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South Carolina Voters to Determine State Budget Reserves

Residents will vote on whether the state general reserve fund should keep 7 percent of the previous year’s state-collected tax dollars and whether the capital reserve should retain 3 percent of the year prior’s revenues.

(TNS) — When South Carolina voters cast their ballots in November, they will see two questions that will ask whether lawmakers should keep more state-collected tax dollars in rainy day accounts in case of economic downturns.

Voters will be asked whether the general reserve fund should equal 7 percent of the previous year’s revenues, and whether the capital reserve fund should equal 3 percent of the previous year’s revenues.

So why are voters being asked about how much money should be saved?

The state budget process is complex. We try to help break it down.

What Are S.C. Lawmakers Asking Voters to Do?


Lawmakers want to know whether voters support changing the state Constitution to increase how much money should be set aside in two reserve accounts: the general reserve fund and the capital reserve fund.

Each year, budget writers put 5 percent of revenue into the general reserve, which is available to cover any budget shortfalls at the end of each fiscal year ending June 30.

The capital reserve fund is 2 percent of annual revenue set aside each year, and can be used in subsequent budget years on capital projects, such as addressing deferred maintenance at colleges and universities.

“It’s very similar to your personal situation,” said Frank Rainwater, the director of the state’s Revenue and Fiscal Affairs Office. “It’s making sure you have funds set aside for short-term or long-term needs in case of an emergency or unexpected situations.”

Voters will decide whether lawmakers should increase the amount they send to those two rainy-day accounts:

▪ Should they put 7 percent, not 5 percent, into the general reserve fund?

▪ Should they put 3 percent, not 2 percent, into the capital reserve fund?

As part of the ballot question, voters also will be asked whether lawmakers should be allowed to take money from the capital reserve to stave off any mid-year budget cuts if there’s an economic downturn.

The increase in the general reserve fund would be phased in over four years.

That ability, some lawmakers argue, would give them more time to plan out spending reductions for the next budget year rather than making the cuts on short notice.

Why Does S.C. Need These Accounts?


Both of these accounts have been in place for years, but were emptied during the Great Recession when the economy tanked leading to a drop in state revenues.

Lawmakers took a combined $277 million out of the accounts and made budget cuts to keep the state afloat.

From 2008 to 2010, the state lost $1.3 billion in revenue, according to the Revenue and Fiscal Affairs Office.

Due to a surplus, the Legislature passed a budget this year that added $116 million to the general reserve fund — $52.3 million more than they were required to.

South Carolina currently has $575 million in its general reserve fund.

For the capital reserve account, budget writers increased their input too and added $25.6 million in annual dollars to bring the total contribution to $209 million a year.

If both changes are made to the state Constitution, lawmakers would set aside about $313 million more into the reserve accounts, after it’s fully phased in.

Why Lawmakers Say Change is Needed, While Others Say It's Not


Though almost every lawmaker voted for these changes in June, Senate Majority Leader Shane Massey, R- Edgefield, opposed them.

He said more money should be saved, but said he opposes putting more cash into the capital reserve fund — used to cover big maintenance projects, for example — instead of the general reserve.

Massey argued the capital reserve account is really money set aside to be spent a year later.

“The capital reserve fund is not really a reserve fund. It is money that we spend every year,” Massey said. “Despite its name, the money is not always spent on capital projects. I’m all for saving more money, but if you want to save more money, you put it all in the general reserve fund.”

“When you need it, potentially you’re going to need all of it,” Massey added.

Proponents have pushed back against criticism that the capital reserve account acts as a slush fund.

In recent years, money set aside from the capital reserve account has been used to address deferred maintenance at the state’s colleges and universities, but only after a fiscal year has ended. Any use of the capital reserve money is done in legislation separate from the budget to offer more transparency, according to an overview of the proposal from the Senate Finance Committee.

The governor also has the ability to line item veto projects.

“People always talk about (how) we’re going to run government like a business. Well, businesses should have healthy reserve funds so they could run their operations in the event income stops coming in to help steady the ship,” said state Rep. West Cox, R- Anderson, who pushed for the higher reserves. “The last (economic downturn) was 2008-2009. Quite honestly we’re due for one.”

Here’s What The S.C. Ballot Questions Will Say:


▪ Must Section 36(A), Article III of the Constitution of this State, relating to the General Reserve Fund, be amended so as to provide that the General Reserve Fund of five percent of general fund revenue of the latest completed fiscal year must be increased each year by one-half of one percent of the general fund revenue of the latest completed fiscal year until it equals seven percent of such revenues? Explanation: A ‘Yes’ vote will increase the amount of money state government must keep in the General Reserve Fund (its “rainy day” fund) from 5 percent of the previous year’s revenue to 7 percent of the previous year’s revenue.

▪ Must Section 36(B), Article III of the Constitution of this State be amended so as to provide that the Capital Reserve Fund of two percent of the general fund revenue of the latest completed fiscal year be increased to three percent of the general fund revenue of the latest completed fiscal year and to provide that the first use of the Capital Reserve Fund must be to offset midyear budget reductions? Explanation: A ‘Yes’ vote will increase the amount of money state government must appropriate to the Capital Reserve Fund (the “reserve and capital improvements” fund) from 2 percent of the previous year’s revenue to 3 percent of the previous year’s revenue and require that the Capital Reserve Fund’s first priority is to offset midyear budget cuts at state agencies.

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