Reserves — what are they good for?

As lawmakers head to Pierre with the budget foremost on the agenda and talk of the potential of cuts to all sorts of programs including k-12, Senator (soon to be Rep) Gene Abdallah raises the question about use of the reserve funds in today’s Argus:

Sen. Gene Abdallah, R-Sioux Falls, is moving to the House in January. He questioned the need to make cuts to education in the next budget when the state has $107 million in reserves. Abdallah said he would prefer to use those reserves now and make cuts later if revenues haven’t rebounded.

So are reserves a “rainy day fund”, a “special project fund” or a “put off the hard choices fund”?  And which of those would sparing k-12 cuts be?

Two other lawmakers want to raise sales tax during the summer to avoid using the reserves and avoid cutting k-12 including SDWC favorite Stan Adelstein.  Read about that proposal in the RC Journal.  Rep Don Kopp, who the Journal identifies as conservative, would rather see tax increases than using the reserve funds.

But the District 35 Republican said he is also open to a temporary tax increase if spending cuts don?t go deep enough to spare the state?s reserve funds.

?Maybe even institute a sales tax or a gas tax or something like that with a sunset clause,? Kopp said.

That is something the Legislature should do, Kopp said, ?rather than dip into our rainy day fund.?

Should the reserves be so sacred that a tax increase is preferable to spending the savings?    And if you advocate raising taxes — even temporarily (because you know a tax increase is never permanent) — are you still considered conservative?

44 Replies to “Reserves — what are they good for?”

  1. Pierre guy

    Would it not be simpelest to make some cuts, to lessen the burden and implement a penny sales tax and let our tourist visitors help pay for our tax burden? I know adding a tax is an ugly statement, but what is wqrong with it? Face it our future cannot afford cuts to our children in education and we owe the peole who need Medicad a chance at a health life.

  2. duggersd

    Actually Pierre Guy, I would not be opposed to a state tax on hotel rooms. We could also put a tax on things like car rentals. I know when I go to other states and use those services, I get stuck with it.
    As for reserves, what percentage would you all say is appropriate in any one year to use? I believe reserves are there for the rainy days, and if this is not a rainy day then I do not know what is. That is not to say we should not be looking at cuts. We need to keep all options on the table.

  3. William

    Pierre Guy,

    Eventually there will be cuts in Education spending, it’s simply to large a portion of the budget to be ignored. That said, we have to stop measuring the quality of our schools by the amount of funding we provide. Virtual schools are a viable option, particularly in rural areas. How do we know online education will work? Well, it already does. Full-time virtual charter schools are operating in dozens of states.
    http://host.madison.com/ct/news/opinion/column/article_27895f92-9a0d-5035-8910-3d86fe206d27.html

    1. duggersd

      William, I have made my living since 1996 by teaching via a virtual school. The SD DDN is a great tool for the state. It allows teachers from one location teach to several schools at other locations. I have had as few as one student taking my class from one of the distance sites. I happen to teach Spanish. Imagine what it would cost that school to offer that class for that one student.
      However last year the DDN took a big hit in funding. They were able to absorb it by delaying upgrades and not offering as many services as they had previously. The state likes to point to the DDN as a way of helping alleviate some of the problems caused by cuts in education, but when they cut the tool that alleviates some of those problems, I have to question the wisdom of that.

      1. William

        Based on this information, I would agree. It appears to be “penny-wise and pound-foolish”. Specialized classes, such as Spanish, are much more cost effective when able to be shared and DDN can be an effective way to provide them.

          1. duggersd

            Grudz, that would probably be fine, but at this point in order for a school to be accredited, it has to offer two years of a world language. And I know that you could probably refute this, but I can tell you I teach a lot of English in my Spanish class. Perhaps you are also unaware that Spanish is the second most spoken language in the US. Being able to speak and/or understand Spanish can be a great help in students’ careers.

  4. Dakota Kid

    Message. Our current reserves of 107M only cover about one month of state operating costs. Current levels are too low and should not be raided. It would be a horrible mistake and grossly irresponsible to use one time money (reserves) to fund ongoing expenses. Doing such would just prolong the inevitable…only next year the cuts would have to be made and the reserves would be gone. The legislature needs to do what they all said while campaigning- cut spending.

