PIERRE – Tax relief for South Dakotans will mean a lean budget year for the state.
During her annual budget address, Gov. Kristi Noem noted that a change in federal law would prevent South Dakota from continuing to collect sales tax on internet use. When that change goes into effect in July of next year, the state will lose $20 million in revenue. Municipalities are projected to lose $10 million.
“This will provide permanent tax relief for families and businesses who currently pay the government for simply accessing the internet,” Noem told a joint session of the Legislature on Tuesday. “That’s great news for South Dakota families and also a lean budget year for the state.”
Noem’s proposed $4.9 billion budget for FY2021 includes $1.7 billion in general funds, $1.7 billion in federal funds and $1.4 billion in other funds.
The loss of $20 million in internet tax revenue will be felt hardest in the area of ongoing revenue. Data that Noem shared with lawmakers showed that in the past five budgets, South Dakota has had an average of $52 million in increased revenue. After adjustments, the FY2021 projection for new, ongoing revenue is $22.7 million.
In addition to the $22.7 million projected in ongoing revenue, Noem also called for spending $18.5 million in one-time funds including $16.7 million from the budget reserve.
During the last legislative session, when Noem made her first budget speech to the Legislature, she proposed 2.5 percent increases for state employee salaries, Medicare providers and education. At that time, Noem said, “These three must rise together.”
In Noem’s proposed budget for FY2021, those three will stay flat together as she has offered no increases. During a news conference after her budget speech, Noem said that just a 1 percent increase in those areas would cost $16 million.
Using ongoing and one-time revenue, Noem’s budget includes a $5.1 million upgrade in the State Radio system, $5 million in grants for upgrading internet connectivity and $5 million for the construction of a new School of Health Sciences building at the University of South Dakota. Her budget also calls for funding school districts to account for increases in enrollment and enhancements in the family leave policy for state employees.
Her budget also includes a $14 million increase in special education funding and $3.7 million for meth treatment and enforcement.
After a year highlighted by tornadoes and flooding, Noem also proposed a new method of tackling disaster relief.
“Starting with the 2019 disasters, we will now offer loans to cities, counties, townships and tribes from the emergency and disaster fund,” Noem said.
At her press conference Noem explained that the state loans through its disaster relief fund would allow local governments to get right to work on disaster relief projects while they wait for FEMA funding. When the federal funding comes in, local governments would use that to pay off the state loan.
While she said she remains upbeat about South Dakota’s economic future, Noem said South Dakota is buffeted by the same “headwinds” that other states face: slow growth in the world economy and uncertainty about the 2020 elections and ongoing trade negotiations.
“As of today we can expect continued positive economic development,” Noem said, “but we have to remain vigilant, especially given recent slow revenue growth.”
Eric Ollila, the executive director of the South Dakota State Employees Organization, called the proposal to withhold a pay increase that would match inflation for state employees “disappointing,” but welcomed some of the governor’s other proposals like fully funding health plans and enhancing the family leave policy for state employees.
Sen. Reynold Nesiba, a Democrat from Sioux Falls who sits on the Appropriations Committee, said he would be working to find money to give state employees the pay increase.
Sen. John Wiik, R-Big Stone City, is a co-chair of the Appropriations Committee, and said he was not surprised by the low revenue reports. He called the proposals “very responsible” considering the lean year the state had but said the legislator would continue to keep an eye on revenue reports before making cuts and passing a final budget.
“This is the governor’s presentation,” he said. “It is the legislature’s budget.”
– From the Associated Press