S.D. state government revenue should finish fiscal year on or near target, LRC analyst says

Capitol News Bureau
KELO Pierre Capital Generic

PIERRE, S.D. (KELO) — State government revenue should close the current budget year June 30 near or at the estimated amount for the general fund, despite the effects of COVID-19 on South Dakota’s economy, some state lawmakers were told Wednesday.

The Legislature’s Joint Committee on Appropriations received the update from Jeff Mehlhaff, a fiscal analyst for the non-partisan Legislative Research Council. Under his best case, revenues could reach the revised target of $1,707,953,887 that lawmakers had adopted February 12; under his worst case, revenue could be about $8 million short.

Mehlhaff said the small shortfall could be covered by unused funds reverted from various state departments’ individual budgets. He noted that reversions flowed into state government’s reserve account at the end of each of the past four fiscal years.

State sales and use tax revenue, collected on April transactions and paid to the state treasury in May, totaled about $3 million higher than for April 2019, according to Mehlhaff. “Overall the state was positive in retail sales, but in each sector there were winners and losers,” he said.

Consumers cut back on services, from lodging to beauty shops, and on some other categories, based on statistics Mehlhaff presented, while contractor excise tax didn’t dip and was “mostly unaffected” by COVID-19. The shape of the recovery could be a V or a W, he said.

Mehlhaff cited three reasons: 1) Strong consumer demand and confidence; 2) Injection of more than $2.6 billion in federal COVID-19 aid from Congress, plus $1.2 billion of COVID-19 federal assistance that went directly to state government; and 3) Governor Kristi Noem didn’t shut down the economy.

Instead, non-essential state government employees worked from home in many instances, state universities and public schools finished the spring semester using online courses, and many restaurants reduced service to carry-out.

Liza Clark, the governor’s commissioner of finance and management, told lawmakers Wednesday that $45 million of federal funds would be transferred before June ends to cover unemployment insurance. The money comes from a special COVID-19 fund the Legislature assigned to her bureau. She said it’s likely there would need to be several additional transfers to the unemployment fund.

Clark said municipal and county governments are getting up to $200 million of the COVID-19 federal aid that state government received. The money will be distributed as reimbursement for documented local COVID-19 expenses. Congress required that slice of the money be spread according to the 2019 census.

Her office has been fielding many questions from communities and counties about what is or isn’t eligible. The bureau has stayed in touch with the U.S. Department of Treasury for guidance, she said, and those answers are being delivered through planning districts, statewide associations and a frequent-questions area on the bureau’s special COVID Recovery Fund website.

“It’s still confusing. It’s been confusing for us,” Clark said.

She said the Legislature during a special session might be asked to approve small-business grants using some of the federal aid later this year. The governor discussed the concept during appearances in Sioux Falls and other communities this week.

Clark also told lawmakers that about $6.5 million would be used from the federal COVID-19 aid to pay for improving broadband service in South Dakota. That would be in addition to the $5 million that the Legislature had previously appropriated for the second year of the project.

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