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Unpacking Noem's FY 2021 Budget Address
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LORI WALSH, HOST:

Governor Kristi Noem is proposing a $4.9 billion budget for fiscal year 2021.
Included is a $22 million increase in general funds from fiscal year 2020’s adjusted budget.

Despite that, Noem calls it a lean budget and a reflection of where the state government is at this year.

Joining us for a look through the reflection at what’s behind her proposed budget is SDPB’s Lee Strubinger.

Lee, thanks for joining us.

LEE STRUBINGER, BYLINE: Good to be here.

WALSH: Noem is calling it a lean year for state government. What’s driving that?

STRUBINGER: Well, the hit the state took in the ag economy this year… with the trade wars, the weather… rain and flooding. Noem is anticipating about 6 million in revenue decrease this fiscal year. And about $28 million increase next year.

The biggest chunk out of the general fund -- between fiscal years -- is anticipating upcoming federal legislation that really impacts the state budget. Starting in July, the state will lose the ability to tax internet access services. Senator John Thune introduced legislation in 2015 that eliminated a grandfather clause in federal law that allows states to tax for that service.

Starting July first, the state can no longer seek that tax. Noem says last year they thought the impact to the state budget would be less.

GOVERNOR KRISTI NOEM: Originally, last year we thought the implementation of the internet tax freedom act would hit the state budget at about 10 to 15 million dollars. From doing research over the last twelve months it’s actually larger than that. So, that’s why you’ll see a 30-million-dollar tax burden relief from South Dakota families. Twenty million of that will come off of the state revenue, which means we need to reduce that spending as well.

STRUBINGER: Some lawmakers anticipate freeing up that 30 million dollars in additional revenue could lead to some increased economic activity.

Noem is anticipating an increase of $36.6 million in sales and use tax from FY 20 to FY 21.

WALSH: Noem is recommending a smaller budget next fiscal year, but you’re saying the state is anticipating an increase in sales tax collections?

About a third of budget is federal funds.

A third of the budget is general funds.

About a third is what is called “other funds.” Other funds are derived from sources other than general and federal sources, such as special taxes and fees. A few examples would be: state highway funds, game fish and park fees, and tuition in the Board of Regents. That came from Liza Clark, South Dakota Chief Financial Officer

General Funds is what the state is mostly in charge of, which is about $1.7 billion. A lot of the budget is already put in place. The reduction in the overall budget is coming from largely the “other funds” category. About $57 million.

WALSH: Noem is not recommending a cost of living adjustment for state employees, education and providers… Did she expand on that decision?

STRUBINGER: She did. During a press conference following the governor’s budget address… she says in lieu of those inflation increases, her office found other areas in education and provider funding the state needs to address.

She says the money is heading to education, just not in the inflationary increases…

The state is seeing K through 12 enrollment increases, which they say is projected to increase by approximately one percent. Noem says that’s about 1 million dollars. She’s also proposing adjustments of $14 million for special education.

She’s also proposing $4.1 million dollars in the employee health plan. She says she also wants to focus on the family leave policy for employees.

State Senator Reynold Nesiba is a Democrat from Sioux Falls.

Nesiba says he’s worried about what he calls a wage cut on state employees, educators and medical providers.

STATE SENATOR REYNOLD NESIBA: Inflation has been at 1.5 percent. If we fail to give them a cost of living adjustment that means we’re moving backwards. It wasn’t that many years ago that we were 50th in the country in terms of teacher pay. And our failure to keep up, we’re going to be right back at 50th place again. That’s not where we want to be. South Dakota is better than that and our kids deserve better.

STRUBINGER: FY21 budget, forecasting 18 months ahead. Nesiba says there will be some mid-course corrections.

NOEM: The governor is recommending $3.7 million for meth treatment and enforcement. What does she see that money going towards?

STRUBINGER: Three million of that, she says she wants to go towards treatment facilities and 700-thousand go to law enforcement.

Last session, Noem asked for funding for four highway patrol troopers who specifically focus on meth as well as Two DCI agents to focus on investigations and those who’re trafficking meth through the state.
She says she wants the tools necessary to go after the issue with law enforcement, but that the three million is designated specifically for meth treatment. She says most federal dollars are targeted towards opioids.

NOEM: We do have opioid addiction issues in South Dakota, but overwhelmingly our problem is still meth. About 80 percent, and even more than that, that go through our court system and have addition issues, over 80 percent of them have to do with meth. That’s why I’ve made it a priority to make sure that we’re funding treatment, because as we’ve seen more and more requests come in, and more people contacting the helpline and accessing the website, we want to make sure that we have places that we can place them to get the kind of help that they need.

STRUBINGER: During a summer study this year, the Division of Behavioral Health surveyed 12 of their contracted agencies that provide publicly funded residential treatment services… meth treatment. They wanted to understand the demand for these services.

Based on the results – this coming from the Department of Social Services – they estimated a need of 55 low intensity residential treatment services beds, and 21 intensive inpatient beds for an estimated cost of almost $3.3 million.

I asked Republican Speaker of the House Steven Haugaard, who chaired the offenses regarding controlled substances committee this summer, if that $3.7 million for intensive meth treatment and enforcement was enough.

REPRESENTATIVE STEVEN HAUGAARD: Well, you can always say that you need more. As far as the number of beds needed and the treatment costs associated with that… we need to fine tune those numbers, but at least they’re getting into the right category. At least that shows we have the opportunity to get people into longer term care and actually see them succeed in their recovery.

WALSH: Governor Noem is also pointing to 5.1 million dollars to improve the state radio infrastructure for law enforcement and first responders. Five million for what she calls the Connect SD Initiative, internet into rural communities…

Absent from the governor’s budget address was talk of collections from remote sellers and potential changes to the Partridge Amendment. Why was that?

STRUBINGER: Noem says the state did not see revenues come in the door from online sales tax collections that would trigger a reduction in the sales tax rate.

The Partridge Amendment, real quick, is a mechanism in state law that reduces the state sales tax by .01 percent for every twenty million dollars in online revenue raised.

She says the twenty million dollars threshold was never met and that could have been for several different reasons, but her budget proposal didn’t reflect it because statute didn’t get triggered by the amount that was coming in the door.

Noem says there’s uncertainty in how to account for where sales tax is coming in from and how it’s defined.

NOEM: I’m sure that will be a debate that legislators will have. It’s something we’ve talked about for several legislative sessions now and that they’ll be bringing something forward as far as ideas. As appropriators dig into the actual dollars they’ll find out exactly where revenue is coming from and that it wasn’t as much as they had originally anticipated.

STRUBINGER: Despite that, during the executive board meeting among lawmakers yesterday morning before the budget address… the Partridge Amendment and online collections came up. Generally speaking you have two philosophies in how to handle that amendment. Senate Republicans are saying it’s just a shift in spending and therefore a wash. House Republicans are pushing to tie the amendment to an overall increase in revenue, not just internet revenue, to trigger that sales tax reduction.