South Dakota’s FY21 Budget

Standard

The Main Run of the 2020 session gaveled out just before 11:00 p.m. last Thursday, with the budget being the last item of business.  The final budget for the next fiscal year which starts July 1 is slightly under $5 billion, with 36% coming from federal funds, 35% from state general funds, and 29% from other funds such as licenses and fees.

This budget reflects an increase of just one percent over last year’s budget.  At the same time, the budget includes two percent raises for education, state employee salaries, and community support providers.

Legislators also finalized changes to the current budget which ends on June 30.  Items included in these changes are $5 million for the state share of a new School of Health Sciences building at USD, $5.1 million to upgrade the state radio infrastructure system, and $5 million to expand rural access to broadband services.

The legislature also agreed to spend $4.1 million to help local governments pay for upgrading or replacing bridges in poor condition.  South Dakota received nearly $34 million in a federal bridge improvement grant.  The state Department of Transportation is proposing to share this money with local government entities proportionally based on the percentage of deck area in poor condition.  That means 23.5% on state highway bridges and 76.5% on local bridges.

Local match requirements for the $25.8 million in local bridge funding is approximately $5.9 million.  However, many local entities are unable to utilize these funds because of insufficient matching funds.  The $4.1 million will be allocated among local entities under a competitive application process, similar to the existing Local Bridge Improvement Grant program.  Under this program, consideration is given to the structural condition of the bridge, the amount of traffic it carries, and the length of the detour if the bridge was not there.

This funding provides $32 million for local bridge projects with the highest priority local bridges being completed with little or no costs to the local government entity.

Legislators are scheduled to return to Pierre on March 30 to consider any vetoes.  Governor Noem has already vetoed two bills – HB 1012 and HB 1013, dealing with correcting technical errors in statutory cross-references.

South Dakota’s Budget Reserve Funds

Standard

South Dakota has two reserve funds which help act as shock absorbers for the state budget. The Budget Reserve Fund, which was established in 1991, is used to address emergency situations without having to raise taxes or cut spending.

At the end of each fiscal year, unobligated cash is transferred into the Budget Reserve Fund, up to an amount equal to ten percent of the general fund appropriations from the General Appropriations Act for the prior fiscal year.

At the end of FY2017, FY2018, and FY2019, unobligated general fund cash in the amounts of $7.9 million, $16.9 million, and $19.4 million, respectively, was obligated to the Budget Reserve Fund.

State law specifies that expenditures out of the budget reserve fund shall only be by special appropriation of the Legislature and shall only redress such unforeseen expenditure obligations or such unforeseen revenue shortfalls as may constitute an emergency.

The second budget cushion fund is the General Revenue Replacement fund.  This was created in the 2015 Legislative Session by transferring the balance of money from the property tax reduction fund. It is used to balance the state budget in the event of an unforeseen revenue shortfall.  If there is any unobligated cash remaining after the transfer into the budget reserve fund, it is put into the general revenue replacement fund.  This fund is capped at fifteen percent of the general fund appropriations in the General Appropriations Act for the previous fiscal year.

The Budget Reserve Fund is approximately $128 million, and the General Revenue Replacement Fund balance is $44 million.  Between the two funds, the State of South Dakota has slightly over $172 million in the bank, to address emergencies or unforeseen revenue shortfalls. These two funds, combined with our well-funded pension system and fiscal discipline, have earned South Dakota a AAA bond rating, which is the highest bond rating possible.

As we come to the final days of the 2020 Session, our last official action will be to adopt the budget.  The Appropriations Committee has been working since last December to develop a structurally balanced budget.  Our General Appropriations Act will use projected ongoing revenues to pay for ongoing costs; special appropriations bills will fund Legislative priorities of using one-time moneys to pay for one-time projects.