SC State Budget Standoff: Earmarks, Tax Cut, and Scout Motors

South Carolina’s state budget for fiscal year 2026-2027 is not finished. A six-member House-Senate conference committee failed to reach a deal before the July 1, 2026 start of the fiscal year, and a continuing resolution is now keeping state government running at prior-year funding levels while negotiators remain stuck on earmarks, property tax relief, and a long-running coastal land dispute.¹

What the Continuing Resolution Does

State agencies keep operating. There will be no shutdown. But the continuing resolution locks spending at last year’s levels, which has two immediate consequences for people watching their paychecks.

State employees do not get the roughly 2% raise both chambers had agreed to fund. Members of the General Assembly are not paid until a new budget is signed into law.²¹ Teacher pay increases, new school funding, road money, and every other new initiative in the pending budget are also on hold until the conference committee reaches agreement and Governor Henry McMaster signs a bill.

What Each Chamber Passed

The House approved a $15.4 billion General Fund budget on March 11, 2026, by a vote of 101-18.³ The Senate followed on April 23 with a $15.3 billion version, passing 42-2.⁴

The two chambers agree on quite a bit. Both raise the minimum starting teacher salary from $48,500 to $50,500, at a cost of about $150 million. Both fund a roughly 2% raise for state employees at about $66.9 million. Both direct $308.7 million to support the income tax rate cut. Both fund a new cancer hospital at the Medical University of South Carolina.⁴ The House plan includes $500 million for roads and bridges, $500 million for healthcare services, and about $1 billion in tax relief overall.⁵

Where the House and Senate Disagree

Earmarks and How to Use One-Time Surplus

This is the biggest fight. The Senate included $130.4 million for 163 local government projects and, as a matter of policy, sent none of that money to nonprofits. Senate Majority Leader Shane Massey said governmental entities have “multiple layers of oversight for spending and laws about transparency,” while some nonprofits funded in prior budgets had little financial track record.⁶

Then on May 6, 2026, the House amended the budget to add roughly $300 million in additional earmarks on top of what the Senate had approved. House additions included $8 million for a Medal of Honor Museum at Patriot’s Point, $5.2 million for Florence water and sewer work, $5 million for an AI Innovation Institute at USC Beaufort, and $3.3 million for orangutan exhibit upgrades at the Greenville Zoo.⁷ The Senate rejected those amendments, sending the budget to conference.

Beneath the earmark fight sits a bigger disagreement about how to use one-time surplus dollars. The Senate wants to steer roughly $377 million toward expanding the homestead property tax exemption for residents aged 65 and older. The House wants a comparable amount to flow to community nonprofits and local projects. Senate Finance Chairman Harvey Peeler has been sharply critical of the House approach.¹

Captain Sam’s Spit

The House put $32 million into its budget to settle a 17-year legal fight with Kiawah Development Partners over Captain Sam’s Spit, a 170-acre coastal area near Kiawah Island where the developer had planned 50 luxury homes. The Senate allocated $1, a placeholder that signals openness to negotiation without committing the money.⁸

Under the proposed settlement, the developer would hand over the land: 92 acres would become a public nature preserve managed by the Department of Natural Resources, with the rest placed under conservation easements. Supporters argue that settling now avoids a potential $200 million liability if the state loses the underlying “takings” case. Senator Peeler and some House Freedom Caucus members want to keep fighting in court.⁸⁹

Data Centers

South Carolina’s data center industry received $828 million in tax breaks on electricity and computer purchases last year, and the Senate wrote several new restrictions directly into its budget: suspend state economic development incentives for data centers, require monthly water-usage reporting, mandate disclosure of tax breaks received, and impose a $10,000-per-day penalty for missing water reports.¹⁰ The House version did not include these provisions. A broader bill, S. 867 (the Data Center Development Act), would set up a statewide permitting process and water-cooling requirements, but has not passed the Senate floor.¹¹

Smaller Splits

The House funded free breakfast for every public school student at $8.7 million. The Senate rejected an $8 million version of the same program on a 22-20 tabling vote.¹²⁴

