South Dakota Governor Dennis Daugaard outlined his budget proposal to the state Legislature Tuesday afternoon in Pierre. South Dakota did better than projected in the last fiscal year. Daugaard is proposing a total budget of more than $4.1 billion dollars.
Daugaard began his budget address by thanking voters for supporting a new constitutional amendment that he says reinforces the requirement for a balanced budget.
“Last year we proposed to the voters a constitutional amendment to add a clear requirement to our state constitution that requires a balanced budget," Daugaard says. "And this this principal is the bedrock of our state’s financial strength. I’m proud it passed the legislature and was approved by an overwhelming vote by the people."
Daugaard points out budget mistakes made in other states where budget windfalls are spent quickly rather than saved and carefully managed. He also notes that many aspects of South Dakota’s economy are outperforming the national average. He says the growth in individual income in South Dakota is very strong compared to the rest of the nation.
“Our per-capita personal income growth, which includes farm income along with non-farm income, made us number one in the United States from 2010 to 2011 in terms of our growth which was 11.8 percent. Our strong farm economy was a significant reason,” Daugaard says.
Daugaard says South Dakota’s tax revenue is generally healthier than projected, except in the banking sector – where the bank franchise tax revenue is down by about $16 million. He says new federal regulations including the Dodd-Frank Act created volatility for many banks and short term uncertainty around state tax revenues coming in from the financial sector.
“Overall I believe these changes have been good to South Dakota. Our Business climate is attracting banks to our state," Daugaard says. "But one consequence of this change is that South Dakota and the banks are grappling with how to calculate taxes on their bank income. A very changed structure.”
The Governor says he hopes the issue can be worked out by the start of legislative session but he says it unclear if this will happen. Daugaard says the state is also seeing some one time increased revenue in unclaimed property which is helping offset the losses. For the coming fiscal year 2014, Governor Daugaard proposes a budget of more than $4 billion; Daugaard expresses concerns at overshooting revenue projections. While during the last two years state funding has seen cuts to schools and state agencies, Daugaard is now proposing roughly three percent increases for education and several other state funded agencies.
“We need to continue to be conservative in estimating revenue in order to maintain our structural balance over the long term. Remember when I first came into office in the prior four years we had every year overestimated our revenue, and actual revenue came in below projections," Daugaard says. "Our worst overestimation came in when we overestimated revenue by more than 50 million dollars. We’ve got to be careful going forward, and we have been careful in the last two years let’s continue to that.”
Daugaard is asking lawmakers to increase the salaries of state employees by three percent. That includes technical school teachers and university professors. But the governor also notes that health care costs for state employees are increasing, and he is asking them to pay more out of pocket for health care costs. Daugaard goes on to stress a conservative approach to the immediate future. He wants to hold off on promising funds for the entire budget until more is known about the pending fiscal cliff being debated in congress.
“Because we live in a time of so much uncertainty, I believe we should wait and see what direction is taken by congress in the next several months and what impact it might have on our economy,” Daugaard says.
Daugaard says the national economy can’t go forward without raising taxes or cutting expenditures. He expresses deep concerns over the federal budget deficit. He says the fallout of inaction in Washington, D.C. could impact South Dakota.
“I don’t want to be an alarmist. I don’t want you to think that I’m being crazy when I say we got to worry about this in the future, because we do. We really have to worry about this," Daugaard says. "If this were your own personal budget you’d be very alarmed."
Daugaard says the state’s share of Medicaid funding is increasing. South Dakota is now being asked to shoulder more of the Medicaid burden than in the past. Daugaard says he is not recommending that South Dakota expand the Medicaid program in 2014 as laid out in Affordable Care Act. He says the state can’t afford to insure all of the extra individuals that would be added to the Medicaid rolls.
“Our best estimate right now is this expansion would add 48,564 able-bodied adults to the Medicaid rolls. And, I want to stress that these are able-bodied adults," Daugaard says. "They are not disabled; we already cover the disabled. They are not children; we already cover children. These are adults, all of them."
Daugaard notes the possible future economic impact of the drought and uncertainty around what a continued drought could mean for the state’s number one industry, agriculture. Overall he advises caution in the near term budget outlook given all the unknowns. Daugaard champions the efforts of South Dakotans to maintain a structurally sound state budget.
The governor’s budget is only the first step in the budgeting process. In January state lawmakers reconvene in Pierre for the 2013 legislative session where they will hash out the details.
Tune in to Wednesday's Dakota Digest to hear reaction following the governor’s budget proposals. You can find the entire budget address and all legislative coverage here a SDPB.org.
