Budget breakdown: Where SC taxpayers’ money is going in FY25

The dust has settled on South Carolina’s new budget following Governor McMaster's announcement of a relatively short list of vetoes in early July. The 21 vetoes, striking $2.3 million in earmark spending and nixing a handful of provisos, represent a small fraction of the overall budget and only marginally exceed the $1.5 million in spending vetoed last year.

The FY2024-25 budget makes substantial investments in our roads, education system, and teachers, while also accelerating income tax relief for South Carolinians and their families. While history suggests that money alone cannot solve the state’s infrastructure problems – as evidenced by the slow progress of the 2017 gas-tax hike in fixing roads and bridges – the attention to core government functions in the budget is commendable.

Yet despite these worthwhile investments, the budget is simply too big. Critically, it exceeds our recommended appropriations limit by more than $150 million dollars. This limit is a staple of our Sustainable Budget project, which sets a cap on annual state budget growth using state population and inflation data (more details below). Surpassing this threshold makes future tax cuts more challenging and places a heavy financial burden on citizens.

Size of the new budget

South Carolina’s budget is divided into three spending categories: general funds, other funds, and federal funds.

General funds – which see the most public attention and are the only category of the three debated by legislators – mainly deal with state tax revenue (sales tax, personal and corporate income tax, etc.). Other funds consist of agency fines and fees, including college tuition. Federal funds are the most straightforward: money from the federal government.

SC budget totals (FY25)

General funds: $14.1 billion*

Other funds: $14.2 billion

Federal funds: $13.6 billion

Total: $41.9 billion

Note: This does not include the $390.1 million in Capital Reserve Fund appropriations, allocated in a separate spending bill (H.5101). The total budget, if including CRF appropriations, is $42.3 billion.

Too much new spending

In an effort to limit state spending and contain government growth, the Policy Council in 2022 created the South Carolina Sustainable Budget (SCSB). The SCSB is a maximum limit on annual recurring general funds appropriations based on the rate of state population growth plus inflation.

The FY25 budget exceeds this recommended limit:

FY25 recurring general fund appropriations: $12,420,375,425
SCSB recommended limit[1]: $12,266,172,251
Verdict: The budget surpasses our recommended limit by $154.2 million

Our next SCSB entry will be available in January to provide a recommended cap for the FY26 state budget. We look forward to working with members of the General Assembly in the coming session to ensure South Carolina's next budget stays within this limit, allowing for maximum tax relief in the years ahead.

“New” dollars available

South Carolina continues to see healthy budget surpluses thanks to a strong economy and growing job market. Although there was less "new money" available this year compared to previous budget cycles – and we are unlikely to surpass the FY23 budget's nearly $5 billion in combined surplus (available after passing tax cuts) anytime soon – the state maintains a strong financial position in terms of revenues.

Recurring surplus: $783.9 million

This was the additional tax revenue available for use in the FY25 budget, which the state expects to see on a recurring (ongoing) basis. It represents the amount of new spending on annual government expenses (public worker pay raises, increasing agency budgets, long-term programs, etc.).

Non-recurring surplus: $1.6 billion

This was the amount of one-time money available to lawmakers in the FY25 budget. It represents the total spending on new one-time expenses (renovations, system and technology upgrades, grant support, etc.).

Note: These reflect the surplus amounts left over after certain pre-budget commitments, including the implementation of this year’s accelerated income tax cut. The above surpluses also factor in a sales tax surplus that was transferred from the Homestead Exemption Fund into the budget (approx. $100 million went to recurring funds, and approx. $500 million went to non-recurring funds).

How your tax dollars are being spent

The following is a list of noteworthy appropriations in the final FY25 budget dealing with education, infrastructure, state worker benefits, government restructuring and more. These represent new allocations (i.e., increases) added to agency budgets.

Tuition mitigation: $68.2 million (recurring)

The combined funding to South Carolina public four-year colleges and universities to freeze tuition and mandatory fees for in-state undergraduate students. Taxpayers have been supporting this program (at costs that vary annually) since the FY19-20 state budget.

Relocating state health departments: $15.5 million (recurring)

This is the additional yearly cost borne by taxpayers to relocate several state health departments (Public Health, Mental Health, Disabilities and Special Needs, and Alcohol and Other Drug Abuse Services) to a campus in Cayce, which the state will lease for at least 20 years.

The facility requires significant renovations to accommodate its new tenants. Accordingly, legislators also provided $14.5 million in one-time funding to the S.C. Department of Administration, ostensibly to cover this cost.

The cost of splitting up DHEC: $31.6 million (mix of recurring and nonrecurring)

The law to split up the S.C. Department of Health and Environmental Control (DHEC) officially took effect on July 1, creating two separate entities: the Department of Public Health and the Department of Environmental Services.

While the decision could bring benefits down the road, it carries a hefty taxpayer price tag for now. The combined restructuring cost for both agencies – covering both IT and facilities expenses – is $31.6 million. Of this sum, $10.4 million will be a recurring expense.

Teacher pay increase: $170.3 million (recurring)

This increased State Aid to Classrooms funding allows South Carolina to raise base teacher pay from $42,500 to $47,000, an increase of more than 10%. It also extends the minimum number of years teachers can earn annual raises from 23 to 28 (many districts offer raises beyond this baseline).

Raising public employee salaries: $61.6 million (recurring)

With this funding, all full-time public employees received a pay raise. Employees earning $50,000 or less annually received a salary boost of $1,125, while those earning more saw a 2.25% pay increase.

The overall spending increase on employee benefits is much higher, topping $169 million. Most ($107.6 million) is related to costs associated with the State Health Plan – the insurance program available to public employees.