The Senate moved $35 million from the Department of Commerce to the Department of Agriculture as aid for farmers coping with drought and rising fertilizer and diesel costs, and added a requirement that schools install panic alarm systems for emergency law enforcement contact, at an estimated cost of $11 million.⁴ The House scholarship expansion differed too: $23.2 million to grow the Education Scholarship Trust Fund from 10,000 to 15,000 students, versus Governor McMaster’s proposal of 20,000 scholarships.¹³

The Income Tax Cut Is Already Law

One piece of the tax picture is not caught up in the budget standoff. Governor McMaster signed H. 4216 into law on March 30, 2026, dropping the state’s top marginal income tax rate from 6% to 5.21%, retroactive to January 1, 2026.¹⁴

The cut is projected to reduce state revenue by roughly $309 million in its first year. Analysis found about 43% of filers would see a tax decrease, 23% could pay slightly more, and 35% would see no change. Over 70% of filers reporting more than $1 million in taxable income were projected to see an average decrease of $10,000.¹⁵

The law also builds in a future-reduction mechanism: if the Board of Economic Advisors projects revenue growth of 5% or more over the prior year, the rate drops again, capped at $200 million in foregone revenue per reduction.¹⁴ A separate one-year federal tax conformity measure that cleared the House unanimously was estimated to cost an additional $288.5 million in state revenue, putting the combined tax changes near $600 million.¹⁵

Scout Motors Overrun Left Out

Both chambers declined to fund a Department of Commerce request for $150 million to cover cost overruns at the Scout Motors electric vehicle plant being built in Blythewood. The state approved a $1.3 billion incentive package for the $3 billion factory in 2023, and site preparation costs have since climbed $150 million, driven largely by wetlands mitigation. More than half the overrun relates to environmental work, including 4,902 acres of wetland mitigation near Congaree National Park and 18 miles of stream restoration in Sumter National Forest.¹⁶

Commerce Secretary Harry Lightsey said that without the funding, the agency would have to draw from its regular budget and “pass on other companies” seeking to locate in South Carolina. Senate budget writers responded with required audits from the Legislative Audit Council and the Inspector General, along with new restrictions on open-ended incentive agreements.¹⁷

When a Deal Might Come Together

As of late June 2026, the conference committee had met in public only once since talks began on May 6. A June 30 meeting was set as a final push before the fiscal year ended, but legislative leaders openly conceded prospects were thin. Senator Massey said he was “not confident” a deal could be reached, citing in part the difficulty of gathering members around the Fourth of July holiday. Some leaders have floated the possibility that a final budget may not be adopted until sometime in the fall.¹

Once a compromise budget clears both chambers, Governor McMaster has line-item veto authority over the final product, and the legislature can override those vetoes.¹⁸ Until then, state agencies operate under last year’s numbers, state workers wait on their raises, and legislators go unpaid.

1
The Post and Courier. SC Budget 2027 Lawmakers Statehouse Deadline
2
ABC News 4. State Budget Talks Stall as Lawmakers Focus on Other Bills With July Deadline Looming
3
Greenville News. SC $15.4 Billion Budget Passes House, Moves to Senate
4
South Carolina Public Radio. Senate OKs $15B Budget With Data Center, Farm Help Measures
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Live 5 News. Roads, Raises, Revenue: A Look at the SC House’s Proposed $15.4B Budget Plan
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SC Daily Gazette. SC Senate Budget Includes $130M for Local Projects but Zero Earmarks for Nonprofits
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South Carolina Public Radio. House Opens Door to Consider Redistricting, Adds $300M to Earmark Budget List
8
SC Daily Gazette. $32M From SC Would End Barrier Island Dispute
9
The State. Captain Sam’s Spit Settlement
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SC Daily Gazette. SC Data Centers Received $828M in Tax Breaks
11
South Carolina Legislature. S. 867 – Data Center Development Act
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SC Daily Gazette. Raises for SC Employees and Teachers Part of First Draft of House’s $15.4B Spending Plan
13
The State. SC House Budget Provisions
14
SC Department of Revenue. Information About H. 4216
15
SC Daily Gazette. Income Tax Cuts and $15.4B Budget Pass SC House
16
SC Daily Gazette. SC Is $150M Over Budget on Promises It Made to Bring Scout Motors to the State
17
The State. Scout Motors Cost Overruns
18
SC Executive Budget Office. Informing the Public