Guest Commentary: Necessary federal cuts will cost S.D.

I wrote a couple of weeks ago about the good news on our state budget. South Dakota closed its fiscal year on June 30, 2012, in the black, with revenues exceeding expenses by $47.8 million. As required by law, that amount was transferred to the Budget Reserve, which brings our total rainy day funds to 11.2 percent of current spending.

The next Legislature will be able to decide whether to save or spend those dollars. A major reason for this result is that South Dakota's economy has recovered from the recession more quickly than was projected. Some might argue that, because of this strong economic news, we should be quick to spend the new money.

I take a more cautious approach because of potential threats on the horizon. One important threat is the federal budget. The Budget Control Act passed by Congress last fall created a "Super Committee" charged with finding a partial solution to unsustainable federal deficit spending. Because the committee failed to agree on a plan, automatic spending cuts of $1.2 trillion over 10 years will take effect beginning Jan. 2, 2013.

The spending cuts contemplated next year total $120 billion. It is important to note that the recent deal in Congress to further delay a budget agreement until after the election does not delay, in any way, these automatic cuts.

Congress needs to reduce spending. Federal spending this fiscal year will total more than $3.627 trillion. Federal revenue will total $2.456 trillion. The federal government is spending $1.171 trillion more than it receives this year, and the national debt currently stands at $15.9 trillion.

I find it hard to wrap my mind around trillions of dollars – but if you remove some zeros, you can translate the federal budget scenario into your household budget: Your income stands at $24,560 per year. Your expenses total $36,270 per year. That means you are spending $11,710 more than you are earning in a year, and adding that debt to your credit card. And the debt on your credit card is already $159,100.

 The total cuts being proposed for next year would be only $1,200 from this household's spending. That's an important first step, but you can see it's a long way from solving the problem.

In order to balance the federal budget, Congress and the President need to trim more than $1 trillion from annual spending. The automatic cuts are just $120 billion. And even if they cut $1 trillion in spending and balance the budget, that would do nothing to make a dent in the nearly $16 trillion federal debt.

Other governors have called on Congress to delay making any cuts, because they are concerned about the effect on their states. I don't think we can wait much longer, though. Although I'm concerned about federal cuts to South Dakota, I'm more concerned about our nation's future if we don't get our budget under control. I will work with our congressional delegation to make sure South Dakota is treated fairly, but every state must do its share.

South Dakota's share of the cuts that are scheduled for January would be about $46 million a year. That is only 2.6 percent of the federal funding our state receives, but it would be a sizable amount to replace. Our state policymakers will have decide whether to allow these federal programs to be shut down or scaled down, or whether to keep them going with state tax revenues.

A cut of $46 million in federal funds to South Dakota could only be the first step. The current reduction contemplated in the Budget Control Act is a drop in the bucket compared to what needs to be done. If Congress made enough cuts to balance the federal budget, it would cost South Dakota's budget an estimated $383 million per year.

Being $47.8 million in the black this year won't protect South Dakota from the tough decisions that need to be made in Washington, D.C., during the next several years. We need to be prepared for what has to happen. Although $47.8 million is a large sum, it is truly paltry in the context of the fiscal challenges facing our nation in the years ahead.

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