The Reality of Non-Compliance
Since 1979, South Carolina law has required state agencies to practice zero-based budgeting (ZBB), justifying every dollar they spend from scratch each year. Section 2-7-65 of the South Carolina Code explicitly states that “each state agency, department, or institution shall be required to justify its recurring expenses, as well as any new or additional expenses.”(S.C. Code Section 2-7-65) This wasn’t merely a suggestion; it was a law designed to prevent unchecked spending growth and protect taxpayer dollars.
Since 2011, elected officials have largely abandoned this statutory requirement, reverting to “incremental budgeting” under Governor Nikki Hailey, which only scrutinizes new spending. The consequences have been dramatic. South Carolina’s total state spending has surged from approximately $2 billion in FY 1979-80 to $5.1 Billion in General Fund spending in 2011, to $12.4 billion by FY 2025, thus representing a compounded annual growth rate far exceeding 5% when adjusted for inflation and population. (Data compiled from South Carolina Revenue and Fiscal Affairs Office historical analysis, Ballotpedia, and enacted budgets.)
The last governor to practice ZBB constraint was Mark Sanford, who vetoed numerous spending items, forcing the legislature to publicly debate and override his vetoes.[1] Since then, compliance has eroded. Republican Governor McMaster, while taking important steps on budget transparency issues like earmarking through his June 2025 executive order, has remained silent on zero-based budgeting enforcement since taking office in 2017 and has allowed the General Fund budget to grow from $7.9 Billion to $15.8 Billion, which includes his latest executive budget.[2]
Government and policy analysts all rely on inflation as a divinely approved baseline to exponentially increase spending year after year without applying business budgeting principles to offset inflation. Governor Sanford applied ZBB and reduced the General Fund expenditures from 2008 through 2011 from $6.3 Billion to $5.2 Billion while experiencing inflation during the same period.[3]
A Pragmatic Middle Ground: Hybrid Zero-Based Budgeting
State Agency administrators decry that compliance with ZBB is cumbersome, unnecessary, and costly to the taxpayers. While a full zero-based budgeting for every line item across every agency will require serious work to protect the public’s funding, this must not excuse ignoring the law. To relieve these claims DOGE SC points toward a practical solution: hybrid zero-based budgeting.
Hybrid zero-based budgeting is a modified approach where agencies apply rigorous ZBB principles typically to their top 4-5 expenditure categories and /or those representing 70-80% of their total budget, while using more traditional incremental budgeting for smaller line items. This approach captures most of the accountability benefits of full ZBB while significantly reducing the administrative burden. The 80/20 rule holds true in government budgeting; a small number of programs typically account for most of the spending.
Under hybrid ZBB, agencies would justify their largest expenditure from scratch each year, demonstrating these programs deliver value to taxpayers and align with current state priorities. Smaller programs would undergo periodic review on a rotating basis. This balanced approach maintains fiscal accountability while acknowledging the statistical constraints of government operations.
Hybrid ZBB accomplishes several critical goals.
First, it maintains the spirit and intent of the 1979 law by requiring justification of major expenditures. Second, it provides a realistic path to compliance that agencies can implement. Third, it focuses legislative and executive review time on the areas where taxpayer dollars are most heavily concentrated. Fourth, it creates a framework that could be expanded or contracted based on available resources and changing priorities.
Hybrid ZBB: The SC Department of Agriculture Example
The South Carolina Department of Agriculture provides an excellent case study for how hybrid zero-based budgeting could be implemented. Based on their 2025 budget data, the department’s spending priorities are clear. Here’s how a hybrid ZBB approach would work:
The Top Five Focus Areas for Zero-Based Review
The South Carolina Department of Agriculture’s Total Budget is $38,020,158
- Marketing and Promotional Programs ($15,027,167; 39.5%): This massive program, which increases consumer awareness and demand for South Carolina agricultural products at national, regional, and international levels, would undergo a complete zero-based review annually. The department would need to maintain a robust bid process for marketing agencies, demonstrate the return on investment, and justify why this level of spending is necessary for the functioning of the agency.
- Consumer Protection and Laboratory Services ($7,606,736; 20%): Laboratory testing and consumer protection programs are important functions of the Department of Agriculture, and by demonstrating how they are spending the money for this function each year.
- Retail Food Safety ($7,369,877; 19.4%): This critical public safety function would require showing how many inspections are performed, staffing ratios, compliance rates, and outcomes, which would then justify spending.
- Operations ($2,910,114; 7.7%): Administrative operations, including the Commissioner’s office, legal services, human resources, and IT infrastructure, would be scrutinized from the ground up. Potential questions include: Are current staffing levels appropriate? Could technology reduce costs? Are office locations and facilities optimally configured?
- Commodity Boards ($2,328,753; 6%): Programs supporting farmers, ran by various commodity boards, would undergo zero-based review to demonstrate the economic impact of services provided, increasing farmer participation rates, and outcomes such as increased farm profitability or market access.
These five categories alone represent $35.25 million of the Department of Agriculture’s $38 Million budget. By applying rigorous zero-based budgeting to these areas, the state would gain meaningful oversight of most of the department’s expenditures, while smaller programs like Inspection Services ($114,648) and the Market Bulletin ($132,167) could be reviewed on a three-year rotating cycle. To see the full charts, look at the tables at the end of this article.
Hybrid ZBB: The SC Department of Transportation Example
SCDOT FY27 Budget Request Total: $768,433,649
- Engineering and Construction / Highway Fund: $433,292,922
- Bridges: $300,000,000
- Litter – Off Interstate: $5,000,000
- Welcome Centers: $5,140,727
- Road Buyback Program: $25,000,000
All of these programs are recurring, so under a full ZBB approach, this would require SCDoT to justify all of these expenses in their total budget request. Following the hybrid Zero-Based Budgeting proposal, the Engineering and Construction / Highway Fund and the Bridges budget requests would be addressed annually.
