By James T. Hammond
jhammond@scbiznews.com

The state Board of Economic Advisors cut their estimate of state tax revenues by six percentage points Wednesday, a move that will trigger approximately $210 million of further cuts in state spending in the current year.

The move became necessary when state economists reported that revenues for the current year that began July 1 were down 4.7% from previous estimates in the first quarter that ended last week.

The three-member board, which is charged under state law with determining how much money the General Assembly can spend, estimated that by the end of the year next June 30, the revenue shortfall could be as much as 8% compared with their original estimate. They already cut the estimate by two points earlier this year. The six-point reduction brings the revenue estimate in line with current revised expectations.

The five-member state Budget and Control Board could address the problem with across-the-board spending cuts. But Gov. Mark Sanford has urged the General Assembly to return and make targeted cuts that protects cash-starved agencies such as the Department of Corrections.

"Let's be clear — the situation we're in with these cuts was predictable, preventable and guaranteed based on the run-up in spending over the past four years, because you can't grow government faster than the economy and not have it catch up with you," Sanford said in a statement issued by his office.

"The size and duration of the cuts we knew were coming based on the Legislature's choice to run-up government spending will be intensified and prolonged because of the scale of what's happening in global credit markets,” Sanford said. “We're pleased that legislative leaders are moving toward the same page that we and many of their rank and file members were already on in believing that these cuts should be made sooner rather than later, and in believing that making those cuts across the board is no way to run government. We've begun the process of working with agency heads on targeting these cuts in a responsible fashion, and look forward to working with the General Assembly to help them formulate their plan for addressing this."

BEA board member Don Herriott noted that the Federal Reserve cut interest rates by a half percentage point Wednesday, but he said it usually takes the economy six to nine months to respond positively to such cuts.

BEA Chairman John Rainey said it is impossible to predict how long the financial crisis might last.

“The fear factor is everywhere,” Rainey said. “Retirement funds are shrinking dramatically. We need to position ourselves to reflect that reality.”

Rainey said that if current projections prove true, the current year could be the first time since 1954 that personal income in South Carolina does not increase.

“We’re in uncharted waters,” Rainey said.