The South Dakota State Legislature will once again attempt to balance the state’s budget after another year with a slow economy, and those involved with education, the largest sector of the state budget, will be watching closely. Governor Michael Rounds indicated revenue to the state of South Dakota are down for the second straight year.
At a Rotary Club meeting in Sioux Falls last month, Rounds told patrons revenues were down by $33 million in the first quarter of the fiscal year. Revenues from sales tax, contractor’s excise tax and the bank-excise tax, which are the three major funding sources for state government, are down.
The Board of Regents saw more than an $11 million cut in state funds during the 2009 legislative session. Education budgets, which are more than half of the legislature’s total expenses, will again be under review, said Monte Kramer, BOR Administrative Services vice president.
He said the BOR is preparing for the worst but didn’t want to get ahead of the game.
“The indicators are that things are dire, but until the governor releases his budget (address) there’s no way for us to know,” Kramer said.
Last year when the state legislature was dealing with declining state tax revenues, the United States Congress passed the American Reinvestment and Recovery Act, otherwise known as the “stimulus plan.”
The legislature used $11,494,935 of the available stimulus money to fill the hole in the BOR’s budget.
Legislators and other state officials have said because the stimulus money has an expiration date, the legislature was reluctant to accept more.
“(The legislature) had the opportunity to access more stimulus dollars,” Sen. Dan Ahlers, D-Dell Rapids, said. “The problem is we have no way to replace those funds once the stimulus dollars are gone.”
When contemplating how much stimulus money to accept, Ahlers said the legislature had to take a few things into consideration. One of the strings attached to certain parts of the stimulus plan requires the state to continue with programs started with federal dollars.
“Once a new program is there, trying to get rid of it is much more difficult,” he said.
The financial aid from the federal government at least eased the BOR’s fiscal plight, Kramer said.
“We didn’t get any extra money out of the stimulus dollars,” he said. “But it helped us avoid taking significant cuts, given the state’s budget problems.”
Kramer said education is the bedrock to a good economy and hopes legislators share his sentiment.
“The future of the state and the economics of the state are being driven by education,” he said.
When the economy is bad, he said, funding for higher education becomes even more crucial.
“If there are no jobs in the job market, people tend to go on to get their graduate degrees or go back to school,” he said. “They’re not in as big of a hurry to get out (of school) when job markets are tough.”
Student Federation President and USD senior Ryan Budmayr said if the BOR sees another cut to their budget like the $11 million cut last year, students should fear a student fee increase coming shortly after.
“(In order to balance the budget) there are going to be legislators out there that are going to fight tooth and nail to cut the higher education budget,” he said. “Cutting aid to the state schools is only going to increase (the students’) financial burden.”
Of the BOR’s entire budget, 51 percent comes from students by means of student fees and room and board, whereas 29 percent comes from state general funds and the remaining 20 percent from federal funds.
The state tax structure is to blame for the BOR’s heavy financial burden on the students, Ahler’s said, and students shouldn’t expect to see that number drop anytime soon.
“We are where we are because we don’t like to pay taxes in this state. It’s the nature of the beast,” he said referring to a lack of state funds to support higher education and other programs. “One way or the other (the BOR) has to pay their bill. Until (the legislature) finds ways to make our tax structure a little more equitable, we won’t see much of a change.”
Ahler’s said a simple way to bring in more tax revenue would be to place a corporate income tax on big retail franchises like Wal-Mart and Home Depot.
“What has happened is that continually we’ve given tax breaks to companies who have the funds to pay for stuff in order to entice them to South Dakota,” Ahlers said.
The people with the less money pay the most, he said. “Wal-Mart doesn’t pay jack for taxes in South Dakota.”
Sen. Jean Hunhoff, R-Yankton, said the South Dakota tax system has been decided by the voters a number of times and not putting a corporate income tax on certain businesses is what the people want. A change in the tax structure might prevent businesses from coming to South Dakota and ultimately hurt the economy, she said.
“South Dakota has a very favorable tax climate for businesses,” she said. “Why would you want to chase businesses away?”
Ahlers disagreed that a corporate income tax would result in less businesses coming to South Dakota.
“Minnesota is one of the worst for corporate income tax and they’ve got all kinds of businesses that we’ve never seen.”
Although the legislators differ on an economic strategy, both said the situation could have been a lot worse.
“The entire global economy that is impacting the country is impacting South Dakota,” she said. “But not at a level that other states are being hit.”
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