Lean Times For State Budget
Despite the need to fill a shortfall in the current budget and the projection for another lean budget in FY 2019, South Dakota’s finances aren’t in bad shape.
That was the message Gov. Dennis Daugaard offered in his budget address to the SD Legislature on Tuesday afternoon.
“South Dakota’s working. We’re working better than many other states,” Daugaard said, noting the state’s high credit rating, its healthy pension plan and strong financial practices. “We’ve seen positive economic growth but need to be cautious given recent sluggish revenue growth.”
The governor’s proposed $4.7 billion budget for 2019 includes $1.7 billion in federal funds, $1.6 billion in the general fund and $1.3 billion in other state funds.
This is Daugaard’s last budget proposal. Constrained by term limits, he cannot run for governor again in 2018.
The general fund portion of the proposed budget includes $32.4 million in new spending. That amount will not include raises for state employees. School districts won’t have an increase in funds tied to inflation. Rather, they’ll see new money only as it relates to the expenses incurred by higher enrollments.
Daugaard said the state’s sluggish economy was due to a lack of growth in sales and use tax collections which account for 63 percent of state revenue. Four factors in the state’s slow sales tax growth have been low farm income, low inflation, a growth in ecommerce sales and rising health care costs.
Daugaard explained that lower farm income led to less spending on taxable items just as rising health care costs cut into discretionary spending.
“The increase in health care spending has eroded the sales tax base,” Daugaard said.
Tracking e-commerce sales continues to be difficult, the governor said.
“Some out-of-state sellers are voluntarily collecting their sales tax,” Daugaard said. “We know some companies are still not remitting tax.”
In addition to proposing a modest budget for FY 2019, Daugaard said the state must also revamp the current budget due to a revenue shortfall and increased expenses that total $33.7 million.
Contributing to the need to revamp the budget are $9 million in increased education expenses due to higher than expected enrollments and a shortfall of $20.3 million in revenue.
Daugaard proposed handling the shortfall by reducing state government expenses by $16 million and using cash from various state funds totaling $17.7 million. This includes tapping the state’s budget reserve for $7.2 million.
Daugaard noted that the $33.7 million needed to shore up the current budget amounted to about two percent of the general fund budget.
“I think we’re in relatively good shape,” Daugaard said. “We’re honestly balancing our budget with ongoing revenue only being used for ongoing expenses.”
He noted that the budget situation is bleaker in other states. He said Montana just finished a special budget session. Oklahoma lawmakers spent eight weeks in a special session and failed to come up with a budget to fill a $250 million shortfall. In Illinois, state government is using onetime funds, much of it raised through borrowing, to pay for ongoing expenses.
“Many other states find themselves in dire straits today because they fail to maintain that discipline that I’m proud South Dakota has historically maintained,” Daugaard said.