The $54 million question Legislators must seek solutions to solve budget shortfall by David Lias As District 17 Rep.-elect Donna Schafer listened to Gov. William Janklow's gloomy report about the state's fiscal condition last week, one thought dominated all others.
"I think one of my first thoughts was, 'We're really going to have to be creative in developing the budget,'" she said.
Schafer, of Vermillion, believes the Legislature will need to find places to cut state spending.
"I believe Gov.-elect Rounds is going to see if there are any superfluous staffing and programs so that we don't have quite as much money going out, but I don't believe they can find $54 million of monies that way."
Janklow generally painted a gloomy picture in a speech to the Legislature last Tuesday, saying the state could have to tap $43 million in reserves to make it through the current budget year. The revenue shortfall also could reach $54 million in the budget year that begins next July.
But he said a federal settlement involving the estate of someone who died before South Dakota's inheritance tax was repealed will give the state an unexpected $18 million to help deal with the budget problem.
Schafer is hopeful that the state's economy will eventually improve, allowing the Legislature to make incremental increases in some areas of the budget.
"I thought it was very wise of the governor not to say how to spend the money," she said. "It allows the new Legislature and the new governor to make decisions about where the money should be spent, and I appreciate that a lot."
She admits to another response as she pondered the daunting task that awaits her and fellow lawmakers in Pierre early next year.
"One of my reactions was to think that this wasn't a good time to run for politics," she said laughing, "but every session has challenges. I think this problem is a reality that every state has to come to grips with."
The general tone of Janklow's speech wasn't a surprise, said District 17 Sen. Joe Reedy, Vermillion.
"We've known for a long time that we are short in the budget," he said. "There's going to be some money. We have about $80 million in reserves that we can tap into if we have to. What's a reserve for if you can't use it when you have an emergency?"
Reedy called for an audit of all state spending during his re-election campaign last fall. He hopes his fellow lawmakers will recognize the importance of closely examining the state budget.
"I hope we go through all of the departments, have a good audit, and find out how much money each of the various departments has that's sitting around and not being used," he said.
Reedy said he's not ready to automatically support an increase in cigarette or sales taxes to generate revenue for the state.
"I'm not going to support any kind of a tax until I see the details involved," he said. Rounds plans to give lawmakers his own budget proposals in a speech sometime early in the legislative session that begins Jan. 14. He said he will consider using reserves, trimming state spending and boosting some state taxes or fees.
Rounds isn't ruling out any revenue increases, but he said before any taxes are increased, he and the Legislature first have to look at ways to trim spending by reorganizing state government.
District 17 Rep. B.J. Nesselhuf, Vermillion, said he has a general idea of how the Legislature likely will respond to the budget problem.
It's more difficult, he said, to know specifically what may occur after the session begins early next year.
"Obviously, the talk is that we can dip into reserve funds, and there's talk of raising the cigarette tax," Nesselhuf said. "I don't know that there's that many programs that we can cut. I don't know where we can cut the fat anymore."
He said raising the cigarette tax may be one way to generate additional revenue.
"I'm sure everybody has an idea or two, but until we all get together and hash it out, we won't know if some proposals will even have a chance to be approved," Nesselhuf said.
He worries that education in South Dakota may remain underfunded because of the state's budget woes.
"The governor-elect said he had immediate plans to put money into education," he said. "I thought that was great idea, but I don't see how that's going to happen now. I think everybody has their pet projects that probably aren't going to happen now. It's just not going to be a very good year to push any extra spending."
Rounds said he intends to recommend a pay raise for
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state employees and look at boosting state aid to schools.
Janklow said the state's budget problems were caused by the repeal of the state inheritance tax at the same time the economy slumped.
The state could have easily handled the economic slowdown if it had not lost the $25 million or more a year it was receiving from the inheritance tax, he said.
The state used some reserves to make it through last year and the current budget calls for using another $36 million in reserves to make it through the current year that ends next June.
The state will have an estimated $72.6 million in reserves left at the end of this year, not counting the $18 million windfall from an unexpected inheritance tax payment, Janklow said.
State spending will rise by $20 million next year due to mandatory increases in programs such as aid to schools, prison costs, Medicaid services for the medical care of poor people, and an extra pay period, Janklow said. The way the calendar falls, state government will have 27 pay periods next year, he said.
Rounds has said he does not want to tap so much reserve funds next year that the state cannot deal with expected problems in future years.
Rounds said he wants to live up to his campaign pledge to boost state aid to schools, not only next year but in the long term. And he intends to propose a pay raise for state employees, but he doesn't yet know how much.
Rounds said he would not rule out a boost in the cigarette tax.
He said the state should consider raising its share of video lottery proceeds only if that would raise overall revenue to the state. The state and machine operators now split the earnings, but a boost in the state's share might cause operators to reduce the number of machines they run, Rounds said.