Governor Daugaard’s Weekly Column: Confronting the Realities of Another Lean Year

Confronting the Realities of Another Lean Year
A column by Gov. Dennis Daugaard: 

The Capitol Building was a busy place on Dec. 5 when lawmakers came to town for the annual Budget Address. They packed the state House early that afternoon to hear about our current economic situation and my proposal for the upcoming budget year.

With revenue trending below projections, I doubt legislators were surprised when I explained we face another lean year. The projected tax revenue for this budget year will leave us $20 million short. To compound that, we have 450 more students enrolled in our schools than anticipated. This is a good problem. Higher student enrollment means our state is growing. But it’s a problem that adds another $10 million to the gap for this fiscal year.

The revenue shortfall and enrollment growth must be combined with emergency costs that will need to be covered. Unaddressed, this would leave us $34 million in the red this year. We need to fill that hole to balance in fiscal year 2018, and then adopt a balanced budget for the 2019 fiscal year.

I am proposing we fill the current year gap by reducing expenses where we are able, and using one-time cash sources, including funds from our reserves. This would still leave our reserves at a healthy level of 10 percent of our general fund spending.

For the upcoming fiscal year, I cannot recommend inflationary increases for education, Medicaid providers or state employees. Inflationary increases would cost about $58 million and we have only $32 million in new recurring revenue.

Still, although we cannot afford inflationary increases, I am proposing we dedicate the majority of new recurring revenue to those three priority areas. I am recommending the largest funding increase go to K-12 education to cover next year’s higher enrollment.

Second, I propose we complete a plan, begun two years ago, to better reimburse community-based Medicaid providers for actual costs. This will allow us to keep our promise to those who serve the most vulnerable in our state.

And for state employees, I am recommending a very modest amount to keep some employee pay, which is already lower than market, from falling even further behind.

Although the situation is not ideal, we must remember that our state has been through tougher times. It was just seven years ago that we were facing major shortfalls because of the recession and had to balance the budget with across-the-board cuts. Our situation is not as dire today and I am not calling for cuts.

Also, this experience is not unique to South Dakota. Many governors and legislatures across the country are seeing soft revenues. Recently, Montana and Oklahoma have had to call special sessions to address budget shortfalls.  Moreover, others have not been willing to confront their fiscal reality. According to Moody’s, nearly a dozen states began their fiscal year without a budget in place.

In South Dakota, we have been willing to make the difficult decisions and that has put us in an enviable position. We have structural balance, a healthy level of reserves, AAA status with all three credit rating agencies and one of the strongest pension plans in the nation. I’m very proud of these achievements. They reflect the discipline and maturity that South Dakotans expect of their elected officials. We should never take that for granted.

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