Governor Daugaard’s Weekly Column: Preparing For A Lean Year

daugaardheader DaugaardPreparing For A Lean Year 

A column by Gov. Dennis Daugaard:

In 1963 Gov. Archie Gubbard signed a bill into law which requires governors to submit an annual budget report to the Legislature. The report must be given to each member of the state Legislature on the first Tuesday following the first Monday in December. The law says “the Governor may present such report to the Legislature in person.” On Tuesday, Dec. 6, at 1 p.m. in the state House, I’ll honor the tradition of presenting that report in person to the Legislature by giving the annual Budget Address – and I’ll start by talking about the state’s revenue picture.

Since fiscal year 2017 began last July, revenue has been weak. The state’s receipts have fallen short each month: in July revenue fell $1.7 million below projections, in August another $3.8 million below, September was an additional $5.7 million short and October was worse yet with a shortfall of $8.7 million. That leaves us almost $20 million short for the current fiscal year.

The $20 million shortfall is primarily the result of lower than anticipated sales tax numbers. Low commodity prices in our ag sector is one factor which has weakened tax revenues. Although South Dakota exempts most agricultural inputs from the sales tax, large equipment sales are not exempt. When commodity prices were high, ag producers spent more on equipment, and had more to spend on personal items. With lower commodity prices, fewer ag equipment expenditures means less tax revenue and fewer dollars cycling through the economy.

The inability of states to collect sales taxes on some internet purchases is another factor leading to weakened tax revenue. The Bureau of Finance and Management estimates that up to $35 million in these taxes goes uncollected each year.

As I write this, we are still awaiting November’s sales tax numbers. Reports indicate that national retail sales over Thanksgiving week were strong. I hope that strength will be mirrored by South Dakota’s sales tax receipts.

But even if November’s numbers meet our target, it will be a lean year. We won’t have much to support spending increases or take on new expensive projects. This will be a year to focus on our priority areas and maintain our commitments. I do not anticipate a need to make cuts. The situation is not as dire as it was in 2011 when revenue had been declining for two years and we had a structural deficit on our hands. In the last few months our revenue has increased, but the increases have been less than what was projected.

South Dakota isn’t the only state where revenues are coming in lower than projected. A number of states are experiencing the same problem. Fortunately though, South Dakota is in a better position than many to deal with the problem. Over the last few years we have maintained structural balance and adhered to conservative budgeting practices. We don’t have unfunded liabilities or out-of-control spending problems. If we remain vigilant this year, we’ll continue on the right track.

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9 Replies to “Governor Daugaard’s Weekly Column: Preparing For A Lean Year”

  1. A Nony Moose

    Well, maybe those who pay the most sales taxes decided that the 1/2% increase broke the camel’s back.

  2. Anonymous

    Thank goodness it is not as bad as 2011. That is when Governor Rounds depended on the Obama stimulus to pay the bills.

    1. enquirer

      only a couple of states were able to hold the line on accepting no stimulus money at all. as i recall there was a pragmatic determination to participate in certain forms of stimulus dispersal, since money doled out wouldn’t decrease or be saved by our refusal no matter what. and the state wisely refused stimulus with strings attached, or the requirement to take on huge federal mandates. there’s no fiscal dishonor there.

  3. The Blogger Formerly Known as "Winston"

    Yep, too bad you guys weren’t able to get HB 1182 passed without mentioning the word “education” in it, but oh well, it was a nice try, but now you will have to live with the reality of it…. Good try though….You guys definitely tried… 😉

  4. Anonymous

    Well we already know that state employees are just fine with being bent over. They will simple be “grateful they still have a job” and the public will say they are overpaid anyway. Low wages all the way baby!

  5. Anonymous

    Yes, some other states are also experience revenue problems, they too are red moocher states. Perhaps we should look elsewhere for successful models (the ones that don’t require handouts).

  6. Anonymous

    You can bet if Kansas were successful with its model of conservative economics, we would be having that on full display. What happened to this model of supply-side economics? Perhaps we could learn from other’s mistakes?

  7. Anon

    Wasn’t it Gov. Archie Gubbrud, not spelled Gubbard. Am I missing something? You would think the Governor’s office or at least Tony would have caught this.