By Tim Smith, July 22, 2008

COLUMBIA -- Sliding sales tax receipts prompted South Carolina's economic forecasting board on Monday to cut by $140 million the projected revenue stream that funds the $7 billion state budget.

Board of Economic Advisors Chairman John Rainey said the high price of gasoline is "sopping up" the sales tax and people's disposable income.

"For all practical purposes, this downturn or recession or whatever you want to call it is consumer-driven," Rainey said, adding $4-a-gallon gas is pinching consumers in a variety of ways. "You can't pay your credit cards down; you can't pay your mortgage."

Also sliding was the documentary tax, down 22 percent for the year, an indicator of slowing home sales, officials said. Bank tax revenue was down 24.6 percent.

Revenue for liquor tax dipped slightly, while beer and wine tax revenue grew 1.6 percent, according to the figures.

There are some bright economic indicators, Rainey said, including an apparent increase in jobs, strong exports and high capital investment.

Rainey said analysts are dealing with an unusual economy, with $4 gas, falling bank stocks and frightened consumers.

"It's hard to understand what's going on," he said. "I think it's all about oil."

Joel Sawyer, spokesman for Gov. Mark Sanford, who has repeatedly asked the BEA to be less rosy in its projections, said Monday's reduced estimates weren't a surprise.

"We've said from day one we thought they were being overly optimistic with their revenue estimates," he said.

"Unfortunately, we're proven correct about that. The bottom line is some fairly painful cuts are going to be in order sooner rather than later. It again highlights the importance of fiscal restraint when times are good so you don't have to make cuts to the people who need it most when the times are bad."

According to the BEA's figures released Monday, preliminary figures for the year ending in June show a dip of 5.7 percent in sales tax revenue, more than $135 million off last year's collections. Individual income taxes grew by $5.7 million, while corporate income tax revenue grew 5.2 percent, still less than expected.

Souring state revenues also have left the state more than $100 million short of expected collections for the year ending in June, officials said.

The cut in the current budget year estimate amounts to about 2 percent of the $7 billion budget.

Michael Sponhour, spokesman for the State Budget and Control Board, said the board will take up the $140 million shortfall when it meets next month. By law, he said, it must go first to the state's capital reserve fund, now at $133 million, to adjust for the cut in projected revenue.

The shortfall for the previous fiscal year also will be taken from reserve funds, but the exact amount of shortfall won't be known until the state's comptroller general closes the state's books for the year in August, officials said.

Sen. David Thomas, a Greenville County Republican who is a member of the Senate Finance Committee, said the dip in projected revenue was "somewhat anticipated" by lawmakers, who passed a provision to allow them to meet this year if budget cuts become necessary.

Outside of tapping reserve funds, he said, the State Budget and Control Board can only address revenue shortfalls by ordering across-the-board cuts at every agency.

Because some are funded more by outside fees, those cuts hit some agencies harder than others, he said. Thomas said he is unsure at what level of cuts lawmakers would return to Columbia.