South Carolina’s budget process isn’t broken, but it is under stress — and experts say those stresses are only expected to grow over the next decade and beyond.
At present, they note, the pressures are primarily political as lawmakers struggle to reconcile promises of major income and property tax cuts with the health, education and infrastructure needs in America’s fastest-growing state.
In part, that’s why the legislature formally adjourned for the year on May 14 without passing a 2026-27 budget — and why state agencies are still operating under last year’s budget more than a month into the new fiscal year.
It’s also why the $15 billion budget deal announced last week by S.C. House and Senate negotiators, which leaders hope to push through both chambers sometime this summer, failed to produce a final agreement on almost $400 million in economic development and local infrastructure spending. Instead, a special committee will try to make those numbers add up between now and the end of September.
Bigger problems ahead
But the real budget challenges facing S.C., analysts told the Charleston City Paper this week, aren’t political. They’re structural. And they aren’t the kinds of problems lawmakers will be able to solve with last-minute budget deals or special committees.
Chief among these challenges, they say, is a population that’s growing and graying at the same time, with senior citizens expected to outnumber those under 17 by the end of next year. As a consequence, health care and infrastructure costs will continue to drive spending higher, even as the working-age share of the population paying into the system falls from 63% to 58% by 2040. (That, in turn, means the state will take in less revenue.)
But structural budget concerns don’t end with demographics. Just as worrisome, analysts note, is S.C.’s exposure to climate risk, particularly along the coast. Since 1980, for instance, the average U.S. number of “billion-dollar storms” — everything from hurricanes and tornados to wildfires and floods — has grown from about three per year to almost 25, with the pace accelerating in every decade. South Carolina is already among the states feeling the budgetary impacts.
Nevertheless, there are structural solutions to the structural challenges facing S.C. budgeters, state and national experts told the City Paper — tools that can give lawmakers the time and information they need to make better decisions as demographics and nature continue to remake the state.
Two-year budgeting
Currently, South Carolina is one of 30 states that writes a budget from scratch every year. The other 20, including neighboring North Carolina, use a two-year, or biennial, budgeting cycle — a process that can help lawmakers take a longer view while providing more stability for state agencies.
Pickens County Republican Sen. Rex Rice, who served on the House budget-writing committee for more than a decade before moving to the upper chamber, has introduced biennial budgeting legislation in three of the last four sessions.
Under his plan, the first year of every two-year legislative session would be a budget year, allowing lawmakers to dig into the details and focus intensely on creating a two-year budget. The second year would then be used for major legislative initiatives, stronger agency oversight and mid-session budget adjustments as required.
“Writing a $15 billion budget every year is a lot of work for a small number of people,” Rice said. “We need to do a better job of literally going through the agencies when they make their budget requests, and I think we could do that better with a full budget year.”
The devil in a biennial system, he noted, is in the details. In particular, he said, lawmakers would have to remain flexible in year two, as revenue estimates are updated and unexpected needs arise. Another concern, he added, would be ensuring that teachers and state employees didn’t have to wait two years for pay raises.
“Those things would need to be addressed in the adjustment session,” he said. “But looking at the other states that are doing it, we can see what’s working well and how it could work well here.”
Long-term assessments, stress tests
Two other ideas experts repeatedly suggested that S.C. consider were long-term budget assessments and budget stress tests, which they said would ideally be implemented together.
“One of the most important things for any state government is to make sure its budgeting is sustainable,” said Josh Goodman, a state budget analyst with the Pew Charitable Trusts. “And not just next year, but five years from now, 10 years from now, and further into the future.”
He added, “The things that states do — education, health care, public safety — those are timeless tasks for government.”
And the best way to ensure that sustainability, he said, is to arm lawmakers with more information on long-term spending demands and the impacts of immediate crises such as recessions.
“A long-term budget assessment, which projects revenue and spending forward several years, can tell you whether you’re in a structural deficit or not, so you see problems down the road and prevent them from really causing problems for your state,” Goodman said. “While a stress test looks at ‘What if things are worse than we expect?’ — and helps you be prepared for that event.”
Asked if those ideas are actually making a difference in states where they’ve been implemented, Goodman pointed to New Mexico’s 2022 long-term assessment, which revealed a looming structural deficit due to declining oil and gas production.
“They had huge budget surpluses at the time,” Goodman said. “But when their long-term assessment showed an imbalance ahead, that spurred lawmakers to put those temporary surpluses into trust funds and endowments that are an ongoing source of revenue to fund the state’s priorities in the future.”
Also noteworthy, according to Pew officials, is Utah, which unlike most states, had an actionable plan on the shelf when Covid hit in 2020 thanks to previous stress testing.
And the good news for S.C., if lawmakers decide to give themselves these tools, is that the building blocks already exist in state government.
“What we see is that South Carolina, like a lot of states, has taken most of the preliminary steps to using these tools,” Goodman said, noting that officials already run a bare-bones, numbers-only analysis three-years into the future. “So the next step would be to add the kind of detailed analysis that shows where the state’s fiscal strengths and weaknesses really are.”
And that information is even more critical, he noted, in states where leaders are considering big budget moves, such as S.C. GOP legislators’ pledge to eliminate the income tax.
“Whether it’s tax cuts or a new program, lawmakers don’t want to just do it for a year or two — they want it to be permanent,” he said. “But first, you have to actually know whether you can afford it over the long term.”
Jack O’Toole is Statehouse bureau chief for Statehouse Report and the Charleston City Paper. Have a comment? Send to: feedback@statehousereport.com
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