The state of South Carolina is seen as a relative winner, fiscally, among U.S. peers: It posted a budget surplus last year, and seems on track to repeat the performance this year. It is one of the few states to increase education spending this year.
Those facts, however, obscure the larger problems it, and other states have. In a new report, the economics staff at Toronto-Dominion Bank notes, while some states have returned to their pre-recession levels of revenue, time has not stood still since 2007: Populations have grown and inflation has boosted the cost of goods.
After accounting for those two factors, “we estimate that aggregate state revenues won’t return to pre-recession levels until 2018, clearly much longer than the nominal numbers suggest.”
Forty-six states are collecting less per person today than before the recession, including 17 of the 20 states where revenues have already surpassed their pre-recession levels in nominal terms, the TD economics staff says.
South Carolina is one of the states with the largest “revenue gaps,” TD calculates: nominal revenues are 18 per cent below their pre-recession levels, but the population-adjusted gap is 29 per cent.
And that nominal increase in education spending this year cloaks the fact that the state’s real per student K-12 education funding is 24 per cent below 2008 levels − the largest gap of any state in the country, TD says, citing a study from the Center on Budget and Policy Priorities.
“South Carolina’s fiscal hole is so deep,” TD says, “that even if revenues were to grow at 7 per cent a year, the state wouldn’t close its adjusted-revenue gap until 2021.”
TD’s report is designed to identify each state’s “revenue vulnerability.” In addition to states’ revenue gaps, TD notes that federal funds account, on average, for about one-third of total state expenditures, the largest source of revenue outside of taxes.
And for some states, the proportion is larger - bad news when this week’s federal budget calls for federal defense and other outlays to decline by $109-billion annually through 2021.
South Carolina, again, is instructive. The state is home to five military installations that will bear the brunt of actions intended to reduce the U.S. military’s personnel costs, TD says; the state ranks seventh in the nation in the measure of military wages as a percentage of non-farm wages.
To calculate the ranks, says deputy chief economist Beata Caranci, TD weighted the revenue gap at 50 per cent and three measures of reliance on federal spending - discretionary spending, procurements and military wages - at the other 50 per cent.
The results? New Mexico, with a revenue gap near 20 per cent and top-15 rankings in all the measures of federal dependence, came in first. Arizona, Louisiana, South Carolina and Virginia round out the top five.
The bottom five? Illinois ranks No. 50, making it the least vulnerable in TD’s measure, followed by Connecticut, Alaska, New York and Ohio.
