Budget breakdown: The S.C. House's 2026 budget

Sam Aaron

Written by
March 14, 2025

Budget breakdown: The S.C. House's 2026 budget

The South Carolina House has passed the FY 2026 budget with plenty of fireworks during debate. The proposed spending plan – which would be the largest in state history, taking effect on July 1 – puts billions of dollars on the line. With agencies seeking budget increases and new spending requests piling up, where are your taxpayer dollars going?  

 

How big is the budget? 
  • General funds (state tax revenue): $14.5 billion 
  • Other funds (fines and fees): $14.6 billion 
  • Federal funds (federal tax revenue): $14 billion 
  • Total: $43.1 billion 

*Note: This amount includes the $369.7 million in Capital Reserve Fund appropriations, which were approved by the House in a separate bill. 

 

Huge surpluses  

Recurring funds 

  • “Cost” of .1% personal income tax cut: $97 million 
  • “Cost” of additional personal income tax cut: $114.4 million 
  • New available recurring revenues: $683 million (even with the latest income tax cuts) 

This is the amount of new revenue lawmakers anticipate having on a recurring basis in the budget. This money can either be used to make further permanent tax cuts, or for funding government programs. 

Nonrecurring funds 

  • New available non-recurring revenues: $1 billion 

This is the amount of money lawmakers have for the upcoming budget that might not be available in subsequent budgets, though large surpluses have been common in recent years. The actual and projected surpluses in the proposed FY 2026 budget could be used for one-time government expenses or for a potential rebate to taxpayers. 

 

Further tax relief possible 

During the last budget process, we saw accelerated income tax relief cutting the top marginal income tax rate from 6.4% to 6.2% ahead of schedule. This year’s budget builds on that progress, reducing the rate further to 6%. 

Gov. Henry McMaster has voiced his support for continued tax relief saying, “And we don’t need to stop at 6% – we should continue cutting or eliminating the personal income tax rate as much as we can, and as fast as we can.” 

Given that the state currently is sitting on an expected $682 million recurring surplus, lawmakers should pursue deeper tax cuts. Based on previous reductions, each 0.1% cut costs roughly $100 million. That means lawmakers could lower the rate by an additional 0.5% and still have $182 million of a recurring surplus left over. 

 

The budget exceeds SCPC’s responsible limit 

Earlier this year, SCPC published the 2026 South Carolina Responsible Budget, a budgeting model that limits general fund appropriations based on population growth plus inflation.  

Using FY 2025 as the baseline, we determined that the general fund limit for FY 2026 should be set at $12.96 billion. Given South Carolina’s rapid population growth and the nation’s high inflation, 12.96 billion is a responsible limit that taxpayers can afford.  

However, the House’s proposed recurring general fund budget for FY 2026 exceeds $13.1 billion, surpassing the responsible limit by $140 million. 

Rather than fueling government expansion, lawmakers should use the surplus for tax relief. This would keep spending within responsible limits, curb unnecessary growth, and allow taxpayers to keep more of their hard-earned money. 

 

Notable expenses 

Following is a list of proposed increases on top of agency appropriations, not including Capital Reserve Fund spending. 

Tuition mitigation: $53.2 million (recurring) 

This policy, which began in the FY 2019-20 budget, has kept in-state tuition frozen for several years. The proposed funding for FY 2026 accounts for 7.8% of the available recurring surplus. 

State employee benefits 

  • State Health Plan increases: $89.3 million (recurring) 
  • Pay raise for public employees: $66.5 million (recurring) 
  • Total: $155.8 million (recurring) 

State employees benefits account for 22.8% of the available recurring surplus.   

Department of Education 

  • Teacher pay increases: $80 million (recurring) 

This appropriation accounts for 11.7% of the available recurring surplus. 

Department of Transportation 

  • Bridge modernization: $200 million (nonrecurring) 
  • Hurricane Helene: $50 million (nonrecurring) 
  • Road safety enhancements: $9 million (nonrecurring) 

Department of Commerce 

  • LocateSC - Site readiness: $80 million (non-recurring) 
  • Airport enhancements: $80 million (non-recurring) 

LocateSC, an online tool managed by the Department of Commerce, helps businesses find available industrial property. But it goes far beyond that by providing taxpayer money for developing industrial sites, as The Nerve has reported over the years. 

The $80 million in non-recurring funding is earmarked for state-led land development—an effort that falls well outside the proper role of government. Buried on page 26 of the Department of Commerce’s 28-page budget request are vague details on how these funds would be used, with no explanation of how they would spur private-sector investment and contribute monetarily to the state. 

While state agencies nominally follow zero-based budgeting, in practice, they continue to receive funding for projects without fully justifying how these expenditures benefit taxpayers.

Together, the proposed economic development and airport enhancement spending represents 15.5% of the $1.03 billion nonrecurring surplus. 

Department of Health and Human Services 

  • Maintenance of Effort annualization: $60.4 million (recurring) 
  • Provider rates, behavioral health: $2 million (recurring) 
  • Graduate medical education: $10 million (recurring) 

Department of Environmental Services 

  • Workforce retention and credentialing: $6.9 million (recurring) 

 

Capital reserve fund spending  

In recent years, lawmakers have allocated hundreds of millions of dollars on all sorts of new capital investment projects, often in the form of new buildings for universities. These projects are funded through the Capital Reserve Fund, a constitutionally required rainy-day account. If not needed for emergencies, the fund can be depleted for capital spending, provided it is later replenished. 

While capital projects have their place, they come at a significant cost to taxpayers. Proposed Capital Reserve Fund spending for next fiscal year totals $369.7 million, which could go toward tax relief is instead being used to sustain government spending. If this fund is truly meant for emergencies, it should not be routinely drained for capital projects year after year. 

Nearly half of the proposed Capital Reserve Fund spending, or $181.8 million, is allocated for renovations, repairs, or new construction of buildings, and for various programs, at state colleges and universities. While high-quality college facilities can contribute to a stronger workforce, the Capital Reserve Fund should not be routinely depleted for this purpose.

Below are a few proposed capital projects. See the full list here. 

Department of Health and Human Services 

  • Neurological critical care and rehabilitation Services in South Carolina: $150 million 

University of South Carolina – Columbia 

  • Battery center facility $13.2 million 

Clemson University 

  • NextGen Computing Complex: $13.2 million 

South Carolina State University 

  • Renovation of Dr. Maceo O. Nance Hall (Establishment of the new College of Agriculture, Family and Consumer Sciences): $9.9 million 

The Citadel 

  • Engineering building replacement: $ 9.9 million ((appropriated $4 million for this same expense last year) 

Medical University of South Carolina 

  • Southeastern Health AI Consortium: $6.6 million 
  •  Campus renewal projects:  $13.2 million 

Greenville Technical College 

  •  Center for Industrial Cyber Security and AI: $16 million 

Midlands Technical College 

  •  Advanced trades center: $16 million 

 

Looking ahead

With the House’s passage of the budget, it now moves to the Senate Finance Committee for further review. We encourage the Senate to prioritize using the existing surplus for continued tax relief. Additionally, lawmakers should scrutinize agency budget increases to determine whether they are truly necessary and within the proper role of government. State-driven economic development projects specifically fall outside this role and should not be prioritized over tax relief.  

The Senate now has an opportunity to break the decades-long trend of ever-expanding state budgets. 

 

*Publication Note: The figures in this report are sourced from the Summary Control Document as approved by House Ways and Means. The version passed by the House on Wednesday remains virtually unchanged from this initial W&M version. 

 

 

This report may be republished in whole or in part, provided that proper credit is given to the author(s) and the South Carolina Policy Council.