(The Center Square) — South Carolina doesn’t produce budget stress tests or a long-term budget assessment, and a non-profit group says the Palmetto State, like others nationwide, should start preparing for economic uncertainty.
According to a report from Pew Charitable Trusts, 15 states have developed long-term budget assessments, while 13 have performed budget stress tests.
In recent years, states have benefited from an influx of federal aid and better-than-anticipated tax revenues. However, Pew experts say state leaders should prepare for more budget shocks.
“What states really need to be doing is analyzing how their budgets would be affected by a recession and coming up with a plan … that doesn’t at least assume that federal aid will be there, that has contingencies in there if there isn’t federal aid,” Josh Goodman, senior officer with the Pew Charitable Trusts, told The Center Square. “Those contingencies could be rainy day funds, they could be different kinds of budget maneuvers, they could be revenue increases, they could be spending cuts.”
The group recommends two analytical tools — a long-term budget assessment and a budget stress test. The assessment includes revenue and spending projections at least three years into the future, while the stress test looks at how a recession would affect budget and revenue collection.
The South Carolina Revenue and Fiscal Affairs Office publishes a three-year general fund financial outlook in December, Goodman said.
“What it doesn’t do, though, is really say these are the big challenges we face in South Carolina, or these are our big financial strengths in South Carolina, and here’s what we need to know for the future,” Goodman said.
According to the report, South Carolina was one of at least seven states that enacted major phased income tax cuts in 2022.
“A next step would be to take those long-term projections and start saying, ‘here are the challenges we face,’” Goodman said.
“A lot of states made big policy decisions over the last few years using those surpluses for tax cuts and for spending increases, things like teacher pay increases,” Goodman added. “Given both of those things, do we expect the budget to still balance in future years? And what if there’s a recession? What is our plan going to be for dealing with those challenges?”
Separately, the taxpayer advocacy group Truth in Accounting gave South Carolina a “D” financial grade, ranking the state 40th in the country for its fiscal health.
According to the non-profit’s “Financial State of the States 2023” report, South Carolina had $29.9 billion to pay $52.9 billion worth of bills — a $23 billion shortfall. As a result, the group said the state would need $14,000 from every taxpayer to pay its outstanding bills, which include bonds and unfunded retiree health care benefits.