PIERRE, S.D. — There’s a new prop in the Joint Appropriations committee room on the third floor of the South Dakota State Capitol: a crystal ball, supplied by Rep. Mike Derby, of Rapid City, the body’s vice chair.
"We've added something new to our arsenal of predicting the future," Derby said. "It's high-tech."
Though its efficacy is, at the moment, unclear, a magical tool of the sort would be useful for the committee’s task over the past two days — peering into the future to guess how much revenue the state will take in over the next budget year.
In a morning meeting on Wednesday, Feb. 15, the committee, which holds the all-important purse strings of the South Dakota Legislature, set their revenue projections for the coming year, essentially splitting the difference between sets of predictions from the governor’s Bureau of Finance and Management and the lawmakers’ Legislative Research Council.
The theoretical budget conversations of tax cuts and spending increases of the past few months now have their footing in reality.
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Compared to revenue estimates adopted during the last session, lawmakers will have just about $320 million for increases to teacher salaries, cuts to sales or property taxes, aid to nursing homes and much, much more, assuming all other expenses remain equivalent.
But playing out the expected baseline increases, and those dollars are spoken for rather quickly.
A 5% inflationary increase to education, health care and state employees would cost $90 million; a targeted increase to nursing homes and other struggling providers commands $22 million; and the grocery tax cut favored by the governor removes around $102 million from circulation.
Implement those three priorities from the governor’s budget and lawmakers have just $100 million to fight over.
“We have requests that I've been looking at that have come in beyond what the governor asked for, and that's over $177 million,” Sen. Jean Hunhoff, of Yankton, the chair of the appropriations committee, told Forum News Service Tuesday night. “So there are still expenses out there; there are still several bills and we're going to have to address those.”
In short, that math problem — fitting lawmaker wants into a balanced budget — is why revenue estimates become so important; they set the tone for the final three weeks of taxing and spending conversations.
It’s also why, during a marathon session Tuesday evening that cut into Valentine's dinner reservations, several members on the House side of the 10-member revenue subcommittee pushed for higher revenue estimates.
The committee, which alternated between public discussions and closed sessions within their respective groups of five on the House and Senate side, went line-by-line through the state’s revenue categories, usually adopting estimates that averaged numbers from the Bureau of Finance and Management (BFM) and Legislative Research Council (LRC).
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The most important back-and-forth came on which expected sales tax number to adopt for the coming year. In any given year, sales taxes make up about 60% of total revenue.
The difference between estimates by BFM, on the lower end, and LRC, on the higher end, was about $80 million. Instead of splitting the difference, Rep. Chris Karr, of Sioux Falls, argued in favor of adopting the higher of the two estimates.
“Last year, we sat here and debated the LRC number being way too high,” Karr reminded the committee. “And, look, we came in and said, ‘Hey, wow, even the LRC number was way too low, in reality,’ so I want to encourage everybody to adopt this number.”
For Rep. Linda Duba, a Democrat from Sioux Falls, who seconded many of Karr’s appeals for higher sales tax estimates, funding the state’s needs requires a departure from the uber-conservative revenue estimates of the past few years.
“We have tremendous needs in this state. I want to make sure that we care for all of them,” Duba said. “All of the services that we need to support, those all come from [the revenue estimate].”
After another round of closed sessions, lawmakers settled on a sales tax growth of 5% over the current year, an estimate near the middle of BFM and LRC but slightly closer to LRC.
Despite the pandemic reality of actual revenues outpacing expected revenues by hundreds of millions of dollars and padding state coffers, the aversion from budgeters toward using those reserve dollars for any ongoing state obligations means funding for key state programs must fit within the overall adopted estimate.
According to Hunhoff, that’s simply a responsible way to budget, especially with uncertainty around the corner.
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“I guess I'm of the long-term view,” she said. “We're going to get through this next coming year and there may be some dollars left over. But it's those next two years when those federal dollars are gone, and all this other money is not there. And then how are we going to deal?”
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or jharward@forumcomm.com.
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