Copper Dome Chronicle Special Edition: House Budget Week 2023

Welcome to this week’s edition of the Copper Dome Chronicle, sponsored by Advocatus. We strive for substantive writing with brevity, inspired by the book Smart Brevity; one of the best books about communications and writing we’ve read in years.

This week is a special edition about the House budget floor deliberations. It is 1,342 words or a 5.5 minute read.

1. Scout Motors Impact

It was a great day in South Carolina on March 3 when Scout Motors announced its first manufacturing facility will be located in Blythewood bringing 4,000 jobs and $2B in capital investment. This will be South Carolina’s fourth vehicle manufacturing facility, joining BMW (opened 1994), Mercedes-Benz Vans (opened 2006), and Volvo (opened 2018). Alabama has four vehicle manufacturing plants, so the Palmetto State and Yellowhammer State will soon share the distinction of having the most vehicle manufacturing plants in the Southeast.

The deal includes $1.291B in incentives, which the state will pay for with cash on hand. Nearly all of it - $1.204B - will come from nonrecurring revenues recognized from FY 2021-2022 that had been held in the Contingency Reserve Fund, which is a separate fund for revenues that exceed general and supplemental appropriations. However, $704M of these funds were allocated in the House Ways & Means budget version in Proviso 118.19. The remaining funding for the incentives will be paid for from a portion of the SY 2022-2023 projected surplus (around $86.2M).

A joint resolution from earlier in the session, H.3604 that has not become law, allocates $500M from the Contingency Reserve Fund for economic development projects where the state has made commitments and wants to pay for them with cash on hand. These are projects approved before the Scout announcement. The House version of the Scout incentives package, H.4088, appears to allocate all of the Contingency Reserve Fund as does a Senate Finance Committee amendment to H.3604.

So what does this mean for H.4300, the annual appropriations bill, based on the public information available? First, it means the total nonrecurring revenue currently certified for appropriation has been cut in half to around $1.2B. Second, it means $86.2M of FY 2022-2023 projected surplus funds are no longer available for appropriation. Third, it means the $704M in Contingency Reserve Fund revenues are no longer available for appropriation and therefore the nonrecurring appropriations listed in Proviso 118.19 will be reduced. The most likely target: the $700M contribution to the General Reserve Fund that is above and beyond the constitutional requirement, leaving $4M in additional reductions. Fourth, if the state intends to pay for the $500M in economic development projects already agreed to prior to Scout and part of H.3604, an additional $500M in nonrecurring reductions will be needed.

In total, with the revenue estimates currently certified by the Board of Economic Advisors (BEA), Proviso 118.19 will need to be trimmed by approximately $590.2M ($504M from the Contingency Reserve Fund plus $86.2M from the projected surplus in FY 2022-2023).

The proviso is written in priority order, which has meant in the past if nonrecurring revenues did not materialize the lower priority appropriations were not funded. However, the priority order in the proviso is far from set in stone as the Senate will likely have a different order, the House second amendment to the budget may have a different order, and a conference committee report may have a different order too. But as an example, if the priority order in Proviso 118.19 was not altered the $590.2M gap would be filled by not funding items B39-B50. But the Proviso 118.19 priority order is extremely likely to be different in the final version of the budget than its composition today.

The word “currently” has been underlined twice for a reason. The BEA meets on April 5 for its final budget forecast and at that time could certify additional recurring revenue for FY 2023-2024 and additional nonrecurring revenue from FY 2022-2023. Swapping additional recurring funds for nonrecurring funds in some cases could create unobligated nonrecurring dollars. Likewise, additional and new nonrecurring funds from the current fiscal year could be used to tackle the $590.2M gap that will exist when the Scout incentives bill is enacted and prior to the April 5 BEA meeting.

Scout Motors is a huge win for South Carolina but the incentives have a price to be paid. Choosing to pay for those costs with cash on hand results in a reduction in nonrecurring revenues, so some proposed nonrecurring appropriations in the current version of the budget will not make it through to the final version of the budget; ceteris paribus.

2. Learn The Rules

Old cliche from the sports world: in order to win the game one must know the rules of the game. A legislative chamber is no different and a budget week is as good as any to see members use the rules to their advantage. Specifically for the House, there is Rule 5.3 (pages 19 through page 23) regarding the general appropriations act. Other important rules this week are Rules 8.4, 8.5, 8.6, 8.11, and 8.12.

A personal favorite: House Rule 5.3.B.3: “An amendment which has the effect of appropriating or reducing funds in excess of one million dollars during the fiscal year stated within the bill shall include within the amendment the corresponding appropriation reduction(s) and/or revenue increase(s) within the same section that shall fully fund the amendment's proposed appropriation(s) or revenue reductions(s) or have attached to it in writing an explanation of the specific appropriation reduction(s) and/or revenue increase(s) from the different section(s) that shall fully fund the amendment's proposed appropriation(s) or revenue reductions. Provided, if an amendment identifies unspent projected revenue or balance as the funding source, the Speaker must consult with the Office of Revenue and Fiscal Affairs and confirm the existence of sufficient unspent revenue or balance before the House may consider the amendment.” In summary, under this House rule if an amendment increases or decreases spending by more than $1M an offsetting amount must be proposed from either the same section or other sections of the budget. The Senate Rules do not contain such a provision.

But the Senate Rules have an interesting twist on the policy implications of budget provisos, commonly called “Rule 24.” Senate Rule 24(a) states in part:

“Matter which is germane to the subject of the General Appropriation Bill and any Supplemental Appropriation Bill shall be defined as those things which reasonably, specifically, and inherently directly relate to the raising or spending of revenue for or in the fiscal year for which the bill applies and do not temporarily or permanently add, amend, or repeal a portion of the general permanent laws of South Carolina. Nothing in this paragraph prohibits the temporary suspension of any permanent law.”

By comparison, House Rule 5.3.B.4 states: “No amendments thereto may temporarily or permanently add, amend, repeal, or alter a portion of the general permanent tax laws of South Carolina. Nothing in this paragraph prohibits the temporary suspension of any permanent law.” Spot the key difference? The Senate rule applies to the entire Code of Laws while the House rule applies only to tax laws.

3. Locking In The Budget

In the typical budget process there are four versions: the House version, the Senate version, the House second amendment version (often called H2), and the conference report. If a budget line item is the same amount in the H2 and Senate versions, it is considered “locked” unless the conference committee is given free conference powers by each chamber. If a budget proviso has the same language in the H2 and Senate versions, it is considered “locked” unless free conference powers are given to the conference committee. This is what state agencies and entities are always working towards: locking in their appropriations and provisos.

Another “locking mechanism” is the “clinch” maneuver discussed during the debate regarding H.3594. This parliamentary tactic is used to clinch or “lock-in” a vote on budget amendment or a whole section of the budget. Without the use of extraordinary parliamentary tactics, the clinch maneuver effectively ends amendments and debate for a particular vote. Expect to see the clinch used this week on the House floor.

Thanks for reading; we welcome your feedback and commentary!