So what happens when the governor declares a $1.1 billion non-recurring increase in spending to SCDOT, and when the Revenue and Fiscal Affairs Office (RFA) discovers and reports additional revenue throughout the year? This enormous increase in funding leads to confusion over serious budgeting practices when billions show up out of nowhere.
The Revenue and Fiscal Affairs Office (RFA ) and Additional Revenue Discovery
In the revised FY27 budget request, a $1,150,00,000 non-recurring funds was added.[4] In November 2025, the RFA’s Board of Economic Advisors announced that General Fund revenues for the previous fiscal year had finished $410.7 million above expectations.[5] This represented a significant variance from their original projections.
Consider the timeline of events in early 2026. On January 9, Governor McMaster announced his plan to allocate an additional $1.1 billion in non-recurring funds to the Department of Transportation, citing the need to combat construction cost inflation. Just days later, on January 14, he released his full FY 2025-26 Executive Budget, noting that “South Carolina’s booming economy has once again created a large budget surplus, this year totaling over $1.8 billion in unexpected revenue.”[6]
In May 2025, as legislators began budget negotiations, the RFA’s Board of Economic Advisors announced an additional $1 billion in available funds, $669 million for one-time expenses and $377 million in recurring revenue. This came from stronger-than-expected tax collection following the tax season.[7]
The RFA’s Board of Economic Advisors (BEA) meets regularly throughout the year to monitor actual tax collections against projections. The BEA consists of four members:
- Edward B Grimball -Chairman – Appointed by the Governor;
- C. Curtis Hutto – Appointed by the Chairman, House Ways and Means Committee;
- G Michael Mikota, PH.D – Appointed by the Chairman – Senate Finance Committee; and
- Hartley Powell, Ex- Officio, Director, Department of Revenue.
This is an extremely accomplished Board that should openly embrace the Hybrid ZBB process and set policy to halt dysfunctional, break the piggybank practices.
Coordinated Forecasting, Budget, and Revenue Allocation Must Occur
When collections exceed or fall short of expectations, they update their forecasts accordingly. However, when large revenue adjustments happen multiple times in a single budget cycle, it raises questions about the transparency and predictability of the budget process. If more accurate revenue projections had been available earlier, the legislature could have made different decisions about spending priorities from the start of the budget cycle. Instead, substantial “unexpected” surpluses appear as the budget develops.
This dynamic creates challenges for fiscal planning. When significant additional revenues are discovered throughout the budget process, there’s natural pressure to appropriate those funds. But this can make it harder to maintain the spending discipline that zero-based budgeting principles would require. After all, if there’s “surprise” money available, why scrutinize existing programs as carefully?
This connection to the Department of Transportation example is instructive. When the governor announced the $1.1 billion increase, it came as non-recurring funding tied to recently identified surplus revenue. Under a hybrid ZBB framework, SCDOT would be required to demonstrate how this substantial increase aligns with its existing budget justifications. The additional money wouldn’t eliminate the need to explain how all major expenditures serve the taxpayers effectively, or better yet, return the funds to the taxpayers.
Better integration between revenue forecasting and budget planning would improve this process. The current system, where significant surpluses can appear at various points in the budget cycle, makes comprehensive fiscal planning more challenging.
The broader point is that fiscal accountability requires both accurate revenue forecasting and rigorous expenditure justification. When “unexpected” revenue appears, it shouldn’t bypass the scrutiny that the state’s zero-based budgeting law was designed to ensure. Whether money comes from the original budget or from additional revenue discovered during the year, taxpayers deserve the same level of transparency about how it’s spent and why those expenditures are justified.
Adherence to the ZBB Statute Must Return and Does Work.
DOGE SC and the SC Public Interest Foundation strongly support, at a minimum, the implementation of a Hybrid Zero-Based Budget to address a consistent framework for evaluating major expenditures regardless of when funding becomes available. Rather than additional revenue automatically translating to increased appropriations, it would be subject to the same justification requirements as the base budget. This would make the entire budget process more transparent and accountable, whether dealing with originally projected revenues or adjustments throughout the fiscal year.
[1] WIS News 10. (2007, November 12). Legislature overrides Sanford budget veto. https://www.wistv.com. https://www.wistv.com/story/5031646/legislature-overrides-sanford-budget-veto/
[2] Executive Budget State of South Carolina Fiscal Year 2026-27. https://governor.sc.gov/sites/governor/files/Documents/Executive-Budget/FY27%20Executive%20Budget%20Book%20-%20FINAL%200112026.pdf
Executive Budget State of South Carolina fiscal year 2018-19.
[3] South Carolina state budget (2009-2010) – Ballotpedia. (n.d.). Ballotpedia. https://ballotpedia.org/South_Carolina_state_budget_(2009-2010)
[4] South Carolina Department of Transportation Fiscal Year 2026-2027 Agency Budget Plan
[5] South Carolina Revenue and Fiscal Affairs Office. Home Page | South Carolina Revenue and Fiscal Affairs Office. (n.d.). https://rfa.sc.gov/
[6] South Carolina Office of the governor Henry McMaster. Governor Henry McMaster Announces Fiscal Year 2025-2026 Executive Budget | S.C. Governor Henry McMaster. (n.d.). https://governor.sc.gov/news/2025-01/governor-henry-mcmaster-announces-fiscal-year-2025-2026-executive-budget
[7] Skylar, L. (2025, May 21). SC legislators get extra $1B to spend as budget negotiations begin • SC Daily Gazette. South Carolina Daily Gazette. https://scdailygazette.com/2025/05/21/sc-legislators-get-extra-1b-to-spend-as-budget-negotiations-begin/