PIERRE, S.D. (KELO) — To understand how conservative the budget plan Governor Kristi Noem outlined Tuesday was, start with this: State law says the Legislature is supposed to increase state aid to South Dakota public school districts each year by the lesser of 3 percent or the rate of inflation.
The Republican governor didn’t ask the predominately Republican body of lawmakers to ignore the law. She instead asked them to spend the expected additional money in other ways.
Noem said state revenue already was tight, partly because bad weather this year crippled agricultural production. So tight, in fact, that she wants the 105 legislators to scale back state government’s current spending plan, and to give it a one-time boost as well, by taking nearly $16.8 million from the state reserve to spend before the 2020 budget year ends June 30.
The news got worse. Noem predicted state revenue will get tighter in the coming year. That’s partly because of a 2016 tax cut taking effect July 1, 2020, that she supported while in Congress. The cut will start costing the state treasury $20 million annually and make local governments give up $10 million they’ve been collecting.
She described this repeal as “permanent tax relief for South Dakota families and businesses who currently pay the government for simply accessing the internet.”
For schools the bottom line, she said, was she couldn’t recommend lawmakers give more state aid when state government starts a new budget July 1.
School districts would however see under her plan about $7.9 million more in additional special education aid and about $1 million more to help pay for about 1,000 more students expected statewide, according to Wade Pogany, executive director for Associated School Boards of South Dakota.
“We understand and empathize with the constraints the stagnant revenue collections have placed on Gov. Noem’s budget and are appreciative of her investment in special education for the upcoming year,” Pogany said afterward in a post on the ASBSD website. “Our charge is to ensure our K-12 public schools receive the inflationary increase that is required by state law.”
Noem estimated inflation during the next two-year period will be between 1.9 and 2.1 percent, lower than the current two years.
“As you probably already suspect, money is tight this year,” Noem said in her speech. “But just as South Dakotans always do, we find a way to be successful with the resources that we have at our disposal. So at my direction, state agencies have already tightened their belts.”
School Administrators of South Dakota executive director Rob Monson likewise wants the Legislature to follow the law on school funding. He posted a tweet that said the governor’s zero-percent recommendation meant “we will have our work cut out for us.”
State government employees wouldn’t get raises either under the fiscal 2021 budget plan she outlined Tuesday. Noem recommended the Legislature instead pay for the rising cost of insuring those employees, whom she praised.
“The men and women who work for our state are incredible people. Each and every day I am amazed at their efforts to make this state run as efficiently and as effectively as possible,” she said. “In short, I want to commend our state employees for their commitment and their dedication to the hard-working taxpayers of South Dakota.”
She also recommended no discretionary increases for providers of Medicaid services, although she wants them to get more money in other ways.
State government in South Dakota has been in nearly-constant financial difficulty for the past decade, stretching back through the Rounds and Daugaard administrations. Noem, who took office January 5, said state sales-tax revenue for the fiscal year that ended June 30 came in 1.3 percent short of what the Legislature had adopted in its February revisions.
For the 2020 fiscal year that began July 1, legislators adopted a budget in March that was based on sales-tax growth of 4.9 percent. Noem said Tuesday that sales-tax revenue instead has come in at about 4.1 percent growth. So she recommended lawmakers revise the growth expectation down to 4.5 percent.
Losing the $20 million of state sales tax to the internet-access relief means state government will see about $16 million of sales-tax growth in the coming year, Noem said.
“Great news for South Dakota families, and also a lean budget year then for the state,” Noem said. Altogether she expects state government to have about $22.7 million more in general-fund revenue for fiscal 2021.
She told reporters after the speech that state government hasn’t received the revenue boost many expected from the U.S. Supreme Court’s decision in the Wayfair case.
The Legislature in March approved a general-appropriations act that totaled $3.8 billion. That included about $1,692,000,000 in general funds; about $1,279,000,000 in federal funds; and about $832 million in other funds dedicated for specific purposes. The governor’s proposal Tuesday recommended more than $3.865 billion, including about $1,715,000,000 in general funds; about $1,300,000,000 in federal funds; and about $849 million in other funds. Those numbers don’t include informational budgets.
Her recommendations are a starting point for lawmakers to consider when they formally start the 2020 session January 14. John Wiik, a Republican from Big Stone City, is Senate chairman of the 18-member Joint Committee on Appropriations that puts together state government’s budget each year. “It’s balanced. It’s a tight year. It’s going to be tough,” Wiik said about her proposal.
Wiik agreed with her description of the internet-access tax repeal as “putting $20 million back into the pockets of South Dakotans.”
Other highlights from Noem’s recommendations Tuesday:
About $3 million more for methamphetamine treatment and about $700,000 for meth-related law enforcement;
One-time spending of $5 million for a new health-sciences building at University of South Dakota and $396,000 for a cyber-technology incubator and entrepreneurial center at Dakota State University in Madison;
One-time spending of $5.1 million for upgrading the State Radio infrastructure; and
A second round of $5 million funding for state grants to encourage companies to improve internet service to under-reached areas.