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Daugaard makes lean budget proposal

PIERRE -- Gov. Dennis Daugaard asked the Legislature for 1 percent increases in state funding for public schools, Medicaid service providers and state government employees as part of the next state budget Tuesday.

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Gov. Dennis Daugaard delivers his budget address on Tuesday in the house chambers at the state Capitol in Pierre. (Matt Gade / Republic)

PIERRE - Gov. Dennis Daugaard asked the Legislature for 1 percent increases in state funding for public schools, Medicaid service providers and state government employees as part of the next state budget Tuesday.

The Republican governor said the lean recommendations reflect state tax revenues that haven't met expectations this year.

He said revenues likely would finish $26 million below the estimate for the current fiscal budget year that runs through June 30, 2017.

"The good news is there were no cuts," House Democratic leader Spence Hawley of Brookings told reporters after the 55-minute speech.

Hawley and Senate Democratic leader Billie Sutton of Burke said the Legislature would discuss whether 1 percent increases are enough for school and healthcare.

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"It's a matter of priorities. I think we can do more," Sutton said.

One possible source of revenue could be the Future Fund, which the governor controls without legislative oversight, Sutton said. Employers since 1987 have paid a special tax intended to help in workforce and economic development.

Daugaard told legislators that state sales tax revenue has been growing slowly as a result of low inflation. He said farm income plummeted lower and lower the past few years and would continue to be weak in 2017 and 2018.

Because of the economy's slowdown, Daugaard said he expects only about $20 million more in state general revenue for fiscal 2018 than was budgeted for 2017.

The silver lining is that, because South Dakota's economy weakened in comparison to the nation, state government will be required to pay a smaller percentage of Medicaid during fiscal 2018.

That is forecast to be a $9.5 million savings.

Another $3.8 million savings will come from the recent closure of the STAR Academy for juveniles near Custer.

Through a variety of maneuvers, such as a $13 million windfall from selling stock held as unclaimed property in the state treasury, Daugaard said the Legislature could cover the revenue shortfall and have $22.7 million to spend on one-time purposes.

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"South Dakota is working, working better than many other states," Daugaard said.

He added, "We can proudly say that we balance our budget honestly every single year without gimmickry, or overly borrowing."

Daugaard said past decisions by the Legislature in recent years put state government in a solid financial position, such as paying off debts early by using one-time sources of funding and keeping the state budget balanced.

"These practices are all paying dividends," Daugaard said.

He mentioned the late Rep. Dan Dryden, R-Rapid City, as one of the legislators who pushed for those steps. Daugaard called Dryden "a true numbers guy."

The Legislature convenes Jan. 10 for its 2017 session. The joint committee on appropriations will work on the budget. Its chairmen are Sen. Larry Tidemann, R-Brookings, and Rep. David Anderson, R-Hudson.

The governor's overall proposal calls for $1.62 billion from general tax revenues, $1.65 billion in spending from federal sources and about $1.35 billion from other state sources such as highway taxes.

Daugaard recommended the Legislature provide $5 million of one-time general funding toward the proposed animal-disease laboratory on the campus of South Dakota State University.

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Daugaard said the agriculture sector would need to come up with "significant participation" for the project's remaining $46.2 million cost.

"If such a means cannot be found, the appropriation would not be necessary this year," Daugaard said.

Daugaard recommended that legislators don't fund the public-financed election campaign program created when voters approved Initiated Measure 22 last month.

The law says the Legislature shall provide $9 per registered voter to the fund. Each registered voter would get two $50 democracy credits that could be given to the candidate or candidates of their choice.

Candidates for the Legislature and for statewide state offices would be eligible for the funding.

That would cost $5 million. Daugaard said Tuesday the money could be better spent elsewhere in a tight year.

IM 22, known as the Anti-Corruption Act, would also create a state ethics commission for elections, place restrictions on lobbyists and put a $100 limit on gifts a legislator could accept from a group or business with a lobbyist at the Legislature.

The gift restriction applies to the legislator's spouse as well and the definition includes employment. More than one dozen Republican legislators are asking a circuit judge to block sections of the law or all of it.

Their first hearing is Thursday. The lead plaintiff in the case is the new Senate Republican leader Blake Curd of Sioux Falls.

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