Bonds

Lawmakers in South Carolina have passed a fiscal 2024 budget that mirrors closely the plan pitched by Gov. Henry McMaster earlier this year.

The fiscal 2024 budget proposal leans on federal funds, better-than-expected tax collections and a drawdown on reserves to bankroll a wide array of capital work and a boost to state employee salaries.

Lawmakers in a bicameral vote Wednesday overwhelmingly approved the $14 billion spending plan following earlier clashes over specific allocations to Clemson University that temporarily delayed its passage.

While line edits to some allocations are expected from the governor’s office, the final spending proposal preserves the largest initiatives included in McMaster’s budget, including a salary bump for state employees who will now see $2,500 increase in pay if they make less than $50,000 a year, or a 5% raise if they make more than $50,000.

The spending plan includes a combination of general and federal funds to boost spending on various departments and initiatives, including the state’s Department of Transportation, which will receive $2.7 billion, $2 billion of which will go toward system-wide improvements to safety, operations and infrastructure.

The plan provides $153.9 million to go toward debt service. South Carolina currently has $618 million of outstanding general obligation bonds with an issuer rating of AAA from Fitch Ratings, AA-plus from S&P Global and Aaa from Moody’s Investors Service.

All three assign a stable outlook to the state’s credit, with Moody’s citing “conservative budget practices” that help “sustain fiscal flexibility even in the event of economic weakness,” as key to the rating.

Those strengths could be offset by “long-running social weakness,” Moody’s said, including high public pension costs, something the state has strived to address with large surpluses in the last several years.

The state currently has $26 billion of unfunded pension liabilities and the new budget allocates $317.3 million to statewide employee benefits and $154.398 million Public Employee Benefit Authority.

It also boosts capital reserves by $390.7 million, bringing the fund to just over $600 million, though it draws down the General Reserve Fund by $500 million to help bankroll an incentive program for electric vehicle producer, Scout Motors.

McMasters said he wants the state play a key role in the rapidly growing domestic EV market. He struck a $1.3 billion development deal with the company the legislature approved in March to construct a $2 billion production plant officials hope will provide 4,000 jobs in two years.

The plan leans on the reserve drawdown along with federal infrastructure funds to provide a $400 million development grant to Scout, along with $650 million in funding for infrastructure work including new roads, bridges, rails, and water and waste networks at the site of the plant about 20 miles north of the capital, Columbia.

Federal funding features prominently in the new spending plan; in addition to the $14 billion of general funds, fiscal 2024’s budget soaks up over $13 billion of federal dollars drawn from several programs as well.

In its report on South Carolina, Fitch said the state had “greatly benefited” from the influx of federal funds witnessed over the last few years, receiving nearly $8.5 billion from the Coronavirus Aid, Relief and Economic Security and $2.7 billion from the American Rescue Plan Act, with another $1.6 billion directed toward its local governments.

The government has also leaned on tax collections that “continued to exceed expectations” to pad recent budgets.

Last month, the South Carolina Board of Economic Advisors revised the state’s fiscal 2023 revenue estimate by $564 million, increasing the forecast from $12.47 billion to $13.03 billion for the year, citing increased sales and corporate income tax collections.

The Board also raised its fiscal 2024 revenue prediction by $240 million, from $12.32 billion to $12.56 billion, attributing the increase largely to stronger tax collections in fiscal 2023, but remained wary of a souring of the economy over the course of the year.

“The fiscal year 2024 forecast includes expectations for slower income growth and lower personal consumption than observed in recent years,” the Board said. “The BEA remains concerned about persistent inflation, the effects of Federal Reserve interest rate increases, issues within the banking industry, and international conflicts, all leading to deeper concerns about the potential for a recession within the next year.”

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