The Economics of Budget Cuts
Governor Dennis Daugaard is proposing a ten percent across the board cut to all state agencies. The business community is divided over the cuts. While some embrace the idea of trimming government to fix the structural deficit others worry it could harm local economies that revolve around state agencies. SDPB's Charles Michael Ray spoke with business leaders and economists across the state for today's Dakota Digest.
At the Vanway Trophy shop in Rapid City, you'll often hear the sound of metal engravers cutting out name plaques for trophies. OK, so you may be wondering what metal engraving have to do with the budget cuts. Well it turns out that about 30 percent of the business at this trophy shop comes from local schools. Vanway Trophy has done everything from football awards to the medals given out at local high school debate competitions. Spring is the busiest time of year here and the owner Troy Zoller is hiring.
"We're heading into our busy season March, April, May the end of the school season typically they like to throw all they're work at us at once so we have to be able to handle the volume that's coming through," says Zoller.
But Zoller worries that if budget cuts go through next spring might not be so busy. He says the cost of trophies and medals often come out of activity fees and booster clubs. But he's still concerned that education cuts hurt businesses like his, especially if extracurricular activities get the ax. He points to a trophy shop in Colorado that took a major hit when schools there were cut.
"Their gross revenue went down 60% the year before last - so that has a major impact when you're trying o retain employees. They went form about 9 or 10 employees and they were struggling to keep a hold of two of them. So, yea that's a definite concern," says Zoller.
Zoller describes himself as a fiscal conservative. As a business owner he likes the idea of a smaller government, but he worries these cuts could have a negative impact on the private sector. Others agree. Steve Howe the Executive Director of the Vermillion Chamber of Commerce he says cuts to higher education could be detrimental to his local economy.
"You know it seems every community in South Dakota has some large government funded entity weather it be the state hospital or the university or something so everybody is effected.
Howe's concerns are shared by Don Frankenfeld. He's a former Republican Legislator and Rapid City Economist. He projects the South Dakota could see an upwards of nine-thousand jobs lost under the Daugaard budget.
"I don't want to be mean to Governor Daugaard. He has a terrible dilemma. But I believe that he's solving that dilemma buy cutting too drastically and by ignoring the possibility that we could get through this with less pain, not with no pain, but less pain, if we had a modest and temporary increase in the sales tax," says Frankenefeld.
But not everyone agrees with this assessment. Governor Daugaard says Frankenfeld is overestimating the number of jobs that could be lost. Ralph Brown a professor Emeritus of Economics at the University of South Dakota is also skeptical that this many jobs will be lost. However, Brown agrees that cutting government spending will hurt the economy, but he says the other alternative, raising taxes, also hurts the economy.
"Either you cut spending, that has a negative impact what's the alternative raise taxes, that has a negative impact the two effects are probably equal in magnitude or roughly equal in magnitude in terms of negative impact," says Brown.
There are no easy answers when it comes to fixing the budget deficit in the short term. But some like Reynold Nesiba a professor of Economics at Augustana College in Sioux Falls also worry about the long term. Nesiba argues that cutting education is nearsighted.
"I mean do we want to be a Mississippi of the north, do we want to be a low tax low education place where people want to come and re-locate you know a chicken farm or do we want to be the kind of place that has higher tech jobs, a kind of place that values its university system, that is trying to develop new businesses that's encouraging our local entrepreneurs to produce," says Nesiba.
Those local entrepreneurs are often represented by the Chamber of Commerce. And Chamber groups across the state are weighing in on this issue. Linda Rabe is the President of the Rapid City Chamber. She wants lawmakers to consider all options but she agrees with the Governor Daugaard, painful cuts maybe needed to stem this crisis.
"The one thing I know everyone needs to keep in mind is times are tough and when times are tough you have to cut some things and it's always really easy to say you know don't cut my funds cut someone else's and it's going to take us all pulling together to make this work," says Rabe.
Lawmakers are divided as they grapple with the best ways to work this out. Governor Daugaard has promised to veto any legislation that raises taxes. So lawmakers who support a plan to temporally increase the summertime sales tax may have their work cut out for them.
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