Budget Surplus Explained

Aug 7, 2017

South Dakota Bureau of Finance & Management

After a $7.9 million surplus South Dakota now has over $165 million in its reserve funds.  It wasn’t drastic increased revenues that kept the state above zero.  The three branches of state government spent $15.6 million less than budgeted.  Liza Clark is the commissioner of the Bureau of Finance Management.  She says it’s important to reduce spending before touching state reserves.

“We didn’t want to take out of the budget reserve.  The governor has been very adamant that it’s really important for our rating agencies for us to have approximately 10 percent in reserves.  That’s been important for us to maintain our AAA bond rating.”

Maintaining a AAA bond rating lowers the interest rate the state pays on bonds.  Clark says this saves money for the state government as a whole. 

“That’s important because it saves the state taxpayers money.  If we go to issue a bond and we get a lower interest rate that’s a lower payment we have to make.”

Sales and use tax is 61 percent of the state’s 2017 revenue.  The tax is four and a half percent from retail sales.  Sales and use tax increased over 10 percent from 2016.  Clark says this is because 2017 is the first full year of half percent sales tax increase that passed in 2016.  There’s still no law that requires online retailers outside the state to pay online sales tax.  Some companies voluntarily sign up to pay online sales tax in South Dakota.  Lost dollars from online sales is something Clark’s staff is watching.

“Last year around this time we’d projected that from online sales we’re losing $50 million.  Roughly $30-$35 million of that would be state dollars, the rest would be city, local tax dollars.  Since we do have over 100 sellers signed up, we do have more information so we’re continuing to review that projection and work through those numbers, that $50 million is still the right number.  So we’re continuing to evaluate that.”

South Dakota Bureau of Finance & Management

Contractor’s excise tax is up five percent from 2016.  This tax is two percent on all prime contractors of construction projects.  This number grows because of construction growth and increasing material costs.  Lottery and tobacco revenues remain within two percent of 2016 numbers.  One surprise is the insurance company tax.  Insurance tax is a two and a half percent tax on companies that have policies in South Dakota.  2017 is almost two percent less than 2016.  Clark says there are a couple possibilities for the lost income. One example is lower than expected property and casualty revenues.

“One of the things we’re looking into is if it’s a timing issue of when insurance companies pay because they pay quarterly.  So when their final payment comes in during March or April that number was quite a bit lower than what we projected and what we have seen in the past.  So we’ve continued to look into that but also what’s changing in the insurance market we aren’t seeing premiums go down but possibly people are buying less insurance.  Property and casualty was down.  Annuities are down.  So that was a large one.”

Unclaimed property is three percent of 2017 revenue.  It’s down over $10.5 million from 2016.  After three years of property being unclaimed it’s considered abandoned and the money is transferred to the state’s general fund.  If someone claims the property the state is obligated to pay the money back.  Clark says this makes estimating unclaimed property revenue difficult.

“We’re projecting how much money will come to the state that people didn’t claim.  That's a huge fluctuation every year so that one’s really hard to predict.”

South Dakota Bureau of Finance & Management

A combination of smaller income sources are 12 percent of 2017 revenue.  These are anything from licensing and fees to investment returns.  Despite up and down revenues saving money is why the state has a surplus.  Agencies cut expenses by $15.5 million.  Examples of cuts include not filling vacant positions and not spending money on capital assets.  Capital assets include things like computers and equipment.  The largest savings is the department of social services at just over $10 million.  Clark says the number seems high but that’s only two percent of its total budget.  Human services is the second largest savings at just under $2 million.  Clark says savings reflect fewer people needing care.

“Their projected people that utilize their services came back lower than expected.  Not as many people were utilizing their services as they thought would.”

The united judicial system and legislature cut spending by just over $1 million.

Here is the complete FY2017 Year End Summary.