York County has a math problem. State dollars keep coming up short. Will it change?

State legislators are taking a closer look at the tax money they send back to help fund counties and other municipalities.

Chairman Brian White with the South Carolina House Ways and Means committee recently appointed a special committee to study the local government fund. It’s a revenue source that has come up short for counties and municipalities for almost a decade.

“The local government fund, like many legacy funding formulas that are written into state law, needs to be updated,” White said. “It was created over 30 years ago out of a hodge-podge of special taxes, some of which no longer exist.”

A bill in the Ways and Means committee now addresses changes, which could create a more forward-looking approach to funding decisions.

“The state should make funding decisions for state and local services based on equity, need and merit, not math formulas,” White said.

So, what is it?

In 1991, South Carolina created the local government fund to simplify the way the state distributes tax money to counties, cities and towns. For decades prior, taxes from almost a dozen sources were charged in different ways, due at different times, distributed using different formulas. The local government fund combined those taxes and sent an amount equal to 4.5 percent of the state’s most recent general fund budget back to local bodies.

“That was the basic distribution for cities and counties at that time,” said Melissa Carter, research and legislative liaison with the Municipal Association of South Carolina.

The concept worked fairly well for a while. Then, the recession hit.

“It worked great until we hit 2008,” Carter said. “(The recession) happened very quickly.”

As the state grappled with the fallout of a nationwide financial crisis and the resulting widespread unemployment, agencies and services saw cuts. But because the 4.5 percent was based on the prior year’s budget, it took a while for the local government fund to feel it. The state went ahead and reduced its allocated amount, which municipalities at the time understood, Carter said.

“It was very hard to justify fully funding the local government fund to cities and counties, when you're cutting the rest of state government,” she said.

Yet now, revenues are well on the rebound.

“When we came back out of the recession, the legislature never came back to the formula,” Carter said.

What’s the impact?

In the current fiscal year, the fund is set to come up $104.6 million short of that 4.5 percent target. Of that money, about $17.5 million would go to cities and towns with the rest for counties.

“The discussion is very different for cities than for counties,” Carter said. “For the counties, it’s a huge amount of money in their general fund.”

When the fund was set up, more than 83 percent of the money went to counties based on a variety of services they often help the state with, from social services to courts to health department issues.

York County received a little less than $9 million from the fund each of the past several years. According to the South Carolina Association of Counties, York County saw about $65.6 million in local government fund revenue from the 2009 to 2016 fiscal years. In that span, the county saw a $16.7 million shortfall compared to the 4.5 percent funding.

Fort Mill, for comparison, brought in just $1.84 million the past eight fiscal years. The town shortfall in that time was about $600,000.

The money, whether sent to counties or municipalities, goes straight to general funds, allowing flexibility in how those groups spend it. Many other funding allocations are marked only for specific uses.

“It was always intended to be general fund revenue,” Carter said. “It was always meant to provide the basic services.”

What’s next?

A bill to make changes to the local government fund hasn’t moved much lately. It was introduced last December and referred to Ways and Means in January.

The bill as written would take out the 4.5 percent figure. Instead of looking back at the most recent fiscal year, the bill would base funding on projected revenue the way most other municipal budgets do. A change Carter and her group understand, and one that could avoid similar problems to what happened with when the recession hit.

The bill would increase revenue at the same percentage the general fund is expected to increase each year, up to 5 percent. Increases would be estimated, according to the legislation, during “all stages of the budget process.”

The recently appointed special committee could make changes to that bill or come up with a new one, either way requiring full support in the House, then the Senate before getting a signature from the governor to take effect.

This story was originally published September 27, 2017 at 10:20 AM with the headline "York County has a math problem. State dollars keep coming up short. Will it change?."