Opinion: Let us count the ways state treasury turned so redThere are many explanations why South Dakota’s state government wound up in such a deep budget hole that 10 percent cuts became necessary. Let’s look at four programs, added in the past 15 years, that gradually grew to more than $20 million annually in additional spending, without any new sources to support them. None was previously necessary, until a governor and legislators said so. Yet every one of them now seems to be politically untouchable: Subsidies to ethanol plants, bigger retirement benefits for public employees, college scholarships and financial paybacks to big business projects.
By: Bob Mercer, The Daily Republic
PIERRE — There are many explanations why South Dakota’s state government wound up in such a deep budget hole that 10 percent cuts became necessary. Let’s look at four programs, added in the past 15 years, that gradually grew to more than $20 million annually in additional spending, without any new sources to support them.
None was previously necessary, until a governor and legislators said so. Yet every one of them now seems to be politically untouchable: Subsidies to ethanol plants, bigger retirement benefits for public employees, college scholarships and financial paybacks to big business projects.
Our two previous governors, Bill Janklow and Mike Rounds, had hands in several of the decisions. Current Gov. Dennis Daugaard, did too, as did many dozens of legislators.
Let’s start with ethanol.
In 1995, the first year of Janklow’s return as governor, lawmakers approved a major overhaul of motor-fuel tax laws. Among them was a state subsidy of 20 cents per gallon for ethanol produced in South Dakota.
The 1995 law set an annual cap of $1 million per producer and limited the payments per producer to 10 years. The law also made $5.5 million available per year to pay for the subsidies. Not long after, the limit was changed from producer to facility, broadening the program.
The program was on track to expire in 2005. But Ron Wheeler and Jeff Fox from Janklow’s administration convinced him in 2002 as he ran for Congress that the program should be extended to cover new plants that came on line through Dec. 31, 2006.
The Legislature, filled with such pro-ethanol lawmakers as then-Sen. Larry Diedrich, R-Elkton, and then-Rep. Mike Jaspers, R-Sioux Falls, went forward with a support system for a second generation of ethanol plants, so those could get $10 million apiece of subsidies too.
Legislators set the annual spending commitments from the government at $4 million in 2003 for the plants to share. The earmark grew by $1 million annually until it hit $7 million for 2006 and thereafter.
There was a slight modification this year that trims a plant’s lifetime subsidy from $10 million to $9,682,000. There also was a change in the government’s schedule of payments, scaling back to $4 million annually in 2012 and 2013, and $4.5 million in 2014, 2015 and 2016. Then the amount returns to $7 million annually in 2017 and after.
In return, the ethanol industry secured a new deal: $3.5 million will be spent over a five-year period on state grants for ethanol distribution and retail systems.
Then there was the retirement decision. In 2000, the Legislature passed a law requested by the South Dakota Retirement System trustees. Its prime sponsor was then-Senate Republican leader Mike Rounds.
For Class A employees — essentially all the workforce except those in public safety or judicial jobs — the mandatory contributions by employers and employees rose from 5 percent to 6 percent, effective July 1, 2003. Governments who were members of the system also received the option of starting the 6 percent in 2001, phasing it in or waiting until 2003.
The additional contribution was a 20 percent increase in retirement-benefit costs for the member governments in SDRS. They include state government, state universities, many counties, municipalities, school districts and other bodies. Consequently every salary dollar for every government in SDRS cost $1.06 rather than $1.05.
That extra penny added up to extra millions of dollars a year charged to taxpayers throughout South Dakota.
SDRS is a little-known but not insignificant cost to the public. The 470 member governments paid about $98 million into the retirement system in 2010 as their share for coverage of approximately 36,000 Class A employees and about 2,700 Class B (public safety and judicial) employees.
Then there are the Opportunity scholarships. The state Board of Regents, whose members govern the state universities, pushed for years for state funding of an academic-based scholarship that would reward higher-performing high school graduates. The goal was to offer an incentive to them to attend one of the state universities.
Regent Harvey Jewett of Aberdeen, whom Janklow appointed, was a leading proponent for a state scholarship. Janklow for a long time argued the money was better spent in keeping tuition down for all students.
Jewett eventually convinced Janklow to let a proposal advance in the Legislature. But the Legislature has many members from districts where private universities are located. Lawmakers passed legislation providing scholarships to students who planned to attend any accredited college, university or technical institute in South Dakota.
Janklow vetoed the bill because he didn’t think the state constitution allowed public funds to be used for private colleges. The Senate couldn’t override the veto and the issue stalled until Rounds took office in 2003. He immediately allowed the scholarships to go to private schools.
The Legislature didn’t have the money in 2003 but established the program anyway. Funding was found in 2004. Students, if they remain eligible, get $1,000 in each of their first three years of post-secondary education and $2,000 the fourth year.
Opportunity scholarships cost $4 million for the current year. Since the first ones were awarded, approximately one-seventh of the 7,342 scholarships have gone to students at private schools.
Augustana College, for example, has had more recipients (603) than has Northern State University (316), Dakota State University (283) or Black Hills State University (404). (Among the three other schools, South Dakota State University I tops at 2,944 followed by University of South Dakota at 1,505 and South Dakota School of Mines and Technology 608.)
By now readers of this column know well the next saga: The construction tax refunds for large projects.
In 2006, prior to the Legislature and Gov. Rounds greatly expanding the program, the refunds totaled $1.9 million. It became very expensive very fast: $5 million in 2007, followed by $14.9 million in 2008; $18 million in 2009; and $11.7 million in 2010. Because the criteria were so broad, projects could qualify regardless of whether incentives were needed.
Once names and numbers began to become public in 2009, Rounds and the Legislature scaled back the program and repealed it entirely effective Jan. 1, 2013. But Daugaard and the Legislature this winter replaced it with a similarly expensive grant program starting Jan. 1, 2013, that is expected to cost at least $15 million or more annually.
And so the cycle continues.