When Gov. Dennis Daugaard called this month for a balanced budget amendment to the South Dakota Constitution, many lawmakers had the same reaction: Didn't we already have one?

That turns out to be a matter of interpretation. Daugaard says he wants to end the ambiguity -- a clarification he says could save the state money.

The amendment Daugaard wants wouldn't make any substantive changes to how the state's budget operates. It would simply make explicit what many assumed was the case: that South Dakota has to have money for all its expenses and can't borrow to finance extra spending.

Daugaard says his amendment won't require a structurally balanced budget -- or one where ongoing revenues equal or exceed ongoing expenses.

"I'm not proposing to change that, although I, as a matter of policy, try to avoid or discourage that," Daugaard said.

The state would still be able to use money from its reserves to fill shortfalls, a tactic used in recent years.

South Dakota has had a technically balanced budget for 122 years despite the lack of an explicit balanced budget requirement in its constitution. That's because several sections of the constitution effectively leave little choice.

Article 11, Section 1 of the constitution requires the Legislature to "provide for an annual tax, sufficient to defray the estimated ordinary expenses of the state for each year." It also requires the state to provide for an emergency tax to apply if expenses exceed income.

Debt is allowed, but not for "ordinary" state expenses. Any time the state incurs debt, it's required to pass a tax sufficient to pay back that debt within 10 years. And Article 13, Section 2 caps the state's debt at $100,000 except in case of war or rebellion.

Daugaard's proposed budget spends $1.243 billion in general funds - more than one thousand times the debt limit.

The $100,000 limit has been in place since the state constitution was written in 1889. Something worth $100,000 in 1890 would be worth $2.4 million today.

So why does Daugaard want a constitutional amendment barring the state from doing something - running a deficit - it already can't do?

The governor says it's all about getting a better credit rating.

Standard & Poors, which rates the credit-worthiness of governments and businesses, told Daugaard that if South Dakota wanted a gold-standard AAA debt rating, it should have a balanced budget amendment. And when Daugaard pointed to the clauses already in the state constitution, they told him those didn't count.

Even though South Dakota can't borrow money itself, it does authorize several authorities - like the South Dakota Housing Development Authority - that can borrow money. And those agencies would be able to borrow money more cheaply if South Dakota had a better credit rating, Daugaard said.

"If the building authority somehow can't meet its bonding obligations, the strongly held belief is that the state government would step in and make it good," Daugaard said. "It would save us interest money."

In the weeks since Daugaard proposed that amendment on Dec. 6, it hasn't sparked much opposition.

Sen. Larry Rhoden, R-Union Center, said he worries that people will think lawmakers are doing something more significant than they actually are by voting on the amendment.

"That is really ripe for misinterpretation," Rhoden said. "(People) might interpret that we're just trying to play politics."

A proposed constitutional amendment must pass both houses of the Legislature by a simple majority. It then has to receive support from a majority of voters in a statewide referendum.

Contact David Montgomery at 394-8329 or david.montgomery@rapidcityjournal.com.

(1) comment


The real tell is when you hear that this has not sparked much opposition. How can you have opposition in a one party government? The only way you have that is when a republican (Lust) turns against another republican (Nelson) over a money deal. Then you have subpoena's flying like geese on the lake in Pierre. Here is a novel idea for our benevolent governor, if the balanced budget has worked for 122 years, it ain't broke. There is no ambiguity other than in Denny's mind. This is the mind of a feller that said that we had no budget crisis to get elected and then, out of thin air I guess, he is cutting dollars go grandma in the nursing homes, all the while screaming budget crisis, the sky is falling. Then, he announces that we have a bunch of money and that all is well because of...., well children, because he is great. This is fake and he needs to be looking for jobs jobs jobs in South Dakota.

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