SC budget deal gives homeowners smaller break, postpones decisions on local projects

COLUMBIA — A weeks-long budget impasse broke Wednesday with a compromise that cuts a proposed tax break for seniors and approves none of the legislator-requested earmarks for local projects — at least, not yet.

Since July 1, the state has operated under stopgap funding that keeps agencies operating at the same funding levels as last fiscal year. The sticking point for budget negotiators has been whether to fund the Senate’s proposed property tax relief for older homeowners or the House’s full list of local spending — what legislators call community investments.

The deal signed late Wednesday gives both chambers’ budget writers a partial victory. It also means teachers and state employees will get their raises. And it resolves a years-long lawsuit to permanently protect 170 acres of land on a barrier island.

The compromise reduces the total amount spent on local projects and postpones decisions on which to fund.

It sets aside about $380 million for legislator-requested spending, as well as covering the state’s cost overruns at the Scout Motors site in Richland County.

That could require cutting more than $200 million: The chambers’ combined lists for local spending exceeded $430 million. And the Department of Commerce sought $150 million to fulfill state pledges to the Volkswagen subsidiary — a request that led to the whole project being characterized as a “boondoggle.”

The budget agreement calls for a separate legislative panel to review all of the requests and package its recommendations in a separate bill by the end of September. That enabled the rest of the state spending plan to move forward.

Budget negotiators had considered going through the list of earmarks and taking an up-or-down vote on each request but ultimately decided not to prolong the stalemate.

“We’re looking at different ways to do those community investments that make both the House and Senate comfortable,” said House Ways and Means Chairman Bruce Bannister, a Greenville Republican.

The deal includes a pared down version of the property tax break senators wanted: Homeowners 65 and older will be exempted from paying property taxes on $75,000 of their home’s value. That’s up from the $50,000 exemption that’s been state law for half a century. Senators wanted to provide several levels of breaks, up to $150,000, depending on how long homeowners have lived in South Carolina.

The reduced proposal will still cost the state more than $80 million, which will reimburse counties for their lost revenue. Property taxes go to counties, not the state, to fund local services.

Although the amount was less than the Senate proposed, Senate Finance Chairman Harvey Peeler told reporters he was pleased the budget included any expansion of the Homestead Exemption.

“I’m really excited about it,” the Gaffney Republican said.

Senators, who passed his bill in February with the bigger tax breaks, will try again next year. The House never took up that bill.

A new state budget could still be weeks away.

It’s unclear when the full Legislature will return to vote on the compromise. The chambers will likely hold a short, special session sometime in the next two weeks. Assuming they send the deal to Gov. Henry McMaster’s desk, state law gives him five days, excluding Sunday, to issue his line-item budget vetoes. The budget will take effect with those vetoes.

Projects committee

“What we’ve done today is agree on what we can agree on,” said Sen. Tom Davis, a Beaufort Republican on the negotiating committee who’s been critical of the continued lack of transparency on earmark spending.

The spending used to be so secretive even legislators had no idea where the money went. Five years ago, legislators started publicly listing the projects; 2022 marked the first time legislators sent McMaster details about their requests so he wouldn’t veto them. But as the secrecy lessened, the total amount of local spending rose exponentially.

Last year, the budget funded no earmarks, at Peeler’s insistence of a reset. A year after that hiatus, criticism continues over the process and lack of debate.

That includes senators’ complaint that the House spent too much: The House’s tally was more than twice the Senate’s.

The compromise could provide a better vetting of individual projects, while still leaving the decisions to legislators. For years, McMaster has asked budget writers to create a competitive grants program for agencies to decide which projects are worthy.

Bannister said the compromise is an experiment that could create the model for future budgets.

“This is a good exercise in would this kind of model work and how it works,” he said.

The committee will also decide how much to send the Department of Commerce to cover contractors’ work at the site where Scout Motors will build vehicles. The requested $150 million has incensed lawmakers who already provided $1.3 billion to bring the company to the state. That amount — for site preparation, wetlands mitigation, and roadwork — included $70 million for overruns.

No funding will go toward the work until the Legislative Audit Council returns a report on what led to the additional costs.

Other issues

The budget increases teachers’ minimum pay by $2,000 across the state’s so-called salary schedule, which pays teachers according to their years in the classroom and level of college degree. The salary floor for first-year teachers rises to $50,500 this school year. That meets a priority McMaster set years ago of getting the base pay above $50,000 before he leaves office. It was $30,000 in 2017, when he became governor.

That doesn’t mean every teacher will get a $2,000 raise. Many districts pay above the state minimums by supplementing state aid with local property taxes. In districts already paying more than the new minimums, salary decisions are up to local school boards.

The budget calls for all state employees to get raises of 2%. Once the new budget is final, they’ll get the difference since July 1.

“I’m so happy I can tell everybody, ‘You can get paid, get your raises, so forth and so on,’” Peeler said.

The negotiating committee agreed to spend $32 million to settle a lawsuit over Captain Sams Spit dating back to 2009. Some had argued the state should continue to fight the legal challenge in federal court, essentially gambling on the state winning the case but spending more in legal fees along the way.

Not included was a budget clause suspending a law requiring bars and restaurants to carry minimum insurance to serve alcohol, known as liquor liability. Senate Majority Leader Shane Massey, R-Edgefield, proposed the pause in an effort to force legislators to revisit a law passed last year criticized as not helping businesses stay open as intended.

The proposed suspension violated House rules, legislators said.

“That would be a change of permanent law, which we don’t do,” Bannister said.

Also tossed because of House rules was a clause banning homeschooled students from receiving state funds to pay for classes and materials, which the program’s sponsor said he didn’t intend to authorize.

Ending stopgap funding

Relying on stopgap funding indefinitely could have had cascading effects as agencies lacked the funding to cover cost increases, some warned.

Without extra funding for federal changes to the Supplemental Nutrition Assistance Program, known as food stamps, some of the state’s neediest might go hungry, an advocate said.

The Medicaid agency might have to reduce providers’ rates to cover the increased cost of continuing existing services, according to a spokeswoman.

And school districts that already passed their own budgets promising teachers raises would face difficult decisions on how to cover those costs, said an advocate for local school boards.

Senate Minority Leader Brad Hutto called the agreement a “significant milestone” toward a new state budget.

“Our schools, state agencies, local governments, and the people of South Carolina deserve the certainty and stability that come with a fully enacted budget,” said the Orangeburg Democrat.