January 1 could bring much more than a new year if Congress doesn't reach an agreement. The looming "fiscal cliff" could bring higher taxes, a cut in spending and a possible recession. And while it comes from the federal government, it could have a big impact right here in South Dakota.
By doing nothing at all, Congress could make some big changes. But the cuts and higher taxes wouldn't just affect those on Capital Hill; they will reverberate through the country and take a significant piece out of South Dakota's budget.
"The average state gets about 6.6 percent of its revenue from federal grants," Governor Dennis Daugaard said.
South Dakota gets around 44% of its budget, or $1.75 billion out of $4.01 billion, from the federal government. In his annual budget address, Daugaard said that 10.3 percent of that, or around $412 million, is subject to cuts. However, if we do hit the fiscal cliff, the amount of money we would actually lose would be much less.
"So if the cuts take place, our best judgment now is they would result in about $29 million in lost federal funds," Daugaard said.
And for those sitting on the House or Senate floor, $29 million is a very big deal.
"Rightfully so, we have a reason to be concerned with what happens at the federal level. And so that’s where, not only how we as a state operate and are very frugal with the dollars we work with," Democratic Senator Jason Frerichs of Wilmot said.
"It’s only prudent to plan for the worst and hope for the best. If and when the fiscal cliff happens, and as the governor said today we have $29 million worth of impact to our state, dollars that wouldn't be there anymore," Republican Senator Russell Olson of Wentworth said.
It could mean cuts to the programs that get those federal dollars or the legislature could use the $26 million in one-time monies that they have to spend this year. But even then, it doesn't put the state completely in the black.
"That still leaves us $3 million upside down if you're looking at the $26 million compared to what the impact of the fiscal cliff would be," Olson said.
"I think all of us are hoping for direction, not only as state policy makers but for local government officials, along with the folks we send to Washington to do our work for us, We want answers," Sen. Frerichs said.
This year's legislative session begins at noon on January 8. So by the time the gavel opens the policy-making doors in South Dakota, we will know whether the state is at the bottom of the fiscal cliff or Congress made something work.