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Daugaard touts "responsible" state finances, projected increased revenues and expenses in final budget address

Republican Gov. Dennis Daugaard gives his final budget address in the South Dakota state House of Representatives. Sarah Mearhoff / Forum News Service

PIERRE, S.D. -- In his final budget address of his eight-year tenure, Republican Gov. Dennis Daugaard attributed South Dakota’s “strong financial position” to the state government’s budgeting “discipline,” and used the same conservative approach to craft recommendations for fiscal year 2020.

Notably, Daugaard said he anticipates an additional $53.1 million in new ongoing revenue come fiscal 2020, nearly all of which he proposed be allocated to spending increases in K-12, Medicaid and state employee salaries. Those new dollars can be attributed to increased revenues in sales and use taxes, contractor’s excise taxes, insurance company taxes, lottery revenues and more, Daugaard said.

With that anticipated extra $53.1 million, he recommended the state increase state allocations by 2.3 percent to account for inflation to three areas: K-12 and technical schools’ state aid, medical provider reimbursement rates and state employee salary increases. Daugaard also recommended some revenue be allocated toward maintenance and construction costs for state buildings.

With a projected surplus of $53.1 million between increased ongoing revenues and the state’s base, plus $52.9 million in recommended expenditure increases, Daugaard said fiscal 2020’s bottom line under his proposal would be $187,292. Overall, Daugaard's proposed budget recommended a nearly $1.7 billion general fund. Fiscal year 2020 begins July 1.

In a news conference following his address Tuesday, Dec. 4, Daugaard told members of the press this is “a good, strong revenue year” -- a change of direction from what he said were a past few “lean” years.

Despite these increased revenue projections, Daugaard recommended changes to state employees’ healthcare for fiscal 2020, suggesting employees take on additional premiums of $20 to $40 monthly to account for the rising cost of state employee health insurance. Daugaard noted that though costs are rising, South Dakota’s state employee health care costs still trend lower than the national average.

Daugaard told press in a news conference following his address that he wasn’t happy to suggest this change, but that it’s comparable to other employers’ health care plans.

The state may actually see even more revenue come fiscal 2020, in addition to the projected $53.1 million increase. Daugaard in his budget proposal did not take into account any potential online sales tax revenue for fiscal 2020’s budget.

With online sales tax on out-of-state retailers’ goods only going to effect in November, Daugaard said the state won’t have access to solid collections data until May.

Analyses of national data estimate South Dakota online tax revenues could come in around $13.1 million for the year, but Daugaard said these estimates are not dependable enough to budget for.

“Once you get a year’s worth of history, then you have a logical and reasonable, responsible basis upon which you can judge what will happen the following year,” he said.

Daugaard also recommended several mid-year expense cuts for fiscal year 2019. He recommended $8.8 million be cut from Department of Social Services utilization and $6.9 million be cut from state aid to K-12 education, attributing the education cuts to lower-than-projected student enrollment.

Between these mid-year cuts and some other miscellaneous expenses, Daugaard said the state could have an extra $15.7 million to allocate to emergency appropriations in fiscal 2019.

Among other things, Daugaard suggested such emergency appropriations could go to an expansion to the state penitentiary’s Jameson Annex ($7.4 million), a National Guard Readiness Center ($3.9 million), an extraordinary litigation fund ($2.3 million) and a new metrology lab in Sturgis ($1.7 million). A metrology lab analyzes the effectiveness of equipment which takes state-mandated measurements, such as the weight of trailers and gasoline octane levels.

Daugaard closed his address noting the progress of the state economy since he assumed office in 2011. At that time, he said the recession had driven the state budget into the red, making the state take federal stimulus money to keep its head above water. So when he entered office, Daugaard proposed the state budget across the board by 10 percent.

“It wasn’t popular” at the time, Daugaard said, but since then, ongoing revenues and expenses have gradually increased, and the state’s fiscal years have finished with surpluses for the past seven years.

Daugaard accredited this budgeting philosophy for South Dakota’s current AAA credit rating.

“The reason I’m proud of that is because it’s a recognition that in South Dakota, we do things the right way. We’re responsible stewards of state assets,” Daugaard said. “We don’t spend money we don’t have.”

At the end of the day, Daugaard said his proposal was “just a starting point,” and the responsibility to work with the legislature to develop fiscal 2020’s budget ultimately falls on the shoulders of Republican Gov.-elect Kristi Noem once she assumes office in January.

In a statement issued following his address, Noem said Daugaard’s proposal “focuses on the most important thing: balancing the budget.”

She added, “With that as the basis, I will work with the state legislature to strengthen families and communities according to the plan I laid out during the campaign – all without raising taxes for hardworking South Dakotans and maintaining our state’s AAA credit rating.”