Gov. Kristi Noem: COVID fight isn't over, but SD is in strong financial position

PIERRE — Gov. Kristi Noem outlined a $5 billion state budget for the upcoming fiscal year during the annual budget address in Pierre Tuesday, Dec. 8, stating that South Dakota is “entering 2021 in one of the strongest financial positions in the country.”

“When I travel across the state and around the country, people often congratulate us on how strong South Dakota’s financial position is compared to the rest of the nation. Like you all, I take pride in the fact that we structurally balance our budget and have a AAA credit rating, and I’m committed to maintaining it,” Noem told members of the state House and Senate.

Noem's draft budget represents an increase of $110.7 million in total funds and the addition of the equivalent of 26.5 full-time employees over the base 2021 budget. For the fiscal year 2022 budget, Gov. Noem is proposing a general fund budget of $1.8 billion, which is an increase of $60.7 million over the adopted 2021 budget. This includes an increase of $403,273.

The proposed budget represents the 132nd balanced state budget, as required under the state's Constitution. the state's fiscal year starts July 1 of each year and ends June 30 of the following year.

The distribution of the fiscal year 2022 budget is as follows:

• $632.4 million, or 35.1% for State Aid to Education.

• $630 million, or 34.9% for Health, Human and Social Services.

• $232.7 million, or 12.9% for Higher Education.

• $111.2 million, or $6.2 million for Corrections.

• $82 million, or 4.5% for the Legislature, Unified Judicial System, Public Utilities Commission and Elected Officials.

• $23.2 million, or 1.3% for Agriculture and Natural Resources and Game, Fish & Parks.

• $91.7 million, or 5.1% for the remainder of state government.

Recommended general fund increases, excluding special and continuing appropriations, include:

• $19.3 million for State Aid.

• $12.3 million for Social Services.

• $9.6 million for Employee Compensation.

• $3.5 million for the Board of Regents.

• $600,000 for Technical Colleges.

• $15.1 million for the rest of State Government.

Noem opened her speech requesting a moment of silence for the South Dakotans who have died due to the COVID-19 outbreak and the state’s response to the ongoing pandemic. Though the state has taken criticism for its handling of the COVID-19 outbreak, Noem said that the state’s approach to mitigating the virus has left South Dakota in a strong financial position.
“Though our fight against COVID-19 is not over, our unique approach to the virus has left us in a strong fiscal position today. When the virus first hit, every state’s economy shrunk. But South Dakota overcame that quickly,” Noem said. “We closed the 2020 budget year in June with a $19 million surplus, and our general fund revenues are up by 19.4% right now, compared to the same time last year. We took steps last year to cut spending and be cautious with taxpayer money, and we are seeing the fruits of that today.”

Noem offered a number of recommendations in the address. She pointed out the costs of the new recreational and medical marijuana laws that voters recently passed in November. She noted that there will be significant safety and regulatory costs associated with both issues, though she said she is recommending just over $136,000 over three years to cover staff and other costs related to setting up the medical marijuana program.

“Over the coming weeks, we hope to know more about which path to take,” Noem said.

Other recommendations included the categories of paying off debt from 2010, restoring and reinvigorating the state’s infrastructure and strengthening state communities.

The governor's budget address included several recommendations on funding throughout the state.

Among the top priorities for Noem is getting all South Dakota residents connected to broadband internet service. Some rural areas in the state are underserved by high-speed internet access, something that has become more of a necessity rather than a luxury over the course of recent years.

“Sound infrastructure is closely tied with economic opportunity. The most important investment we can make this year is to finish connecting the state to broadband,” Noem said.

Noem said she is recommending an investment of $100 million to fully connect the state over the next few years.

“The benefits of this investment are hard to overstate. It makes it easier for our farmers and ranchers to communicate to their suppliers, access weather forecasts and participate in online marketing and auctions. It ensures that the next generation of entrepreneurs stay in small-town South Dakota to start their businesses,” Noem said. “It tangibly improves the lives of our students by making it possible to do schoolwork at home. The same is true of our employees, who would be able to telework. And of particular importance this year - it would allow even the most remote residents, including folks in the Black Hills and those in tribal communities - to access telehealth options.”

She said the Connect SD Program has already devoted $17 million to broadband projects, which in turn leveraged roughly $35 million in federal money and $37 million in industry money, for a total investment of just under $89 million in broadband in the state.

Noem also wants to replace the State Fair Open Class Beef Complex in Huron, which burned down in the early hours of Oct. 31.

She said officials began development of plans to rebuild a new and improved complex with the goal to become a premiere choice for equestrian and livestock events in the country.

“The new, multi-purpose facility will be 200,000 square feet. That’s more than 100,000 square feet larger than the old beef complex,” Noem said.

She said the new space will be capable of housing up to 2,000 head of cattle and allow for indoor regional and national rodeos, equestrian events and livestock exhibitions. That will put South Dakota on the map as a top notch destination for such events.

“This state-of-the-art facility will position us to better compete for national rodeo and equestrian events and provide new opportunities for the city of Huron and the state of South Dakota,” Noem said. “Like its predecessor, the new livestock complex will be a special place, and I can’t wait to see families and fairgoers making new memories.”