  5. Fletch

    They should have cut spending the last budget cycle. The cuts that they implemented were minimal at best. Not giving raises is not the same thing as making budget cuts. Unfortunately people, we are in a situation that is bad and not going to be getting better any time soon. The questions isn’t if we’ll make cuts, it will be when we make cuts and how deep they need (note I said NEED) to be to be effective.

    From a cash-flow standpoint, you make cuts as early as possible to avoid exaggerating the problems. I agree that the reserves should not be used to avoid making cuts. This is simply whistling past the graveyard and hoping that the economy turns around in the next 12 months.

    Fletch

  6. darby

    There is plenty of waste in state gov’t, it’s just that the powers to cut it refuse to, aren’t responsible enough to ferret out the waste, want to keep the status quo, or want to keep their little power entities intact. Whatever. OK, here’s an example. One agency wanted to cut an expensive subscription to a journal or something that no one read and was not necessary, it was recommended to be cut by the boss of the agency, but before that could happen it was automatically renewed for another year because it was automatically sent to the funders who funded it. How many examples are there like this? How many employees who are not needed but are kept on the payroll because someone doesn’t want to hurt an employee’s feelings? I do not favor using the reserves either for continuing expenses; what happens to those continuing expenses when the reserves are gone but those expenses are not?

    I might favor an additional penny sales tax for three months a year with a three year sunset as recommended by one of the legislators, I don’t rememer which one. BUT, that has to go along with making sensible and responsible cuts and cost-saving measures at the same time. Only raising the tax will NOT solve the ongoing issue of too much spending.

    Come on, new legislators and governor. Do some digging. Get a backbone.

    BTW, where is the money coming from to pay the increased expenses of a full-time lt gov and the increased cost of a new Secretary of Native American affairs (not sure I got the name right)? I voted for Daugaard, but he has to face the fact that SD can’t afford new expenses without making even more cost saving measures. They are there. Find them please. Neither fed or state or local gov’ts can continue to expand.

    1. Bill Fleming

      Well, on second thought, not really, I suppose. We’ll all have higher sales taxes for those few months, I guess. Dang, I was thinking those guys had figured out a clever way to give us all another “free ride” on our neighbors’ collective nickel. ;^)

      1. springer

        I see nothing wrong with a sales tax that will be in place during tourist season. We have traveled a lot across the US over the years and have paid very high bed and booze taxes in many states. We may not like them, but we pay them as we have no choice, and it is a temporary tax while we are in that city/state. It surely doesn’t influence whether or not we visit that particular area. Tourism is one of SD’s major job areas, and if we as a state can generate a little more revenue from tourism, we would be foolish not to.

        1. Bill Fleming

          Springer, that’s fine, as long as they exempt those of us who live in the Black Hills. We don’t want to be payin’ no gol dang tourist taxes and suchlike, by gawd. We’re FROM out here, right Mr. Grudznik?

          1. grudznick

            I don’t buy much in the way of trinkets and T-shirts, Mr. Fleming. And I never stay at hotels. I work for my suppers and I drink water with no flavorings. They can increase the tax in the Hills and I’d probably never notice.

    2. Mike Buckingham

      The definition of the tourism tax can be found here http://www.state.sd.us/drr2/businesstax/publications/taxfacts/tourism.pdf the tax is paid by visitor intensive industries for 4 months. But I question the dollars they want to raise and the journal article was confusing as they talked about raising the tax from 3% to 4%. The tourism tax is 1.5% and sunsets this at the end of 2011 and reverts to 1%. The state sales tax is currently 4% so I can?t figure out what tax they want to raise.

  7. Les

    We already have a hotel tax Dugger. I would not be opposed to a tax increase if…if the cuts are made in advance.

    Kicking the can down the road as Williams says is a boys game….a ten year old boys game.

    Lets cowboy up and make the hard choices all small business’s have been making for years.

    I proposed a fuel tax increase of a couple of cents for our roads. The loudest screamers to that were the Yugo drivers that said how much those two pennies were going to cost them and some farmer who don’t pay any on their ag fuel. Bottom line, interstate trucking pays more fuel tax in SD than any of us do.

    1. J Rae

      We should be in good shape then since there are maybe 2 or 3 yugos left on the road. Can’t imagine any small businesses complaining of having their operating costs raised.

