LEGISLATIVE UPDATE – LOOKING BACK & AHEAD
by State Sen. Glen Vilhauer
The South Dakota Legislature Joint Committee on Appropriations met recently to get a financial update on the State’s financial situation. Two main items were on the agenda-one looking back and the other looking forward.
The state’s fiscal year ended on June 30th and reflected a surplus of $69 million. This resulted from revenues being $30M than estimated and expenditures being $39M less than budgeted. Sales tax growth of 6.6% for the year was the main driver of the revenue increase. Unspent funds of $32M by the Department of Social Services accounted for the largest component of the expenditure side of the equation. While significant, this surplus deviates only about 2.5% from the overall budget for the year. It is a budget that is mandated to be balanced and is also prepared 15-16 months ahead of time. I would like to compliment the staffs of the Bureau of Finance and Management (BFM) and the Legislative Research Council (LRC) for guiding the legislature throughout the budgeting process and bringing us across the finish line so close to actual. I have been asked recently on a number of occasions as to what happens to this surplus? This excess will remain as part of the state’s general fund reserves to be used as the need arises for possible future expenditures. A couple recent examples is the funding of the new prison currently under construction and a recent transfer of $56M to jump start the property tax reduction brought about the decision to allow the sales tax rate to revert back to 4.5% starting next July 1st. Without these reserves the state would not be able to take advantage of options deemed necessary by the governor and legislature.
Now that the 2026 fiscal year is behind us we turned our attention to the 2027 year which ends on June 30th of next year. As mentioned before, the state is required to operate on a balanced budget, and this was passed by the legislature and signed by the governor late during the recent legislative session. The revenue forecast adopted would require an overall 1.5% increase in revenue with a needed sales tax increase of 3.0%-3.5% to accomplish this. Again, the numbers utilized for this forecast were projected 15-16 months ahead of some months of the new year. We need to keep our fingers crossed that the strong performance that we have experienced since the beginning of this calendar year carries over in future months. BFM and LRC staff will be closely monitoring this as the year unfolds and will keep the governor and legislature updated on a regular basis.
A few other items that were brought to our attention and briefly reviewed:
- The State maintained its AAA credit rating as determined by a couple of the key credit rating agencies. This is critical if the state needs to borrow money and also benefits counties, cities and schools if a borrowing need arises.
- The South Dakota Retirement System also finished a strong year with earnings on its investments of 11.9% while remaining 100% actuarially funded. This remains one of the strongest public retirement systems in the country for the benefit of the 100,000+ members covered.
- Per capita spending as measured by the general and other funds activity is $1,200 lower than any of the other states in our surrounding area.
In general, this reflects a state that is on solid financial footing and is being well managed by those involved in its operations. This includes multiple audits on various aspects of state finances. We heard a lot of rhetoric throughout the recent primary election cycle about the financial status and operations of our state finances. It was reassuring to hear from those that are closest to the numbers that the sky is not falling and that our citizens’ dollars are being spent prudently. Many states cannot say that. We can!!!