Does SC Have Plan in Case Economy Doesn’t Rebound in 2 Years?

The state Board of Economic Advisors says South Carolina will come out of the recession slowly and unemployment could hit 15 percent. But state lawmakers are assuming that, once the federal stimulus money is gone in two years, the state economy will have turned around and state revenues will be up.

Do state lawmakers have a plan for what they’ll do if the state economy has not turned around in two years and they’re faced with balancing the budget without federal stimulus money? They’re back in Columbia Tuesday to deal with the governor’s vetoes.

It turns out they do have plans. Rep. Dan Cooper, chairman of the House Ways and Means Committee, which writes the state budget, says if the economy hasn’t improved, lawmakers would make budget cuts. “I’ve been telling agencies all along that they need to be prepared for that and have a plan in place for the cuts that will come for that,“ he says. “It gives them another two years, basically, to come up with what they’re going to do with less money.“
 
Sen. Hugh Leatherman, chairman of the Senate Finance Committee, says he does expect the economy to have improved in the next two years. If not, “My plan is do what I always do and that’s cut whatever cuts got to be done to live within our means.“  However, he points out that the state does have 5 percent of its budget in reserve funds, which can be tapped if needed.

Dr. John McDermott, chairman of the Economics Department at the University of South Carolina, says he thinks the state’s economy will have improved in two years.

“One of the big problems with the current tax system has been that we have moved more to a sales tax to generate the majority of our revenue, so when sales fell off and economic activity fell off we had a definite, huge slump right away,“ he says. “The flip-side of this is when economic activity picks up, then the sales tax will be one of the first to revive, we hope. So it’s possible that this so-called volatility in our tax collection system might actually work to our benefit as we come out of this recession.“