  8. Brad S

    Before ANY discussion about “What to cut?” or “Whom to tax?” commences, we need to get some insight as to how current revenue streams are doing. I’m inclined to think things like Sales Tax revenue and Video Lottery revenue are on the increase right now, and that South Dakota is likely one of the very few states where property tax revenues are INCREASING.

    Why do we not have access to real-time tax information?

  9. Les

    Don’t take this personally Brad, but those who think this economy is just a hiccup soon to be forgotten without ever pulling the belt any tighter, are in la la land.

    A great economy will be flat at best for ten years if we plan on paying any dues. How long are we going to get a deal from China now that they have our manufacturing?

    Just because we’ve never seen something, doesn’t mean it can’t happen.(Great depression).
    It will end one way or another. In SD we know, it always rains after a drouth.

  10. Lee

    The cuts will – out of necessity – have to come from education (K-12, Tech Institutes and universities) and medicaid provider payments. That’s where the money is. The universities have already taken cuts the last few years and K-12 took a hit last year too. Yet there is an aversion to increasing taxes even modestly (a seasonal tax, a half penny, full penny withot food, etc.) with an acceptable sunset clause. It’s pretty hard to compete from an economic development perspective with a “low tax and low education investment” strategy. Can you find anywhere where that is working? I don’t advocate high taxes, but clearly when cuts become this broad based and potentially this deep, isn’t a small, temporary and broad based revenue increase a better solution? Just my half cent worth.

  11. Troy Jones

    Before spending reserves, the Legislature and Governor need to ask (and answer) three questions:

    1) Is the current budget deficit structural or temporarily related to the national economy? If it is structural, the only possible justifiable use of the reserve funds would be to help transition to a lower/smaller state government.

    2) If it is temporary, how long is temporary? The longer it is, they need to budget how much to use over the “temporary” period.

    3) If it is structural, they need to define essential state services (only those that can be provided by state government. “Only” may include “effectively” or “efficiently”) and first make sure those are properly funded. Then assess which “essential state services” might be able to bear user fees to insure “general fund” collective services don’t bear unnecessary cuts. Then assess which services/expenses can be transferred to local entities for the local determination if they are essential.

    While I don’t have enough facts/information to properly assess these answers (so I should keep my mouth shut but I can’t), my gut is a big chunk of the problem is structural and/or should be either subject to cuts or shifted to local entitities/user fees.

    With regard to education (K-12, vo-tech, and college), I think it is an “essential government service.” I think state aid to K-12 is a component of insuring equal quality education.

    This said, I have a couple of comments:

    1) Over the past 20 years, the cost of education has signficantly gone up way beyond inflation. Does anyone believe the quality has gone up proportionate to the after inflation cost increases?

    2) Because of #1, I believe the state may be bearing too high of the percentage of educating K-12 and especially college. I’m not averse to some shifting of the cost to local taxpayers and college students.

    3) If state subsidy of education must be cut, I’d prefer more of the cut be done to the regents than to local governments and the least to the Vo-Tech’s. I have a teacher friend who summed up this discussion best when she said “A K-12 education is the best investment a community can make. A college education is the best investment a student and family can make.”

    4) The reason I want the least to Vo-Tech’s is:
    a: Local school boards can tax the locals to make up any state cuts.
    b: The Regents can increase tuition to the student and their families which can be covered by loans. If a college student and his family is unwilling to increase their commitment to their future, why should we take the money from programs that don’t have alternative sources of funds?
    c: Vo-Tech students don’t have the lifetime higher wages to pay for their higher education like college graduates do.

    1. duggersd

      When they use the term “education”, is that K-12 or K-Doctorate? If a university student receives no financial assistance, what percentage of the tuition is actually funded by the state? Also, are the meal plans and dorm expenses actual expenses or are they subsidized as well? I have a daughter in a state college at this time. I believe if one compares the costs of a state school with a private school, the state students are getting a very good deal indeed. So, how much of that difference is based upon subsidies?

  12. Duh

    The only phrase that scares me more than “That’s Fine Dear” is “Temporary Tax” or “Tax With A Sunset Provision”. The IRS, State, County and city books are full of taxes that were only supposed to be temporary. The federal estate tax was originally designed to be temporary to help fund a couple of wars. Look how that turned out.

    Make cuts, deep cuts, across the board, then look at taxing (which is idiotic in this economic crisis).

