Fund it or fix it.
That’s what some Republican state senators are saying about the Local Government Fund, which sets aside local tax revenue at a state level to local municipalities and governments.
The legislature has not budgeted the full money under a formula set by state law since the recession hit in 2008. The Municipal Association of South Carolina, which represents the state’s cities, villages and towns, said the amounts have been complex and inconsistent over the years, explaining it this way on its website:
With this new Local Government Fund, the revenue from seven tax sources: banks, beer, wine, gasoline, motor transport, alcohol (mini bottle) and income taxes, go directly to the state general fund. Instead of local governments receiving revenues directly from these seven tax sources, the state calculates the amount of revenue local governments receive based on 4.5 percent of the previous year’s state general fund base revenue. This percentage represents the amount of revenue local governments received from these seven taxes in 1990. According to state law, legislators must set aside the revenue for the LGF before making other state budget commitments, guaranteeing a consistent revenue stream to municipalities and counties annually.
County governments receive 83.278 percent of the LGF, and municipal governments get 16.722 percent. This represented the percentage of Aid to Subdivisions distributed between county and municipal governments in 1990.
State Sen. Sean Bennett, R-Dorchester, said either the funding formula needs to be changed or the legislature should put the full amount of money required by the current formula to be distributed to counties, cities and towns.
“I’ve been an advocate since I was elected to the Senate that we either fix or fund the Local Government Fund, one of the two,” Bennett said. “I tend to believe that we need to fix it. Guaranteeing a specific percentage of last year’s revenues guaranteed for a future period of time to provide to local governments is not a good way to fund anything. No business entity would budget that way and therefore we shouldn’t budget that way.”
But until the formula can be fixed, Bennett said local governments should expect they will not receive their full allotment while putting budgets together.
“We also need to make sure the local government funds recognize, and they recognize themselves, that the budgets they create are sustainable,” he said. “I also know that many local government funds have seen exponential growth in their own budgets and that exponential growth is oftentimes the lack of being able to keep up with that — is blamed on the Local Government Fund.”
Bennett said the legislature needs to provide local governments with something concrete, not a formula that varies from year to year. “Provide certainty on our end and come up with a formula that is fair to both local governments and the rest of the taxpayers,” he said.
State Sen. Thomas Alexander, R-Oconee, said the Legislature makes up for the lack of funding in other ways, such as paying the employer’s share of pension contributions, to help save local governments money.
“In the current fiscal year, which we put around $100 million or something like that, into the pension fund,” he said. “Part of that was partnering with local governments by picking up the employer contribution on their part. So those are funds that could have been going to the Local Government Fund but we decided to help them in a way that they said they needed it more.”
Alexander said when the state provides highway maintenance, corrections services and office space to some local governments, that saves them money, too.
“There are other ways that we’re partnering with those local municipalities and counties that are not part of the Local Government Fund,” he said, but agreed the issue needs to be addressed.
Several bills have been introduced this session that address the Local Government Fund.