It is certainly true that state workers deserve competitive pay and benefits. However, it is important for taxpayers to fully grasp the personnel costs of their state government. This financial burden is carried by all taxpaying South Carolinians, and it becomes heavier as state agencies grow and take on new programs.

Infrastructure improvements (non-recurring)

Funding for county road (CTC) projects: $200 million

Bridge Acceleration Fund: $100 million

Bridge modernization: $100 million

Rural Road Safety Program: $117.4 million

Rural infrastructure improvements: $15 million

Statewide water and sewer projects: $15 million

Earmark spending

Earmarks are appropriations requested by legislators, not state agencies, and primarily fund projects in their districts. Another reason they are unique is that the recipient entities can be charities or other private organizations, although they must first pass through a state agency. Total earmark spending amounts to roughly $433 million in the new budget after subtracting the governor’s modest vetoes.

Here are some noteworthy earmarks and who requested them:

House

Multi-purpose stadium (City of Mauldin) – $6 million; Rep. Vaughan
Recreation complex addition (City of Seneca) – $5.15 million; Rep. Sandifer
Levister Recreation Center (Town of Aynor) – $5.27 million; Rep. Johnson, JE
National Medal of Honor Center for Leadership, a Mount Pleasant-based nonprofit that prepares “citizens with the leadership knowledge, skills, and examples from our Medal of Honor recipients,” according to its website – $5 million; Reps. Landing, Hartnett and Leber
Freedom Blvd. water line extension project (City of Florence) – $5 million; Rep. Lowe
Assembly St. railroad grade separation project (City of Columbia) – $5 million; Rep. Rutherford
Public safety enhancements (Horry County) – $4 million; Rep. Crawford
Greater St. George Water Treatment (Dorchester County) – $2.95 million; Rep. Murphy
Infrastructure improvements (City of Greenville) – $2.25 million; Reps. Bannister and Dillard
Sewer rehabilitation project (Town of Chesterfield) – $1.2 million; Reps. Yow, Mitchell and Henegan
Jasper YMCA of the Lowcountry – $600,000; Reps. Newton W., Herbkersman, Hager, Erickson and Bradley

Senate

Transportation infrastructure improvements (York County) – $8 million; Sens. Climer and M. Johnson
Downtown revitalization (City of Myrtle Beach) – $5 million; Sens. Rankin and Goldfinch
Marketplace at Congaree Pointe (City of Columbia) – $4.4 million; Sen. Jackson
Constructing a new indoor recreation facility (Town of Clover) – $4 million; Sen. Peeler
New multi-sports facility (Lexington County Recreation Commission) – $3 million; Sen. Setzler
Richland County Mall redevelopment (City of Forest Acres) – $2.5 million; Sen. McLeod
New facility for Meals on Wheels of Greenville – $2 million; Sen. Turner
Industrial park upgrades (City of Clinton) – $1.5 million; Sen. Verdin
SmokeFree SC, a local nonprofit that works to reduce tobacco use in the state – $1 million; Sen. Health and Human Services subcommittee
Neighborhood revitalization and weatherization (City of Columbia) – $1 million; Sen. Devine
Restoring the Cherokee County Chamber of Commerce Building – $500,000; Sen. Peeler

In an initiative that appears to have started last year, the Governor’s Office has been posting the request forms for House and Senate earmarks online along with accompanying documents that offer key project details. This is a major step in the right direction for spending transparency.

We encourage legislators to go one step further and adopt the practice of posting member requests as they are made (or shortly thereafter) to an accessible dashboard on the Statehouse website. Additionally, earmark transparency measures should be codified. These efforts would allow the public ample time to evaluate requests before the House and Senate pass their initial budgets.

You can learn more about SCPC’s transparency recommendations here.

Pricey capital projects

In a separate bill that coincides with the state budget, legislators annually spend tens, if not hundreds, of millions taxpayer dollars on new facilities and building renovations, often for colleges and universities. The money comes from the Capital Reserve Fund (CRF) – a rainy-day account required by the S.C. Constitution. If the fund is not needed to cover emergency expenses, it can be depleted and spent on desired projects, so long as it is replenished.

Doing this, of course, creates a major expense for taxpayers. The latest proposal spends $390.1 million from the Capital Reserve Fund, $369.8 million of which must be repaid from the new budget (the current CRF balance required by law). That’s $369.8 million less that can be applied towards tax relief. We advise putting an end to this practice and leaving the fund untouched, unless it’s to meet the required reserve balance.

Below are some of this year’s major CRF expenditures. Full list here.

State Ports Authority

North Charleston Economic Development Land Acquisition: $55 million

Clemson University

College of Veterinary Medicine: $47 million

University of South Carolina (Columbia)

Health sciences campus: $47 million

Medical University of South Carolina

College of Medicine Academic Building: $22 million

University of South Carolina (Beaufort)

New convocation center: $11.5 million

University of Charleston

Campus expansion: $7 million

Francis Marion

Leatherman Science Facility & McNair Science Building renovations: $5 million

Department of Veterans’ Affairs

Veteran homes capital improvements: $20 million

Department of Commerce

SC Nexus: $5 million

[1] The SCSB appropriations limit is calculated annually with the state’s population growth rate plus U.S. chained-consumer price index (CPI) inflation for the previous year (2023). The estimated growth rates are population growth of 1.47% and U.S. chained-CPI inflation of 3.91%. These sum to a maximum growth limit of 5.38%. When applied to South Carolina’s recurring FY24 general fund budget of $11.64 billion, the FY25 limit is $12.27 billion.