Preparing For A Lean Year
A column by Gov. Dennis Daugaard:
December 2, 2016
Pierre, SD – In 1963 Gov. Archie Gubbard signed a bill into law which requires governors to submit an annual budget report to the Legislature. The report must be given to each member of the state Legislature on the first Tuesday following the first Monday in December. The law says “the Governor may present such report to the Legislature in person.” On Tuesday, Dec. 6, at 1 p.m. in the state House, I’ll honor the tradition of presenting that report in person to the Legislature by giving the annual Budget Address – and I’ll start by talking about the state’s revenue picture.
Since fiscal year 2017 began last July, revenue has been weak. The state’s receipts have fallen short each month: in July revenue fell $1.7 million below projections, in August another $3.8 million below, September was an additional $5.7 million short and October was worse yet with a shortfall of $8.7 million. That leaves us almost $20 million short for the current fiscal year.
The $20 million shortfall is primarily the result of lower than anticipated sales tax numbers. Low commodity prices in our ag sector is one factor which has weakened tax revenues. Although South Dakota exempts most agricultural inputs from the sales tax, large equipment sales are not exempt. When commodity prices were high, ag producers spent more on equipment, and had more to spend on personal items. With lower commodity prices, fewer ag equipment expenditures means less tax revenue and fewer dollars cycling through the economy.
The inability of states to collect sales taxes on some internet purchases is another factor leading to weakened tax revenue. The Bureau of Finance and Management estimates that up to $35 million in these taxes goes uncollected each year.
As I write this, we are still awaiting November’s sales tax numbers. Reports indicate that national retail sales over Thanksgiving week were strong. I hope that strength will be mirrored by South Dakota’s sales tax receipts.
But even if November’s numbers meet our target, it will be a lean year. We won’t have much to support spending increases or take on new expensive projects. This will be a year to focus on our priority areas and maintain our commitments. I do not anticipate a need to make cuts. The situation is not as dire as it was in 2011 when revenue had been declining for two years and we had a structural deficit on our hands. In the last few months our revenue has increased, but the increases have been less than what was projected.
South Dakota isn’t the only state where revenues are coming in lower than projected. A number of states are experiencing the same problem. Fortunately though, South Dakota is in a better position than many to deal with the problem. Over the last few years we have maintained structural balance and adhered to conservative budgeting practices. We don’t have unfunded liabilities or out-of-control spending problems. If we remain vigilant this year, we’ll continue on the right track.