Greetings from Pierre. This week I would like to explain the revenue process as it relates to the budget. I will also give an update on bills concerning ethics and campaign finance reform.

Appropriations, as part of the budget process, adopts revenue estimates for each fiscal year. As a member of the revenues sub-committee, my job is to analyze revenue estimates from our legislative and the governor’s financial staff. First, we review the revenues for fiscal year 2017 which began on July 1^st, 2016. Based on revenues for the previous 6 months, we determined that this year’s revenues will come in $25 million below the adopted budget.

Three main factors contribute to the down turn in revenues. The Ag economy is down and commodity prices are low. Farmers purchase less equipment and sales and use tax revenues goes down. There is a price deflation in consumer goods that also impacts revenues. When you go to McDonalds and purchase a McPick 2, the cost is $2. Normally, the cost is $5. Currently, the sales tax collected is 15 cents instead of the 33 cents at regular price. If you compound this price deflation over thousands of transactions every day, there is a significant decrease in sales tax revenue. Finally, the uncollected sales tax from internet sales continues to have a negative impact on revenues.

The second part of revenue projections is estimating the revenues for fiscal year 2018. Essentially, we are making an educated guess on a year’s worth of revenues 6 months before that fiscal year begins. We make those estimates based on current fiscal year data as well as economic forecasting on the state and national level. Both the governor’s financial and the legislature’s financial staff present statistical and economic trend data. We also consider outside forecasts from economists. Using all this data, the revenue projections sub-committee adopts a revenue estimate. The revenue estimates for fiscal year 2018 are $38 million less than the governor projected in his December budget address.

While this information sounds bad, I suggest now is the time to take a breath and gain perspective. This week, the governor’s departments we come to appropriations with areas where money can be saved. Our sub-committees will look at department expansions and determine if it is necessary. We can make many changes without cuts to programs. We also have $136 million in reserve funds. If we need $10 to $15 million to balance the state budget, it would be an appropriate use of funds. The worse thing we can do in a single down year is make unnecessary cuts. In 2011, we had a significant structural deficit. The knee jerk reaction was a 10% across the board cut. Those cuts had a negative impact on many state programs, schools and service providers across the state. Later, we learned that the deficit was not as bad as anticipated. The depth of the cut was unnecessary, but many of those dollars were not restored. It took our service providers and schools four years to get back to the funding levels pre 2011. It would be fiscally prudent to take a year and ride out the economic rollercoaster.

Here is an update on current ethics and campaign finance reform bills. HB 1073 which establishes limits on gifts from lobbyists passed the House this week by a vote of 66 to 0. It will be heard next in Senate State Affairs. HB 1076, the government accountability board will be heard in House State Affairs on Wednesday. Email your legislators and ask for their support. This is an excellent bill and has the support of the Attorney General and Secretary of State. Finally, SB 54 from the Secretary of State’s office has been amended and action was deferred until this week. This bill contains a lot of language updates and definitions of what constitutes a donor, entity and political organization. Unfortunately, the bill does very little to limit campaign donations like IM-22. I’m sure there will be further attempts to amend. I will keep you updated.

Thank you for the email and calls this past week. Your input is important and appreciated. If you have questions or concerns, please email dan.ahlers@sdlegislature.gov or call 940-3071.