Just weeks ago, I offered my budget proposal for the upcoming fiscal year in South Dakota. The budget keeps promises made during my campaign: to cut spending and balance the budget without raising taxes. I am grateful for the opportunity to be your governor, but the job will not be easy. One of the most challenging tasks I will face as governor is to eliminate our structural deficit this year. A structural deficit exists when ongoing spending is greater than ongoing income. The structural deficit that we face is not a consequence of mismanagement, but is a result of the national recession.
Our tax revenue has declined. During fiscal year 2009 our ongoing tax revenues fell to $1.139 billion, and in fiscal year 2010 they fell again to $1.109 billion. This year we are seeing some revenue recovery, but we will still end the year with less tax revenue than we received in fiscal year 2008.
Even while our tax revenues were falling, we continued to increase spending. Most of the increases were for education and Medicaid funding. When I was elected Lt. Governor, eight years ago, we were spending about $310 million each year for state aid to local school districts. Today we have 3,500 fewer students, and we are spending $400 million annually. That�s $90 million more on 3,500 fewer students. The gap between ongoing revenue and ongoing spending has been filled by spending federal stimulus money. That money will be gone next year.
South Dakota cannot continue spending more than we are receiving in taxes. Just as individuals, businesses and families cannot spend more money than they earn, government cannot continue to spend more money than it brings in. On this foundation, I have constructed my budget proposal.
The proposal calls for spending reductions of $127 million in order to bring our expenses in line with our revenues. In my budget proposal, every department and bureau will spend at least 10 percent less than it did the previous year. My cabinet has taken salary cuts of 10 percent or more. The governor�s office has been cut 12 percent, effective last month. I cut my own salary 15 percent, effective last month. Similarly, elected officials along with the legislative and judicial branches have been asked to rein in their spending by ten percent. Everyone must share the burden. Efficiencies can and must be made across state government. The leaders we elected in November have promised a fiscally conservative approach and I will encourage them to keep that promise.
My administration is actively working to be transparent in our budget proposal. I have made a tour across the state, speaking to groups about the budget and fielding questions from South Dakotans. We are not making hasty, last minute decisions. We are not making back-room deals. We choose instead to engage citizens in dialogue. I encourage anyone looking for more specific information on the state budget to visit our budget website (state.sd.us/bfm).
Some say we must not cut spending to education. They ignore the reality that education comprises half of our general fund expenditures. To hold education harmless would double the burden which must be borne by the rest of the budget, and this is not realistic.
Some say that those who receive payments for providing Medicaid services should not be included in the reductions. Payments to Medicaid providers and those who serve other disadvantaged populations represent 36 percent of our general fund expenditures. Again, holding these providers harmless would significantly increase the necessary cuts to education and other parts of the budget. This, too, is unrealistic.
Some have advocated other means to eliminating the structural deficit. I am open to their ideas, so long as the goal of a structurally balanced budget is achieved. The budget proposal I have brought forth is a plan; it is not the plan. I can support different approaches to achieve our objective, so long as they neither raise taxes nor depend upon using one-time money to perpetuate continued overspending.
I do not support plans that would raise taxes. An economic downturn is the worst time to raise taxes and I will veto any tax increase that reaches my desk. I also believe that a temporary tax increase will simply encourage continued spending at unsustainable levels, and enlarge the problem we face when any temporary tax is scheduled to expire.
I am also committed to balancing our budget without using our reserve funds to temporarily plug the budget hole. Such a one-time expense would perpetuate the problem, kicking the can down the road and setting us up for the same discussion next year. If we cannot solve this problem this year, how will it become easier next year � an election year?
South Dakota is a great state. Her people work hard, pay their bills, and are responsible. As a state, we must do likewise. We can�t spend money we don�t have. We must reduce our spending to the levels of ongoing revenues and live within our means. By making the hard choices now, we will position ourselves for the prospect of a better future with a healthy budget in the years to come. We can do it.