State budgets are back. The Census Bureau reports that, after what felt like an eternity of plunging revenues and deep spending cuts, states collected a record $795 billion in 2012, marking the first time revenue had exceeded the previous high of $780 billion, collected in pre-recession 2008.
That’s an important benchmark to clear – sort of like getting your income back to what it was before you were laid off and had to take a lower-paying job. That’s good, whether you think government is too big or too small or just right.
Or at least it’s good if you’re in one of the states that actually passed the benchmark. The “state budgets are back” proclamation that’s making the rounds of budget geeks was based on an aggregate of all 50 states. Some states surpassed their pre-recession highs before last year. Some aren’t projected to pass them until this year. Others still will be collecting less revenue than they did in 2008 for as far as the eye can see.
South Carolina is one of those others – which is important to keep in mind as the Senate debates the 2014 budget, which critics will decry as being too big. As a result of our slower revenue recovery, the 2014 general fund budget still will be smaller than the 2008 budget.
When you include federal funds, our budget already has recovered, but the legislature has little to no control over those federal funds, and those aren’t based on tax collections by or in our state.
The money collected by our state, according to the census, came to $8 billion for the year that ended June 30. That’s just 95 percent of the $8.4 billion collected in 2008.
There are several reasons we trail most states, beginning with our continuing struggle with the remnants of the recession. We’ve made solid gains, but our unemployment rate is still nearly a percentage point higher than the national average, which means South Carolinians have less income on which to pay taxes and less income to spend on taxable goods.
In addition, our state relies far too heavily on the sales tax, and the legislature by both its actions (creating more loopholes) and its inaction (refusing to tax services) has steadily eroded the tax base. Today, only 35 percent of goods and services sold in South Carolina are taxed; that’s down from 48 percent in 2000.
Also, the legislature keeps approving more tax cuts. Fortunately, the ones enacted since the bottom fell out of the budget have been relatively small; despite lobbying from the governor, legislators limited last year’s tax cuts to $97 million. But each tax cut delays the time we’ll collect as much money as we did five years ago – which is important to keep in mind as legislators and the governor pursue their plan to divert money from the public schools and colleges and the Highway Patrol and courts and prisons and Medicaid and child-protective services and the rest of government to pay for highway construction and repairs.
South Carolina is actually farther away from recovery than the Census Bureau’s latest report indicates, because we reached our high-water mark a year earlier than most states, in 2007; our tax collections had already started falling in 2008.
Revenues in our general fund – which pays for most general-purpose government operations – reached an all-time high of $6.7 billion in 2007, before plummeting to $5.3 billion in 2010. In 2012, they were $5.9 billion. They’re projected to reach $6.1 billion this year and $6.3 billion next year. At this rate, it’ll be 2016 before we get back to our pre-recession high.
The income tax is the largest source of general-fund revenue, bringing in $3.3 billion last year, 92 percent of the pre-recession level of $3.6 billion. The state’s chief economist projects that income tax collections will return to pre-recession levels next year.
But sales tax revenues are projected to remain significantly below pre-recession collections for next year, and years to come. This is particularly troubling because our state relies more heavily on the sales tax than the income tax.
Last year, we put $2.4 billion in sales tax collections into the general fund, but we collected an additional $1.8 billion, which went directly to the Transportation Department (the census counts the gas tax as a sales tax) and the Education Improvement Act and was taken off the top of the budget figures, to reimburse local governments for state-mandated property tax cuts. That $4.2 billion in sales tax revenues was 92 percent of the pre-recession high of $4.6 billion.
What the lagging sales tax recovery means is that unless something changes, it’ll take even longer for our state’s overall revenue collections to get back to where we were in 2007.
And that’s not taking inflation into account. That means that even when we “recover” to our previous high, we’ll still have less buying power than we did in 2007 – and a lot more people to provide services to.
Cindi Ross Scoppe is an associate editor with The State newspaper in Columbia.