Rounds in state budget address: 'We don't have the money'

Governor proposes austere budget plan

By Kevin Woster, Journal staff | Friday, December 05, 2008

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Spread the wealth around? Not this year. Not in South Dakota.

That was the message Gov. Mike Rounds delivered to South Dakota legislators Tuesday in a belt-cinching budget message that was more about saving than spending.

Actual cuts would be relatively rare in the governor's proposed budget for the fiscal year beginning next July. But it would limit growth largely to essentials in education, public safety and health and social programs.

And it wouldn't provide for initiatives that might, in other times, be considered essential - including a new prison facility in Rapid City, expanding health insurance coverage to more low-income children and pregnant women, and continuing special aid to sparsely populated school districts, mostly west of the Missouri River.

That special school funding is an example of good projects that should be funded, if the money were there, Rounds said.

"That would have been one of the top priorities for me," he said during an interview after his speech. "Most of the schools that benefit from those funds are in western South Dakota. And that was probably one of the best school-aid enhancements we've made."

State employees would get an across-the-board pay raise of 1.5 percent, rather than the more common 3-percent hike. And public schools would get a 3-percent increase in per-pupil state aid, rather than the bigger increases hoped for by education advocates.

With shrinking state reserves and a troubled economy, the money isn't there to do more, Rounds said.

"I'm like everybody else: I would love to provide more services, more help for more people," he said. "The difference is, I've got to provide the money."

The spending plan, which will be debated and likely altered somewhat during the 2009 state Legislature, will virtually drain a key state financial reserve in order to cover a more than $26 million shortfall in this fiscal year and $32.4 million in the next.

The budget faltered as costs increased and revenues failed to meet expectations that state legislators used last year to establish spending levels. And there's no guarantee that things won't get worse, if the staggering national economy falls even harder on South Dakota in coming months, Rounds said.

"I think we have to be responsible in South Dakota," he said. "I think we have to move back and focus on living within our means."

Rounds said he and his department heads responded to worsening financial times by trimming $100 million from a draft budget plan in September. The governor called upon South Dakota lawmakers to not promise new or expanded programs and state assistance unless they also identify corresponding budget cuts or sources of new or additional revenue. Senate Democratic leader Scott Heidepriem of Sioux Falls said he thinks that's possible.

"It's not as bad as the governor says. I'm actually fired up about the session," Heidepriem said. "We haven't even begun to look at ways to save money in state government. There are all kinds of opportunities."

Those opportunities include taking a hard look at state contracts with private businesses that could provide millions of dollars in savings, Heidepriem said. They also include tougher budget decisions within the regular framework of state government, he said.

"If you go back to the days when Bill Janklow was governor, there were no trust funds or rainy day funds or property tax relief funds. And he'd say to every cabinet secretary and bureau chief, 'You go back and reduce your budget by 2 percent, or by 5 percent, and you still deliver essential services to the state,'" Heidepriem said. "And you know what? We did it every time."

Democrats will bring more specific proposals for cost savings during the 2009 legislative session, he said. Rounds said he welcomes that and also hopes lawmakers will take a more conservative approach to budgeting than they did last year.

"What they did was take the highest revenue estimates - sales tax, contractors        excise tax and others - and in every single case adopted that, taking only the most         optimistic revenue estimates," Rounds said. "And now this year, we're short."

Revenues into the current general fund for the current fiscal year ending next June 30 are projected to fall $6.3 million short of the Legislature's forecast. Lawmakers sent the budget off anticipating it would take $11 million to $12 million from reserves to balance the budget. But less revenue than expected and increased expenditures dictated largely by legal mandates increased the need to $26.8 million, Rounds said.

During better times, actual revenues tended to exceed the budget projections. And the state had the additional back-up of an accessible property tax relief fund worth more than $100 million. But that fund has been hit hard in recent years for state priorities, and Rounds' projects that it will have just $4.5 million remaining after the 2010 budget needs are met.

An emergency reserve account contains $43 million and must be preserved for actual emergencies, Rounds said.

State Sen. Jerry Apa, an experienced appropriations specialist who is leaving the Legislature because of term limits, said lawmakers were banking on the typically stable growth of the state economy when they set this year's budget. The hard fall in bank franchise tax, cigarette tax and other revenues was unusual and difficult to predict, he said.

"Obviously, if we knew this was going to hit, we would have adopted a lower number. But historically, we've always been on the low side. We were optimistic about the economy of South Dakota," Apa said. "And really, I haven't put it to a calculator, but when you figure $7 million short on an estimate of $1.2 billion in the general fund, it's not too bad."

The general fund would make up about $1.24 billion of the overall state budget of $3.67 billion. The rest is made up primarily of federal funds and taxes and fees for highway construction and repair and other specific purposes.

Contact Kevin Woster at 394-8413 or kevin.woster@rapidcityjournal.com

Title: Gov. Rounds' budget address Date: December 2nd, 2008 Gov. Mike Rounds presented his proposed budget for 2010. Read who it will affect and how it will affect them. VIEW PRESENTATION »