PIERRE, S.D. (KELO) — The $19.4 million added to state government’s budget reserve this month came largely from savings, rather than economic growth in South Dakota.
That’s according to Liza Clark. The chief of finance for Governor Kristi Noem met Monday with the Legislature’s Joint Committee on Appropriations.
Clark said ratings agencies that track state government revenues were pleased when their staffs learned South Dakota planned cuts rather than tap reserves.
Clark highlighted more than $17 million of savings that state officials made from the 2019 budget that lawmakers approved in March 2018. State budgets run July 1 through June 30.
State Revenue Secretary Jim Terwilliger said the nearly $10 million shortfall in sales and use tax revenue was “most concerning.”
Terwilliger said the 2019 budget didn’t reflect any additional sales and use tax revenue from remote sellers and marketplaces that use the Internet to sell products and services to South Dakota.
The state law requiring remote sellers to report their South Dakota activities started in December, while the law requiring third-party marketplace sales took effect in March.
“I think it’s important to look at that sales tax a little bit more,” Terwilliger told lawmakers. He said there remains “a lot of uncertainty” about what’s happening as customers shift their purchases from local businesses to online.
“Consumers are changing their spending habits extremely fast,” Terwilliger said. “It’s shifting. It’s shifting very fast in front of our eyes.”
Senator Jim White, a Huron Republican, noted that agriculture producers aren’t making as many purchases of farm and ranch machinery.
Annual transfers to the budget reserve fund in the four previous Julys were $16.9 million, $8 million, $14.1 million and $21.6 million.
South Dakota is among the 12 states that have AAA financial ratings, Terwilliger said.
The 2020 state budget that lawmakers approved in March and began July 1 was set at $1.701 billion of general funds. Terwilliger, who doubles as state government’s economist, said he’s revised the revenue expectation down to $1.693 billion, a reduction of about $8 million.
Last February, both the state Bureau of Finance and Management that Clark runs and the Legislative Research Council advised lawmakers to revise revenue upward, only to learn later that revenue from sales and use tax collections was going down.
Terwilliger said he’s become more cautious. “There’s a lot of uncertainty and challenges in the ag sector,” he said. He also revised down the expectations from tobacco taxes and contractor-excise tax.
LRC budget analyst Jeff Mehlhaff went the other direction Monday. He told lawmakers he’s added about $1.5 million to his estimate.
“Overall, it’s a slight increase from what the (appropriations) committee adopted,” Mehlhaff said. “I would say our fiscal ’20 budget is going to be fine.”
The fiscal 2021 state budget faces the loss of an uncertain amount of sales tax revenue because the federal government is repealing nationwide all state and local taxes on Internet service, Mehlhaff said.
Mehlhaff estimated the repeal’s impact at $15 million for South Dakota. “I’ve heard a wide range from ten to twenty (million),” he said.