Gov. Kristi Noem will address several competing factors in her annual state budget address. The address could be her last.
Gov. Noem must outline how she will fund state government while balancing one high priced ticket item when revenues are coming in lower than projected. There's also growing pressure for property tax relief.
It’s the kind of news state lawmakers haven’t heard in a few years.
“The revenues are down, year to date. They’re below target. Our year over year growth is below where we think it would be," said Jeff Mehlhaff, the chief fiscal analyst for the Legislative Research Council.
A few weeks ago, he gave a presentation to the legislative committee that crafts the state budget. The group meets intermittently after the brief, 10-week legislative session concludes in March.
Mehlhaff said if the trend continues, the state will see a two percent decline in collections year over year.
“That would be about $78.2 million short of what you guys adopted back in February," Mehlhaff said.
Most of that decline is driven by a reduction in sales tax collections. The state has not seen negative sales tax growth since 2010.
“There are a lot of things that can change between now and the end of the fiscal year," Mehlhaff added. "Maybe people have been holding back on spending.”
Sales tax collections are the main funding source for the South Dakota state government.
The governor’s office also expects revenues to come in lower than projected.
“Corn production is favorable, but input prices are high. Borrowing rates are high," Derek Johnson, the state economist, said. "Commodity prices are down, and overall farm income is down.”
While cattle prices are up, corn and soybean prices are down. That’s led to less farm equipment purchases.
Some are expecting Gov. Noem to deliver the most frugal budget of her administration.
“She had received, obviously, through COVID funding on the federal level, billions of dollars in federal funds and that sort of buoyed our state sales tax collections. I think that those increases are largely over,” said Nathan Sanderson with South Dakota Retailers—an association of 4,100 businesses in the state that keeps an eye on state government. “I think we’re going to see a pretty austere budget from the governor.”
Over the last several years, the Noem Administration has tucked away money into a fund known as the Incarceration Construction Fund.
That pot of just over $500 million is set aside to fund construction of a new men’s prison outside of Sioux Falls. It also includes $10 million of federal money for water and sewer—as well as generated interest that will go toward the project.
Last month, the appropriations committee also received a much-anticipated final price tag for that facility--$825 million dollars.
Officials estimate they’ll need about $200 million to completely fund the project to avoid bonding for the project.
Sioux Falls Republican Representative Tony Venhuizen is vice-chair of House Appropriations. He points to the $80 million surplus from the end of the last fiscal year that could go toward the cost.
“I’ll be interested to see if there are ways to get that paid for. We know we need to replace the old penitentiary," Venhuizen said. "We know that it’s cheaper to pay cash that to borrow. And we know the cost is only going to go up if we wait.”
Venhuizen said the state will also need more ongoing revenue to facing increased Medicaid costs from expanding the healthcare benefit.
Venhuizen said he expects Gov. Noem’s ideas for new spending will be very limited.
The governor’s budget address is Tuesday at 1pm CT, noon MT.
