Budget without earmarks could harm poor, rural parts of SC the most, some legislators say

COLUMBIA — The state’s poor and rural districts stand to lose the most from a budget with no earmarks, some legislators said, while others celebrated a pause on spending long criticized for its lack of transparency.

When the Senate Finance Committee advanced its spending plan for the coming fiscal year, Chairman Harvey Peeler made a stunning announcement: The budget will not include any earmarks — in other words, no spending requested by legislators to fund projects in their districts.

The decision comes two years after total earmarks — what legislators have consistently called “community investments” — soared to $713 million. While last year’s tally was smaller, at $435 million, critics said the process still allowed unvetted spending of taxpayer dollars.

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Peeler, the Senate’s chief budget writer since 2022, made clear the tally this year will be zero.

“No more pet projects equals more money in your pockets,” the Gaffney Republican said in a statement April 9.

Two hours later, a joint statement went out from Peeler and House Ways and Means Chairman Bruce Bannister agreeing to focus this year on “tax reform.” (Typically, the House adds earmarks after the Senate passes its budget plan.)

Exactly what that means remains to be seen.

The House Ways and Means Committee meets Tuesday to hear from Frank Rainwater, director of the state’s fiscal affairs office, on options for changing the income tax structure.

The meeting comes three weeks after his office’s analysis showed a House GOP proposal would result in most tax filers paying more in state income taxes initially, resulting in Republicans putting the skids on their own bill.

The meeting agenda clearly states, in bold and underlined, the committee will take “no vote” Tuesday.

Meanwhile, the full Senate will open floor debate Tuesday on its spending package. It includes a revenue reduction of $290.5 million to complete the Legislature’s 2022 tax-cutting law, which phased in a reduction in income tax rates, a year ahead of schedule. The budget passed by the House in March planned to do at least that.

Normally, the Senate has more money to spend, since the state’s fiscal experts make mid-year revenue adjustments after the House passes its initial plan, providing senators what former Gov. Nikki Haley liked to call the “money tree.” Those above-expectation tax collections often went toward earmarks.

But the Board of Economic Advisors declined to recognize any surplus at its meeting earlier this month. Known for being conservative in its estimates, the board cited an uncertain economy due to tariffs and federal spending cuts, as well as questions from the delayed income tax filing season. (In South Carolina, tax filings are due May 1, rather than April 15 this year.)

That meant no “money tree” this year for one-time expenses.

Legislators’ response to no earmarks

Peeler’s announcement surprised even legislators, including many who had already submitted the paperwork laying out their earmark requests. Poor, rural communities in particular will have to forgo improvements and new equipment they can’t afford without help, legislators representing those areas said.

That includes projects already underway that local governments need funding to complete, said House Assistant Minority Leader Roger Kirby.

“It is not conservative to waste money on restarting projects, and that’s what we’re going to have to do,” the Lake City Democrat said.

In Williamsburg County, one of the poorest in the state, Kirby had asked for money to expand the water system, with the hopes of attracting bigger businesses to the area.

Williamsburg County doesn’t have the tax revenue to afford finishing the project. But without the expansion, the county won’t be able to attract more economic development, Kirby said.

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That project and similar ones “are not going to happen on their own,” Kirby said. “They’re just not.”

Rural water system improvements were also among requests made by freshman Sen. Russell Ott.

Ott asked for new water meters in Swansea, as well as improvements to water and sewer systems in Calhoun County and the stormwater system in Cayce. Those systems are in dire need of upgrades that the cities and counties can’t afford, he said.

“Folks from my district need help, real help,” said the St. Matthews Democrat, who was the House’s assistant minority leader before Kirby.

Without extra money, cities in Marlboro County will continue driving firetrucks from the 1980s, said Sen. JD Chaplin, a Darlington Republican. The sheriff’s department in Lee County will remain unable to fix its broken air conditioning unit. And law enforcement officers across the five counties Chaplin represents will continue using unreliable radios, he said.

Chaplin, a freshman legislator, said he was disappointed to learn he wouldn’t get to fund those projects. When he was running for office, he promised to better fund law enforcement and infrastructure in his area, which those earmarks could have done, he said.

“It’s going to continue another year with patches and Band-Aids and not actually fixing the problems we have in South Carolina,” Chaplin said.

That’s not to say Chaplin opposes a tax cut, which was another of his campaign platforms, he added.

Chaplin and Ott, who also said he’d support a tax cut, questioned why legislators couldn’t figure out a way to do both.

Relying on state money that may or may not come through on a given year has always been a bad idea, said Sen. Greg Hembree. Each year, the Little River Republican suggests to representatives of the local governments and nonprofits that come to him for funding to think of whatever they get as a gift: nice to have but not necessary to keep running, he said.

Depending on earmarks is “a risky place to live,” he said.

Last year, at Hembree’s request, North Myrtle Beach received $1.5 million to dredge sediment and debris from Cherry Grove Beach, and Sea Haven Youth Crisis Center got $65,000 to screen youth for medical and dental issues, according to budget documents.

While Hembree would have liked to continue funding those causes this year, they won’t end without it, he said.

“Nobody’s closing their doors because the money isn’t coming in,” Hembree said.

Although earmarks are one-time spending, legislators have long used repeated requests to fund expensive projects in their districts or give annual allocations to nonprofits, amounting in some cases to millions of dollars over the course of several years.

Spending on earmarks ballooned after the COVID-19 pandemic, when the state’s budget was flush with federal assistance used for one-time projects such as interstate widening, broadband, and water and sewer upgrades.

Money also poured into state coffers from a spike in sales tax collections as South Carolinians spent their own federal relief payments. Collections then stayed above expectations due to inflation. The budget passed in 2022 contained about $390 million in earmarks, after the Legislature upheld Gov. Henry McMaster’s vetoes that struck $33 million worth, before hitting that record-high $713 million in 2023.

After such high amounts, taking a year off could help legislators take a step back and consider how they’re spending that money, Hembree said.

“It’ll be kind of healthy,” Hembree said.

Past and future budgets

If future budgets go without earmarks, Hembree said he feared a return to secretive spending with little-to-no oversight. For years, earmark spending was rolled together in vaguely worded line items in agencies’ budgets that gave no clue as to where the money was going.

That practice ended in 2021, when legislators began listing earmarks and who sponsored them. In 2023, for the first time, legislators began giving the governor’s office paperwork explaining their requests before sending him their final spending plan. The explanations are why McMaster vetoed very little last year, even while continuing to call for changes.

Eliminating earmarks won’t eliminate requests for money, Hembree said, and the pressure will be on for legislators to fulfill them somehow.

“I fear (the process) could revert back to what it was,” Hembree said.

Legislators might consider creating a grant program, as McMaster has advocated for years. Under his proposal, local governments and nonprofits could apply for a chunk of money for agencies to dole out.

Senate Majority Leader Shane Massey celebrated even a brief end to a process he has criticized for years over a lack of transparency.

“Hallelujah,” said the Edgefield Republican, who was part of a bipartisan duo that successfully pushed for the secrecy to end.

Even after the changes in recent years, Massey has questioned the process and called for reviews on the back end, to be sure nonprofits were spending the money the way they said they would.

“Ultimately, I think we have to make a decision,” Massey said. “Should we collect more money than we need and then dole it out in this process that really has little vetting? Or should we just not take any more money from taxpayers than we need?”