Investment earnings kept S.D. revenues above legislative target for first quarter

Capitol News Bureau
KELO Money

PIERRE, S.D. (KELO) — Investments generated about $4.8 million dollars more for state government in South Dakota during fiscal 2019 than they had one year before. That bit of information seems arcane but is important to know, because those earnings have been spread around to various state accounts for the current fiscal 2020 budget that began July 1.

Combined with some other strong showings —South Dakota Lottery income being up 4.7 percent, and a sales-and-use tax performance doing 3.4 percent better than expected — revenues to the state treasury through three months ran just ahead of what the Legislature expected last winter, when lawmakers set the the 2020 budget.

The state Bureau of Finance and Management released the latest monthly and fiscal year-to-date information Tuesday.

Revenue from the statewide 4.5 percent sales and use tax is the top source for state government’s general fund. Meanwhile the uptick on investment income and interest didn’t surprise state finance officials, as shown by their July report to the Legislature’s Appropriations Committee.

Mark Quasney, who recently was named state economist, explained what happened on the investment income.

“The South Dakota Investment Council invests the cash from the various funds of the state treasury,” Quasney said. “After the fiscal year ends, the income generated is prorated based on the average daily cash balance of each participating fund for the previous fiscal year. The prorated earnings are then distributed in the current fiscal year.”

He said the average return on investments was 1.19 percent for the five years prior to fiscal 2019 that ended June 30. The return rose to 2.08 percent for fiscal 2019. He said that was the primary reason for the investment earnings nearly doubling.

“This increased return was due to interest rates decreasing toward the end of the fiscal year, allowing us to capture more gains — or lower losses — on sales of securities during that time. Additionally, higher interest rates at the beginning and middle of the year allowed us to invest in securities with higher coupon rates,” Quasney said.

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