We Don’t Spend Money We Don’t Have
A column by Gov. Dennis Daugaard:
Every December, the state legislature meets to receive a budget proposal from the governor. This proposal is the starting point for the legislative budget process, which ends with the passage of a budget bill at the end of session in March.
This week, I presented my last budget proposal to the legislature. This year was a little different, because Governor-elect Kristi Noem will be taking office in early January. Eight years ago, after I took office, I presented my own budget proposal, and I know the Governor-elect plans to do the same thing. The purpose of my budget was to provide updated information about revenue and expenses, and to create a starting point for Governor-elect Noem and the new legislature as they begin their work next year.
Over the years, I have applied several core principles to state budgeting:
We don’t spend money we don’t have.
We use one-time revenues only for one-time expenses, and we fund annually recurring expenses with only recurring revenues.
We maintain ten percent budget reserves, and we use those reserves only for emergencies, not to perpetuate overspending.
We conservatively project revenue and expenses. We don’t use accounting gimmicks. We don’t balance by accelerating next year’s income into this year, or by pushing expenses into next year.
We use one-time windfalls to repay debt, build or secure a new asset, or endow an ongoing expense.
And we structurally balance our budget, every year. We balance our budget, not only because our state constitution requires it, but because it is the right thing to do.
Some of those rules might seem like common sense, but there are many states which have departed from these responsible budgeting practices, and they have paid the price for it. Meanwhile, in South Dakota, we have taken several tangible steps to strengthen our financial practices.
In 2012, South Dakota voters passed a constitutional amendment that explicitly required a balanced budget – it passed with 65% of the vote.
In 2014, I proposed and the legislature approved legislation to require more frequent state revenue estimates, to identify any potential revenue shortfalls earlier in the budgeting process.
That same year, I issued an executive order to require the posting of budget metrics on the state website at open.sd.gov to detail monthly expenditures, revenue collections, and cash balances.
In 2014, our state used one-time windfalls to repay, early, $56.4 million in long-term bonds. In 2016, we early repaid another $42.3 million in bonds.
In 2015, the state presented its first long-term financial plan, a five-year capital expenditure plan, and a debt limitation policy. These were initially required by executive order, and then placed into state law. We also placed new limits on the amount of debt that can be issued through the South Dakota Building Authority. We have also accelerated the time it takes each year to complete the state’s audited financial statements.
Last, but certainly not least, South Dakota has fully funded and proactively managed our strong retirement system. Many states have enormous unfunded pension liabilities. South Dakota is a shining star in this area. Our retirement system is 100% funded. Wisconsin and Washington are the only other states that can make this claim. While other states use unrealistic assumptions such as higher rates of return, the South Dakota Retirement system uses realistic assumptions and has made many adjustments over the past several years to assure it stays fully funded over the long term.
As I leave office, South Dakota’s finances are the envy of the nation, and I am pleased to be turning over my office to Governor-elect Noem, who also believes in sound financial management. South Dakota is fortunate that generations of governors and legislators, of both parties, have worked together to keep us on a strong financial footing. I hope we never take that for granted.
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