DAUGAARD: State on sound fiscal footing
Recently, South Dakota hosted visits from Moody's and from Standard & Poor's, as we prepare for a bond issue by the South Dakota Building Authority later this summer. The visit to South Dakota by these two rating agencies followed a trip to see them last winter by Lt. Gov. Matt Michels and our commissioner of the Bureau of Finance and Management, Jason Dilges. Following several years of efforts to strengthen our already good financial condition, we have been encouraging these two agencies to understand our financial strength, so we can achieve the favorable rating we deserve.
Our presentations to these agencies made several points: First, our annual budget process is strong, uses conservative revenue estimates and is in keeping with a constitutional balanced budget requirement adopted by South Dakota voters in 2012. Historically, South Dakota has adhered to a sound budget process, and we've taken steps recently to make that process even better. Last winter, the Legislature passed legislation requiring tax revenue to be projected three times a year, by separate estimates of the executive and legislative branches. We balanced our budget in 2011, and have reported budget surpluses for each of the past three fiscal years. Our rainy day reserves now total nearly $150 million, equivalent to over 11 percent of general fund spending.
Second, our balance sheet is also very strong, with minimal long-term liabilities. Many states have significant long-term liabilities in the form of underfunded pension plans. Our well-managed pension plan, the South Dakota Retirement System, is fully funded. Three months ago, in April, Boston College's Center for Retirement Research published an evaluation of the top 150 pension plans in the nation. Of those plans, only nine plans were fully funded. South Dakota was one of them. Eleven plans were less than 50 percent funded, including plans in Connecticut, Alaska, Illinois, Indiana and Missouri. The worst: Kentucky at 26 percent funded.
Beyond well-managed pension liabilities, South Dakota also has very little long-term tax supported debt. Last October, the Dow Jones financial news publication, Barron's, compared the tax supported debt of each of the 50 states to each state's Gross Domestic Product. Only 8 states had debt which equated to less than 1 percent of its GDP. South Dakota was one of them. Beyond that, last March, the South Dakota Legislature agreed with my proposal to use unexpected one-time receipts to make early repayment of $56.2 million of outstanding tax supported debt held by the South Dakota Building Authority. As of Sept. 1, when another bond will be fully repaid, the Building Authority will have ZERO outstanding tax supported debt.
In addition to strong budgeting processes and a solid balance sheet, we also spoke to other strengths.
Matt Clark, our state investment officer, described the processes used by the South Dakota Investment Council to manage state assets, including our retirement plan assets, our trust funds and our cash accounts. He explained the policies and practices used by the Council to manage risk and diversify our investment assets, at lower than average costs. Our Investment Council has achieved top percentile returns for many years, and last year achieved returns which were among the best in the nation.
We've also tried to be more transparent. Over time we've been working to provide all publicly available budget information on open.sd.gov. In June we took another step toward transparency when I ordered the Bureau of Finance and Management to make dashboard measurements on state finances and economics available to the public.
We concluded our remarks with a presentation by economist Dr. Ralph Brown, a founding member of the Governor's Council of Economic Advisors. Dr. Brown demonstrated that our state's economy has outperformed most of our neighboring states, and the national economy. He also provided data which proved that the agriculture sector, while sometimes volatile, does not cause similar volatility to be exhibited in the nonfarm sector.
All these achievements and attributes are worthy of celebration. They are also worth demonstrating to rating agencies, to insure South Dakota is given credit where credit is due. A good bond rating reduces interest expenses when bonds are issued to help finance projects like the new football stadium at South Dakota State University, and improvements to Good Earth State Park and Custer State Park.
South Dakota's financial foundation continues to grow stronger. I'm proud of the progress we've made, and grateful for the opportunity last week to describe it. And we're not done yet.
-- Dennis Daugaard, a Republican, is in his first term as governor of South Dakota.