From warnings of dire straits to a budget surplus in South Dakota

KELOLAND.com Original

PIERRE, S.D. (KELO) — South Dakota has a $19 million budget surplus from fiscal year 2020 and as of July 17, there’s been no decision on if or how the state will spend it related to any coronavirus expenses.

The surplus is automatically placed in state’s budget reserve fund but the state can draw from that reserve if it chooses.

Mark Quasney said in an email response to KELOLAND News that “No decision has been made regarding potential use of the budget reserve.”

Gov. Kristi Noem and state officials knew the fiscal year 2020 budget would be different than originally expected.

The state had already revised the fiscal year 2020 budget revenues in February to $1,707,953,887 that lawmakers had adopted Feb. 12.

But, a $19 million surplus for a fiscal year that ended on June 30 during the midst of a pandemic may not have been expected.

The governor told reporters on Monday, May 4, that her administration was “preparing for a serious budget shortfall because of COVID-19,” a May 5 KELOLAND News story said.

On May 27, a state official said a special session would likely not be needed as conditions were improving in the state. Although state revenues were still running behind, state auditor Liza Clark said CAREs Act money and other factors had improved the state’s financial situation.

The latter half of fiscal year 2020, the months of March through June were negatively impacted by COVID-19 but that was offset in part by a much better performance for most of 2020.

Total state revenue was still $7.9 million lower than estimates but the revenue source that makes up 63% of the state’s revenue kept the revenue from getting any lower.

Chart from the State Of South Dakota on projected revenues vs. actual revenues for fiscal year 2020.

“Sales and Use Tax collections for the first nine months of the year was generally quite strong,” Quasney said.

Although sales and use tax were still $11.9 million below estimates, the revenue was 4.6% higher than in fiscal year 2020.

Collections from January to March are for activity from December through February. Revenue during those months was higher in fiscal year 2020 compared to fiscal year 2019.

Fiscal year 2020 outpaced 2019’s sales and use tax collection because of “extreme weather conditions” in late 2018 and 2019, Quasney said.

But June 2020 showed improvement over 2019 with 2.6% increase but it was still lower than the predicted 4.6% increase. The Legislature had adopted a 4.6% increase for the 2020 budget.

South Dakota’s sales tax rate is 4.5%. The sales tax covers many items and the state is one of the few states that tax groceries at the full tax rate.

The state also spent $27.2 million less than expected.

There were several factors that led to lower than anticipated spending, Quasney said.

The state was able to use $1.25 billion in CARES Act money for certain expense which created savings, he said. Also, there was less than anticipated use of behavioral health in the state’s social services and lower costs for state aid to special education, Quasney said.

Although the coronavirus has had an impact on sales and use tax revenue, “these collections have held up fairly well so far through the current economic downtown…,” Quasney said.

Stimulus programs such as economic impact payments, federal pandemic unemployment compensation, the coronvirus food assistance program injected “hundreds of millions of dollars into the state economy,” Quasney said.

South Dakota’s financial situation also benefitted because Noem did not shut down the state, Quasney said.

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