NEWS: Battle over state’s local government fund may end soon

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By Lindsay Street, Statehouse correspondent  |  A local government group says S.C. counties are willing to lose millions of dollars of state revenue for the sake of certainty as lawmakers are poised to change the way local governments are reimbursed.

Every year since the Great Recession, counties and municipalities have received fewer state dollars, designed to help them pay for state-mandated services, such as providing space for state courts and state agencies. This has led to a lot of bad blood between legislators and local officials.

S.C. House Ways and Means Committee Chairman Rep. W. Brian White, R-Anderson, told Statehouse Report Wednesday that he will form a special committee in coming days to restructure the state’s local government fund.

Since the 1990s, the state has set aside 4.5 percent of the its previous year’s budget into a local government fund that has been distributed to municipalities and counties based on population. This fund was created to help local governments pay for state-mandated services.

As shown in the graph below, local governments have not received the full amount allocated by state law since 2010. At first, the state shorted local governments by about $19 million. Since then, that shortfall has ballooned to $90 million for the 2016-2017 budget.

State law required a $327.2 million appropriation to the local government fund in the 2017-18 budget, but state lawmakers provided about two thirds — $222.9 million, a $104.6 million shortfall from the formula.

Legislation to alter the formula dramatically has previously passed the House, only to be opposed by S.C. Association of Counties (SCAC) and halted in the Senate.

But now, the county association has changed its position. SCAC Assistant General Counsel Josh Rhodes said an association steering committee decided earlier this year that certainty of funding was a priority, even if that means saying goodbye for good to the millions lost in shortfall.

“We realize the money is not coming back,” Rhodes said. “Let’s put this issue to bed. Let’s figure out what’s going to come through and let it come through … Let’s have some certainty and know what we’re going to get.”

S.C. Rep. Russell Ott, D-Calhoun, introduced the bill that seeks to reset the funding formula at the current level of $222.6 million to be distributed among counties and municipalities in the state for state-mandated services. Increases to the fund would mirror state revenue increases.

The bill has sat in the Ways and Means committee since introduction in January, but it isn’t expected to languish after White announces the special committee in the next few days.

A similar bill is in the Senate Finance Committee.  It was  filed by S.C. Sen. Chip Campsen, R-Charleston.

White

White said Ott’s bill may not be exactly what the committee ends up with, but that resetting the local government fund to the current 2017-18 level of $222.6 million, with annual increases, is one of the likely outcomes. He said they may also look at structuring the fund like economic development, where poor, rural counties receive increased state funding.

“It’s time for an open dialogue,” White said.

Meanwhile, talks have yet to begin between lawmakers and the association.

Background

In South Carolina, counties wear two hats: providing state services at the local level, such as circuit courts and Department of Social Services offices; and providing local services, like law enforcement, water, sewer, and planning.

The local government fund, by current state law, apportions 4.5 percent of the previous year’s general fund to redistribute back to the counties to help them pay for state services. That money comes from the big state pot, which is made mostly of income and sales tax revenues.

Rhodes said because counties cannot cut state services, what’s left is cutting county services, much of which is public safety.

“Most, if not all, counties would have had to have made tough decisions because of the local government fund being underfunded,” Rhodes said. He added it’s not just rural, poor counties suffering, but it’s also felt by the fast-growing counties. He said the annual allowance a significant portion of many local governments.

More than 80 percent of the local government fund goes toward counties. A smaller portion goes toward municipalities, and it makes up a much less significant part of their budgets, according to Melissa Carter, Municipal Association of South Carolina research and legislative liaison.

Despite the state money being a small portion of municipal budgets, the cutback in funding has caused many cities to decide between receiving the state money and paying for a required annual audit, or not receiving any money at all. Some have suspended local law enforcement and now contract with the county for those services, like the Town of Brunson did in 2012.

“They’re being squeezed every which way,” Carter said. “(The underfunded local government fund is) the straw that breaks the camel’s back.”

The SCAC decision to support the reset option was not made lightly, according to Rhodes.

“Rewriting the formula would wipe about $90 million off the table (for 2017-2018),” he said. “When the state is sending less money back to you … then you got to cut what you have to cut, which is a majority of public safety.”

White countered Rhodes’ argument that the current underfunding of local government allowance has significantly impacted governments. He said local revenues have grown faster than state revenues, and the local government fund is a small piece of funding available to local governments.

“We give a lot of money back to the local areas but we don’t seem to get any thank-yous from them,” White said.  “We just get bashed over the head that we don’t give enough on the local government fund.”

The look at the current funding formula is part of White’s strategic push to move away from formulas. In addition to the local government fund, he has also targeted how the state funds education in the coming session.

Cutline for chart:

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