SC tax collections continue slow return to normal, yet still give lawmakers more to work with

Lawmakers will have about $600 million more than expected to spend when they return to finish the budget. (Photo illustration by Getty images)

COLUMBIA — Lawmakers will have $610 million more than estimated to dole out for the coming fiscal year when they return to finish the budget next month, as post-pandemic slowdowns have been less than economists feared.

Altogether, legislators have $2.15 billion additional to spend in the budget year that starts July 1, compared to the $1.54 billion economists originally predicted back in November 2023.

That $610 million difference “is a nice chunk of change for the budget staff,” said Frank Rainwater, executive director of the state’s Revenue and Fiscal Affairs Office.

It’s normal for legislators to have more money to work with before they start negotiations. The state’s revenue analysts tend to be conservative in their initial predictions to avoid overspending, then make adjustments as the money comes in and the new fiscal year approaches.

But the latest numbers are much closer to original estimates than in recent years past.

That’s because South Carolina is returning to normal after an infusion of federal aid and extra spending from stimulus funds during the COVID-19 pandemic, Rainwater said.

“Everything’s kind of working its way out,” Rainwater told the Board of Economic Advisors during a Monday morning meeting.

While the newly recognized $610 million could make negotiations between the chambers’ plans easier, more than three-fourths of it is meant for one-time spending.

The $467 million that’s been collected so far this fiscal year above predictions is considered surplus. It’s supposed to be spent on one-time expenses such as school construction projects and roadwork. But a large portion of it will probably go toward legislators’ requests for parks and other local projects.

Only $143 million of the adjusted estimate was predicted to continue flowing into coffers next fiscal year, which adds to the base for ongoing expenses such as salaries.

In the last couple years, the mid-year adjustment to revenue predictions has given lawmakers much more to spend as they’ve completed the state’s budget.

Economists expected a drop-off this year. While most of the state’s revenues decreased, they did so more gradually than budget analysts originally predicted.

For example, state economists expected corporate income tax revenue to hit a cliff this year. Instead, it remained relatively steady, according to data state analysts presented.

That alone gave the state $380.7 million more to work with.

As retail sales growth slows and business costs increase, analysts say the state could see a major drop-off next year. Corporate income taxes are particularly volatile, making it difficult to predict, state economists said.

Sales tax revenue contributed as well, though not as much. The state’s tax on spending brought in $51 million more than expected this year.

At the same time, some taxes, such as those paid by insurance companies on the premiums they earn and taxes on banks’ income fell more than expected.

Editor’s note: This article has been updated to clarify that most of the newly recognized money is meant for one-time expenses. 

The post SC tax collections continue slow return to normal, yet still give lawmakers more to work with appeared first on SC Daily Gazette.