Noem has proposed $12 million in one-time general funds to supplement the $3 million insurance claim and the $4 million brought in through fundraising efforts.

Noem said in 2010 the state issued bonds to finance expansions in key programs at the state’s technical colleges in Sioux Falls, Mitchell and Watertown. The project led to investments in stronger auto body and maintenance programs, effective student services and modern facilities.

Noem wants to see two of those bonds paid off.

“I recommend that we dedicate just over $21 million to pay off two of the technical college bonds. This will save $1.7 million in ongoing debt service. That would result in a savings of $500,000 to the general fund and $1.2 million for the technical colleges,” Noem said.

Noem said unburdening the schools from the debt will allow them to refocus their attention so their dollars can be used instead to further improve the caliber of their programs.

Noem, noting that the state, in July alone, had undergone more than 14 billion cyber attacks from 165 different countries, recommended $10 million in one-time funds to upgrade vulnerable infrastructure throughout the state. That funding would allow the Bureau of Information Technology to conduct significant upgrades to protect our state and employee data from malicious cyber attacks in the future.

The funding will also allow the state to develop a comprehensive plan to replace many outdated and critical applications.

Noem also recommended an investment in the aging State Radio System, a single, uniform communications system for first responders in the state.

While the state has put funds toward that effort over the last two years, Noem is proposing to spend $3.2 million in one-time money to ensure first responders can continue to serve and protect South Dakotans.

This will be accomplished by building new towers in heavily-trafficked tourist areas like the Black Hills and leveraging existing towers to cover a wider area.

The arrival of COVID-19 exposed the state’s lack of in-state meat processing capability, Noem said, and more investment in that area can help reduce the burden on both consumers and producers, Noem said.

“A key vulnerability that the pandemic exposed is that our nation and our state does not have enough processing capacity to meet demand. As we’ve seen, this can lead to disruptions for producers and consumers,” Noem said. “To address this capacity, we are developing a grant program to provide funds needed to improve the state’s capacity to process and store South Dakota-raised meat products.”

The program would be geared toward small processors that local producers often work with. Processors may apply for grants to pay for facility upgrades, such as freezers or other equipment as well as make facility improvements to manage increased capacity.

Noem is recommending $5 million in one-time funds to facilitate the grants.

In an effort to strengthen South Dakota communities, Noem is looking to provide inflationary increases for medical providers, K-12 education, technical colleges and state employees.

The proposed budget includes an increase of 2.4% for medical provider reimbursement rates along with additional targeted rate increases for community-based providers. Noem is also recommending another 2.4% increase for state aid to education, and another 2.4% increase to the per-student allocation for state technical colleges.

The 2.4% is above the statutorily required 1.5%.

“This investment will help ensure that local school districts have the resources necessary to educate our children and grandchildren,” Noem said.

A 2.4% salary increase for state employees is also in the works, along with paid family leave and improved health benefits, she said. The plan will provide $12 million in healthcare savings, which will be reinvested directly into employee pay, especially for positions where the state’s base pay hasn’t offered competitive wages, she said.

Skilled nursing care continues to be a strong necessity in the state, Noem said.

“Here in South Dakota, we must ensure that our rural residents have easy access to skilled nursing care. The Access Critical Nursing Facility Program, implemented in 2011, does exactly that by reimbursing rural facilities to keep the financially viable,” Noem said.

Noem said nine such facilities in the state are benefitting from the program, and she proposes allocating an additional $1 million in ongoing funds to expand the program to three other facilities in Platte, Sisseton and Madison.

Noem also recommends $8.3 million in one-time funds to establish small-scale, private, adult Intermediate Care Facilities for individuals who need special care. Facilities in Rapid City and Sioux Falls will create regional access to care and allow these individuals to be served much closer to their homes. The facilities will also reduce capacity and costs at the South Dakota Development Center.

A substantial investment from the United States Air Force for Ellsworth Air Force Base to host the next generation of bomber, the B-21 Raider, is expected to approach $1 billion. The arrival of the new planes will force the base to repurpose a hanger currently used for recreational purposes.

“To replace this loss and enhance the local and military community, I recommend using $3.2 million in one-time funds to support a new recreational center near the base. In conjunction with funding from the Department of Defense and Pennington County, this $12.7 million facility will offer year-round space for the community,” Noem said.

While the state is in a strong fiscal position, the unusual circumstances require a careful look at budget reserves, Noem said.

“For this year, I am recommending we add an extra 2% to our regular 10% budget reserves. In addition, I am also recommending that we put $50 million in a trust fund in order to protect ourselves against any future economic hardships,” Noem said. “These two strategic investments will create one-time and ongoing funding streams for the future.”

She said she wants to be prepared in the event the incoming administration of President-Elect Joe Biden raises taxes.

“Frankly, I expect the road could be rough under a Biden administration,” Noem said. “We can expect him to try and raise taxes. Similarly, we can expect him to try and eliminate fossil fuels by passing the Green New Deal. And, whatever else a Biden administration might do, it would certainly drown us in new regulation. I expect Biden’s federal agencies to see South Dakota not as a partner but as a subordinate. So we must be prepared.”

The full proposed budget for FY2022 can be found at bfm.sd.gov.