The week of the annual Budget Address is always a busy time in the Capitol Building, and this year is no exception. The halls are filled with Christmas trees and with hundreds of visitors who come to see them. We also welcome newly-elected legislators, incumbents, and those whose legislative service is ending, to discuss the state budget for the upcoming year. After the address, I travel to different parts of the state for my budget tour where I lay out the good news and the bad news of South Dakota’s economy.
The news came as no surprise to those who attended Tuesday’s Budget Address. Our state’s revenue for the first several months of the current fiscal year has fallen short of projections, in large part because of lower sales tax collections. Recent revenue weakness is a problem many other states share.
The good news is that the South Dakota Council of Economic Advisors projects South Dakota will see steady but slow economic growth in the next few years. According to the council’s economic forecast, although farm income is weak, nonfarm income is expected to grow at rates that are near historical highs.
Additionally, the state won’t need to spend all of the money that was appropriated by the Legislature last year. Total state spending in the current budget year is projected to be $34.7 million less than what was budgeted last session. Over the past several years, the state has also received stocks in the unclaimed property fund, and converting those stocks to cash will also generate funds on a one-time basis.
Through these savings, the state will be able to meet the revenue shortfall and appropriate modest increases for our priority areas. For the upcoming fiscal year, I am proposing a 1 percent increase for education, health care providers and state employees.
I am also proposing that the state add more money to our rainy day funds. It has been my goal to keep the state’s reserves at 10 percent of general fund spending, and right now the reserves are at 9.8 percent. I am recommending that the state add $2.4 million of one-time money to reserves to bring the funds back to the 10 percent level. Among the 50 states, the median rainy day fund is 5 percent.
I am also recommending that we use one-time money to help fund the state Animal Disease Research and Diagnostic Laboratory, which is South Dakota’s animal health laboratory, located on the SDSU campus. The lab’s purpose is to provide critical research and diagnostic support to protect our citizens and livestock industry from disease outbreaks. Most recently, the lab responded to outbreaks of Avian Influenza in poultry and PEDV in swine. The facility is out of date and needs to be modernized to meet operating standards.
Given our current revenue situation and what other states are dealing with right now, South Dakota is fortunate not to be looking at spending cuts or freezes this year. It is thanks to our adherence to conservative budget practices that, even in a year like this one, we are in a position to balance our budget and slightly increase spending for education and Medicaid. I look forward to a good debate about the proposed budget with the Legislature and the public over the next few months.