal year that ends June 30 to $6.6 billion from $7.1 billion.

In addition to the lower revenue projections, the state could expect a $70 million shortfall in education funding, said John Rainey, the BEA chairman. To cover it, the state would have to shift money out of its general fund, which pays for much of the rest of state government.

"It's $70 million we won't have to spend on other things," he said.

Declining sales tax revenues are to blame, Rainey said. Sales tax revenue is one of the state's top two revenue sources.

The move to reduce revenue estimates was necessary because consumer spending has slowed as people brace for economic hard times.

"The strongest consensus is people are going to hunker down," said Donald Herriott, a board member. "They're going to curtail personal spending."

For example, financial reports indicate tax revenues from restaurants' sales have declined as people have stopped eating out to save money.

"They're taking their money from restaurants and going to the grocery," Herriott said. "Restaurants are taxed and groceries aren't, so we've got a double spiral on that."

Economists had planned on a receding economy this fiscal year, but did not expect such a sharp decline over the past two months, Rainey said. After studying such economic indicators as gross domestic product and unemployment rates, Rainey and the rest of the board decided they had no choice but to make another reduction.

"We've tried to cut responsibly," Rainey said.

And nothing on the horizon indicates when the economy will turn for the better.

"All indications are the trajectory for the economy is down," he said. "The question is how steep is that trajectory and how long before it levels and starts curving up."

Gov. Mark Sanford has blamed lawmakers for not curbing spending sooner, when the national economy was softening.

"Today's news is unfortunate but not unexpected, and frankly we believe we're a long way from the end of the road on these budget cuts," Sanford said in a statement.

Lawmakers said Friday they are not sure how the new deficit will be dealt with.

Tuesday's general election means a new General Assembly is set to take office. House Ways and Means chairman Dan Cooper, R-Anderson, said it was unlikely the Legislature could return.

Cooper said lawmakers expected the budget to worsen, and the state has yet to see any benefit from falling gas prices.

"I'm a little surprised we had to (make more cuts) this soon," Cooper said, noting the exemption on groceries has changed the budget situation. "The sales tax was fairly reliable even in past downturns."

Lawmakers are seeing for the first time how a shift from property taxes to sales taxes to pay for schools can affect the budget.

The General Assembly in 2006 approved a plan that raised the state sales tax by 1 penny on the dollar in order to reduce the school operating portion of local property taxes.

But now the property tax trust fund a collection of those sales taxes earmarked for schools that is projected to fall $70 million short has lawmakers concerned.

Cooper said he expected little will among Republicans to alter the law.

House Minority Leader Harry Ott, D-Calhoun, saw it differently.

"I've been telling everyone that would listen that we would come up short," Ott said. "We should have seen this coming."

Ott said he did not favor scrapping the plan, but perhaps capping how much of a home's value was exempted from property tax. In either case, Ott said, the property tax plan would be part of a comprehensive review of state taxes when lawmakers return in January.