A friend tells me that, when he talks with business people in South Dakota, the No. 1 issue is the unemployment insurance surcharge of $150 per worker that they’re facing. To the credit of state Labor Secretary Pam Roberts, UI director Don Kattke and his staff, and the unemployment insurance advisory council, South Dakota’s business owners know this extra tax is coming and they know why. That doesn’t mean they like it, and that doesn’t mean many of them think it’s fair. But they did have time to plan, if they were paying attention to the news and to Labor’s information.
Meanwhile rumors rumble about what Gov. Mike Rounds has in mind for his 2011 budget proposal, which he’ll present to the Legislature in early December. Unless there is some miracle recovery in South Dakota’s economy, the deficit could easily surpass $200 million without major changes in spending or new tax revenue. The word directly from the Capitol’s second floor is no increases for state employees and no increases for providers of health, social and human services. While you’ll hear complaints that the budget will be balanced on those people’s backs, that’s hardly the case. Freezing state pay and provider rates only keeps the deficit from getting $10 million to $20 million bigger. The problem during this recession is that tax revenues aren’t growing at traditional rates. According to people who attended his recent Governor’s Club event at Sutton Bay, he said state government must spend less money this year than last year, and less money must be spent next year (2011) than this year. The 2011 budget will be finalized by the Legislature in March and takes effect July 1, 2010.
Several well-placed legislators tell me they’ve received no information about what the governor is considering. They say this behavior is not unusual for him. There’s no hint coming from Lt. Gov. Dennis Daugaard, either, during his meetings as he campaigns for the 2010 Republican nomination for governor. He’s telling groups that, as a matter of loyalty to the governor, he will keep his ideas to himself until after March when the Legislature finishes its 2010 regular session.
The one budget proposal we’ve seen so far came from another candidate for the 2010 Republican nomination, Scott Munsterman of Brookings. He said that if he was governor, he would have told the leaders of state government departments and agencies to submit 2011 budget proposals based on 2005-level revenue.
Would that work? I asked someone who has followed state budgets for the past two decades. Here’s that person’s analysis, condensed in my words:
The 2010 general-fund budget was set for $1,133,975,639 in state general funds plus $88,122,835 in federal stimulus funds that replace general funds, for a total of $1,222,098,474. The 2005 general fund budget was built on $991,127,751 including $33,135,627 of one-time funds. To do what candidate Munsterman wants to do, the 2011 general fund would need to be cut back to $957,992,124. That is the 2005 amount when the one-time funds are subtracted. To reach the $957 million target would mean eliminating about $264 million in current spending. My source said the only way to reach $264 million is to shut down the state universities, the state prisons, the state court system and many state departments.
There also needs to be a 1.2 percent increase in state aid to K-12 public schools, unless the Legislature changes the law which has been in place for more than a decade. My source further pointed out that the restrictions attached to the federal stimulus aid prohibit South Dakota from making cuts in Medicaid, while the Medicaid caseload has been climbing fast again amid the recession and continuing population trends. Medicaid actually will need to be increased substantially if those circumstances continue.
What Scott Munsterman has contributed to the debate is important. He has shown the box which South Dakota legislators and the governor are in. Munsterman hasn’t proposed closing down universities or prisons or anything for certain at this point. He has called for the usual steps — hiring freeze, limiting travel and expenses — and advocates an across the board cut. A true across the board cut would affect everything which receives general funds, ranging from school aid and health care to universities and prisons.
Naturally, the governor wants to wait until December so he has the best available information about actual tax revenue received so far in this budget year and to see what the economic conditions are. Likewise, the Legislature’s Joint Appropriations Committee prefers to wait until late February or even early March for the same reasons before setting the final revenue estimate used for the next year’s budget.
But what would be useful is a menu of contingencies for South Dakota’s citizens to consider. The menu could show the steps necessary at various levels of deficit of $50 million, $100 million, $150 million, $200 million, $250 million and $300 million. What cuts and when? What tax exemptions repealed and when? What tax increases and when?
There is one thing I find on which everyone agrees. Come January 2011, the new governor and the Legislature likely face an even bigger mess.