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.