The legislative committee tasked with crafting the South Dakota state budget has adopted their projections.
Those include a revision to the current fiscal year, as well as an 18 month projection to the end of next fiscal year.
So far, the projection numbers are good news for officials.
For fiscal year 2018, the Joint Appropriations Committee decided on a revised budget number of $1,586,137,345.
It’s a welcome number for what’s been a fickle fiscal year for state officials. When projections were first adopted for fiscal year 18, South Dakota’s Ag slump was in its second, going on third year. That resulted in sluggish sales tax collections that the state relies on to fund the government.
Over the course of last legislative session and last year, revenues kept coming in lower and lower. This revised number is right back where they originally projected a year ago.
State Representative Dan Ahlers says there was a bit of a scare early on this fiscal year with a downturn, but after the first half, there started a gain that appropriators like. However, Ahlers did say the Ag economy is still a little behind and flat revenue wise.
“That should be a little concerning, because when we hit the recession back in 2008-2009, it was really the ag economy that was strong and really pulled us through," Ahlers says. "We’re being optimistic, but cautious at the same time.”
That’s the phrase heard around the statehouse, cautious optimism. State Economists are hoping the Ag economy has reached its bottom and is starting to work it’s way back up.
The appropriations committee is making projections a year and a half into the future. Appropriators originally projected roughly $4 million higher last year, which may sound like a lot, but turns out they were off the mark by about a quarter of a percent.
Now, that final number can still change when revenue numbers come in at the end of June.
Officials are hoping for better revenue collections this and next fiscal year because of two factors: one is a potential supreme court ruling on online sales tax collections that would benefit the state. The other is the recent federal tax overhaul, that will give South Dakotans more disposable income.
Well, the state’s been on a 3-year long downward trend economically, especially in the Ag sector because of weak commodity prices. Over the last 6 months, those sectors have stabilized and improved a little bit.
Jim Terwilliger is the state economist for the Bureau of Finance and Management. He says in years of strong farm income, those farmers will purchase expensive farm equipment. However, he says that may have been done largely for tax reasons, as opposed to need. Terwilliger says when commodity prices dropped that changed.
“A lot of farmers, when the prices went down, didn’t have to buy equipment for a few years,” Terwilliger says. “It appears to me now we’re getting to this point where, farmers—there’s enough hours on this equipment—they’re starting to have to upgrade some of this equipment. So, we’re seeing that in the equipment sales tax figures.”
The average use of implement equipment is about 3 to 4 years. After that, the hours start to add up on them.
Observers say the recent federal tax overhaul is playing into this cautious optimism.
Terwilliger estimates there will be some benefit because of the tax reform in the short term. That’s because of additional disposable income for consumer. He says it’s too early to tell how the tax reform will play out in the long term.
“If it leads to additional business investment and spending, I think you could see some improvement. I think it just depends on how that plays out," Terwilliger says. "Of course, we know many of the consumers will have more spendable income. But the business, on the tax side with the reduction in tax liability, if that leads to more investment, we might see a bit more of a bump from that as well.”
It's because of those tax cuts that, for the first time in state history, sales and use tax collections are anticipated to reach over one billion dollars. That’s never been projected before.
State Representative Jean Hunhoff says the tax reform has something to do with that higher sales tax revenue projection. She says if people have more money, they’re going to buy more things.
“We’re getting more people to spend money,” Hunhoff says. “So, to me, that’s an uptick that there’s more money available, disposable income, that people are willing to do that.”
Appropriators set the fiscal year 2019 budget at $1,641,295,684.
If you ask each individual lawmaker, you would probably get 105 different answers as to what to do with that extra cash. What I’ve been hearing from leadership and the governor’s office is at least a potential push to bring up pay for education, Medicaid providers and state employees to a cost of living increase.
But for now, appropriations will start piecing together the budget.