Governor’s FY 2026 executive budget: The Good and The Bad

On Monday, Gov. Henry McMaster released his proposed state budget for the 2025-26 fiscal year, which starts July 1. The S.C. Legislature, which started its regular session on Tuesday, will consider it while working on their own budget versions. 

How does McMaster’s 173-page executive budget compare to past ones? 

The FY26 budget totals $41.6 billion, including $13.02 billion in general funds. For perspective, last year's FY25 budget totaled $40.2 billion, with a general fund of $12.4 billion. The total budget for FY26 has grown by nearly 3.5%, while the general funds have grown by nearly 5%. 

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

Using FY25 as the as the baseline, we determined that the general fund limit for FY26 should be $12.96 billion. However, unless the House and Senate implement spending cuts in the FY26 budget, expenditures will exceed this limit by $60 million, surpassing population and inflation growth. 

Currently, South Carolina is reaping the rewards of a surplus, making the $60 million in overspending appear minor. But in the event of an economic downturn, maintaining government operations becomes significantly easier when expenditures are already aligned with sustainable growth levels. 

Here are a few of the highlights from FY26’s executive budget: 

The Good: 

• Surplus Advantage: South Carolina is currently sitting on a $1.8 billion surplus. 

• Income Tax Reduction: The executive budget accelerates the reduction of the state’s personal income tax rate, dropping it from 6.2% to 6% ahead of schedule. In a prepared statement, McMaster Said “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.” The General Assembly should act swiftly to provide South Carolinians with much-needed tax relief. 

• Infrastructure: $100 million to the S.C. Department of Transportation (SCDOT) to be used to repair, rehabilitate, and rebuild bridges. 

• Disaster Relief: $150 million to the state Emergency Management Division to pay for expenses from Hurricane Helene, $50 million to the Department of Transportation for Hurricane Helene costs, and $40 million to replenish disaster relief and resilience programs at the S.C. of Resilience.  

• Education: $200 million to establish a $50,000 minimum starting teacher salary, ensuring competitive pay for educators. $30 million to the Education Scholarship Trust Fund, which would provide scholarships for eligible students to attend private schools, with the expectation that the Legislature will reinstitute the program quickly. 

The Bad: 

• College Tuition Freeze: 2026 marks the sixth consecutive year that South Carolina has frozen college tuition for in-state students, at a cost of $29.9 million to taxpayers. This policy is misguided. Taxpayers, many of whom did not attend college, should not be forced to subsidize higher education institutions to prevent tuition increases. This approach unfairly picks winners and losers, which is not the government’s role. Instead, higher education institutions should confront their financial realities, whether by cutting bloated administrative costs or facing declining enrollment due to tuition hikes. The free market can only function effectively if allowed to operate without interference. 

• State Employee Premium Freeze: The budget allocates $112.2 million to the state health plan to ensure no employee premium increase for the 13th consecutive year. Meanwhile, the average South Carolinian has faced continuous premium increases over the same period. It is unfair for taxpayers to bear the financial burden of insulating state employees from market-driven healthcare costs. State employees deserve a quality employer-based health plan just like everyone else, but they have to pay for it like everyone else, too. Subsidizing these costs amounts to government-imposed price controls, undermining the free market’s ability to establish fair competitive pricing. 

Overall, executive budget proposals are trending in the right direction when comparing recommendations from SCPC’s Responsible Budget Project.  

The trend over recent years has shown the executive budget proposal aligning closely with the responsible budget recommendations. However, as the House and Senate review the budget in their respective committees, they typically raise the proposed figures further. 

To ensure South Carolina can remain competitive with other southeastern states on income taxes, spending must be reined in. Despite cutting taxes in 2022, the state remains behind others in advancing income tax reductions. If lawmakers are serious about tax reform, adopting some form of spending restraint must be a priority.