South Dakota Governor Dennis Daugaard met lawmakers to share his State budget proposal on Tuesday afternoon at the State Capitol in Pierre.
Governor's Review of the Current Budget Year (Fiscal Year 2018)
Daugaard has told lawmakers for the past few weeks there is not a lot of money to go around this fiscal year. He says the numbers are actually worse than first projected.
"The [South Dakota] Bureau of Finance and Management releases monthly revenue updates on its website every month. And, if you follow those, you know that the State's revenue collections have not been meeting projections for the year we're in right now. Today, I'll propose expense reductions and one-time revenue to bridge that gap. But, despite that weakness in revenue...revenue is still growing - albeit slowly - and by next June, at the end of the fiscal year, we should have enough revenue growth to structurally balance the Fiscal Year 2019 budget," Daugaard says.
Daugaard says he plans to ask to use some of the State's reserve funds to help keep the current fiscal year's budget balanced.
"Today, we have about $165.3 million in reserves, or about 10.5 percent of our target goal. My recommendation for FY 2018 is to use that portion beyond 10 percent to help cover our current year shortfall, specifically for education funding," Daugaard says.
Daugaard blames a decline in South Dakota's agriculture sector for part of the revenue shortfall. He says much of the problem also stems from a lack of sales tax revenue. Daugaard says loss of tax funds from in-state online purchases is adding to the reduced figures in state income.
Slow Revenue Growth Leads To Fewer Increases
The governor says South Dakota is projected to have roughly $32 million more than was predicted for the current fiscal year. Daugaard says that's not enough to take complete care of three segments of State government.
"Due to lack of revenue growth, I cannot recommend inflationary increase - at all - for education; or Medicaid providers; or state employee salaries. My budget does include the following increases: for education, I'm proposing funding tied to increased student enrollment; for Medicaid providers - two years ago, we began a plan to move provider rates to at least 90 percent of their actual costs. Over three years, we've been working toward that, and this year I'm recommending funding to complete that plan. And then, thirdly, for state employees, although I'm recommending a zero percent increase across the board, my proposal does include a plan to keep some employees' compensation from falling further behind the market," Daugaard says.
By law, State Government has to balance its budget each fiscal year. Daugaard says his conservative spending proposal does that without any gimmicks.
The governor says inflation is an important factor to consider.
"We expect positive economic growth, but [we] need to be cautious, given recent sluggish revenue growth. Inflation is an important variable, because inflation has a direct effect on the growth of our sales tax. Higher inflation creates higher growth in sales tax revenue; but lower inflation, as we've experienced [in] the past several years, leads to slower growth in sales taxes. Inflation is anticipated to be in the 1.7 to 2.2 percent range over the next two years - slightly stronger than in [the] recent past - but still less than historically seen," Daugaard says.
He says the numbers are not bad, but they are precarious.
"The forecast assumes no economic recession will occur, nor any major disruption from abroad; and it also assumes steady housing and construction activity over the next two years," Daugaard says.
House Majority Leader Lee Qualm (R-Platte) says Daugaard is addressing the budget shortfall in a "fiscally responsible" way. Speaker of the House Mark Mickelson (R-Sioux Falls) and House Appropriations Chair David Anderson (R-Hudson) also support the governor's approach.
Two Democrats in the Legislature are concerned about Daugaard's proposed spending for education in Fiscal Year 2019. Senator Reynold Nesiba (D-Sioux Falls) represents District 15. He says there are many initiatives in secondary and post-secondary education that need attention. He says changes might need to come for those programs to receive funding.
"I'm hoping that at the end of this year that we can take a step back. And, maybe, it's time for a summer study for us to really take a look at our tax structure overall. Is it doing everything that we need it to do? That we do have these other deficits in terms of...we don't have a Pre-K education program...we're struggling...we're not going to have higher teacher pay - I worry that we're sliding behind in teacher pay because we're not going to be able to do increases and we're not meting the needs of our university students in terms of those with financial need. So, there's other deficits that need to be addressed besides our fiscal ones," Nesiba says.
House Minority Leader Spencer Hawley (D-Brookings) says he is frustrated most state employees will not see pay raises and that schools will not see per-student funding increases in step with inflation.
Daugaard has asked for more than $600,000 to raise pay for certain state employees who are not currently compensated at market values. His budget request also includes more than $20 million in education spending - with a large amount of that addressing K-12 enrollment growth.
Remembering Rep. Craig Tieszen
Lawmakers paused before Daugaard's budget address to hold a joint memorial service for State Representative Craig Tieszen (R-Rapid City). Tieszen died in a drowning accident in the Cook Islands on Thanksgiving Day. His funeral took place Monday at the Rushmore Plaza Civic Center in Rapid City. Daugaard opened his speech with another reflection on the life of the long-time public servant.
"Thank you, and thank you for that moving tribute to our good friend, Craig Tieszen. I know we were all shocked when we heard the news about Craig. As so many of you voiced so eloquently, he was a consummate public servant. From the Peace Corps to his long years in law enforcement service, to our friendship with him as a state legislator. He never let his preconceived notions get in the way; he was always a good listener, a good debater, always respectful. He always took his time to make the best decision. We are going to greatly miss him, but he is a great example to us all," Daugaard says.
Tieszen was in the middle of his first term in the State House. He previously served in the State Senate from 2009 to 2017. During his time in South Dakota's upper legislative chamber, he chaired the Senate Judiciary Committee. Tieszen served in law enforcement for more than 30 years and was Rapid City's Police Chief from 2000 to 2007. The Governor will name a replacement to fill his term at a later date.
Barthel Sworn-In, Haugaard Named Speaker Pro Tempore
Lawmakers also gathered before the budget address to witness the swearing-in of former Sioux Falls police chief Doug Barthel. He accepted an appointment from Governor Daugaard in September after former Representative Don Haggar resigned to take a position as director of the South Dakota chapter of Americans for Prosperity, a conservative advocacy group.
Barthel represents District 10, which includes Sioux Falls' northeast side and the communities of Brandon, Corson, and Renner. He served as Sioux Falls' chief law enforcement officer from 2003 to 2015.
House Republicans also had to fill another vacancy created by Haggar's departure - that of Speaker Pro Tempore. GOP lawmakers decided to nominate Steven Haugaard (R-Sioux Falls) for the position. The entire South Dakota House of Representatives will vote on Haugaard's nomination when they convene in January.