    1. William

      At this point, they could probably LOWER the taxes on cigarettes and increase the tax revenue generated. Between 2007 and 2010 State & Federal taxes on cigarettes went up by $1.61 per pack. Sales are down approximately 30% but the percentage of smokers is not nearly that high. The smoking ban will likely be readdressed this session, as the Video Lottery taxes collected are down much more than projected by the ban’s propoponents.

  13. springer

    IMO one factor contributing to the higher than inflation cost of K-12 is the cost of the programs not essential to academic education. More and more schools are being asked to do what family and community previously had responsibility for – nursing, psychology, extra curriculars, social workers, besides the noon meal now also breakfast and proposed supper. Put the dollars to academics, not the ancillary services or increased administrative costs or new buildings, and there would be plenty of dollars available. A free public education was never meant to include all services to produce a well-rounded individual, only to educate that individual so he/she could support themselves and be a good citizen.

    1. William

      Springer,

      Too many people have bought into the myth articulated by Michelle Obama the other day when she said “?we can?t just leave it up the parents? to manage their childrens’ eating habits. To people like Michelle Obama and Hillary Clinton, parenting IS the job for professionals in the schools because parents just can’t be trusted (“it takes a village”).

    2. duggersd

      How much do sports cost the schools? Perhaps those should be “club” sports where the parents pay for the costs? Just throwing it out there. I am also curious about injuries. Do the students’ individual insurance policies cover those are are they born by the schools’ insurance? If so, who pays the deductibles? Just curious about that one.

      1. J Rae

        Dugger, don’t you work in the school system? You probably have the answer to those questions. I know when my kid has been injured, we payed for it out of our own pockets.

  14. J Rae

    So far we have:
    cuts to kids
    cuts to seniors and the physicians that help them
    cuts to state employees and their families
    cuts to college kids and their families

    So far that’s a hell of a program to sell into the voters. So what other cuts should we look at?

  15. feasant

    It is time to balance the books. You can not continue to spend more than we take in. My Family made cuts, so should Government officials. Congratulations and Thank you to everyone who does.

    I hope the DC crowd makes the right decisions, I can’t speak Chineese.

  16. 73*

    They are a political football. Had we not had the stimulus money this last year they would have spent some.

    You know that is a good question. Kristi Noem had the reserve money to spent that was put away by the state for a rainy day and she chose to spend money that increased our federal debt rather than lower the reserves.

  17. Duh

    J Rae: That’s completely opposite of the point I was making. Temp tax says “we’re gonna screw you for only so long”, then the party becomes permenent. Bush Tax Cuts say “hey, we’re gonna let you keep more of the money you’ve earned. Ok, guess you’re still making money and employing people, you can still keep it.”

    Hardly the same thing.

  18. Lee

    Taxes are a fun and emotional subject. Personally, I?m offended by the amount I send to Washington to be wasted and spent twice. I?m not, however, offended by what I?m asked to pay for state and local government and state and local education. Unfortunately for many ?a tax is a tax? and it is difficult to decouple federal and state.

    Interesting website at http://www.taxfoundation.org/taxdata/show/336.html. It shows that in 1977, SD was 20th in the country in state and local tax burden. By 2008, we had moved to 45th. Three states below us (Alaska, Wyoming and Nevada) have huge general fund revenues from oil extraction and gambling. Given SD does not have huge oil reserves or large scale gambling, the best we could ever possibly do would be 47th.

    Just trying to be objective and if this website is accurate, a half-penny increase in the sales tax (yes temporarily applied) would catapult SD all the way to 42nd or 43rd. Still very low. Is that truly an apocalyptic strategy? Or is gutting K-12, higher ed and Medicaid the way to go? It seems we might be better off to pin our fate to a better and more educated workforce rather than holding fast to our pride regarding low taxes. Also, SD does have a history of temporary tax increases for economic development. It worked then and can work again for this purpose.

  19. Name

    What are you really trying to say J Rae? Two cents fuel tax is really hitting small business in the pocketbook?

    I really think fuel taxes should go up a nickel as it is probably about 50/50 South Dakotans to interstate traffic.

    I really think we should have a half cent sales tax increase. All of this once proper cuts have been made. Are we ever going to start paying our own way in SD?

    1. J Rae

      Les, that was sarcasm…because I’m sure that small businesses don’t want to see an increase in operating expenses. When we look at our gas tax and our MV licensing fees we are far below other states. I’m with you on 5 cents or more.