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Pine beetles

Because of lagging tax proceeds, lawmakers are uncertain as to how much the state can contribute to the fight against pine beetles. Mona Beyuka, front, and Jazz Beyuka buck trees, in January of 2014, in Lawrence County's ongoing fight against the Mountain pine beetle.

PIERRE | Lawmakers in recent days have taken more conservative positions on spending amid signs that South Dakota’s economy has grown much less than predicted.

The appropriations committees for the Senate and the House of Representatives amended many special measures to $1, rather than approve them at the six- and seven-figure amounts recommended by Gov. Dennis Daugaard.

“Dollar bills” aren’t uncommon in the appropriations process, but the attitude among lawmakers clearly has shifted of late.

The reason for the change is the latest information from the state Bureau of Finance and Management.

From July through January, South Dakota’s economy didn’t generate sufficient tax revenue for state government to meet the expectations set in the current budget.

A year ago, the 18 House and Senate members on the Joint Committee on Appropriations set those expectations above what the governor’s Bureau of Finance and Management officials recommended.

Ongoing receipts of revenue to the state’s general fund are just 1.1 percent more for the July-January period than for the same period a year ago.

The 1.1 percent growth is less than half of the 2.8 percent needed to meet the current budget.

That means tremendous growth would be necessary in the five remaining fiscal-year months of February through June to reach the 2.8 percent target.

State sales and use taxes are the top source of general fund revenue. They’ve increased just 1.6 percent while 3.4 percent was expected.

That’s a difference of nearly $7.7 million, which is most of the overall difference of almost $7.9 million. 

Better than expected receipts in such categories as contractor excise tax and insurance tax have been offset by $4 million less than expected in unclaimed property receipts.

The Legislature is still betting enough money will be available to pay for increasing the amount of the South Dakota Opportunity scholarship to a four-year total of $6,500.

The scholarship has been $5,000 since the program began a decade ago for university and technical-institute students.

The House of Representatives last Wednesday voted 65-3 for the scholarship legislation, HB 1147.

The governor recommended the increase, instead of asking for a second consecutive year of tuition freezes.

But the dollar bills became common in such legislation as battling pine beetles, renovating an elevator shaft at the Sanford laboratory in the former Homestake underground mine and providing extra compensation to direct-care support workers in health care jobs.

On Friday the extra-compensation bill, HB 1190, was taken down to $1.

The governor had recommended additional state spending of about $2.9 million for the Department of Social Services, more than $1 million for the Department of Human Services and $157,028 for the Department of Corrections.

Those changes are costly in a second way.

Those extra amounts would have triggered additional federal spending totaling about $3 million for those departments.

The purpose was to send more money down to health care businesses so they can pay signing bonuses and other incentives to low-salary employees, who typically earn between $10 and $11 per hour and are difficult to recruit.

“Our revenue is uncertain,” said Rep. Dan Dryden, R-Rapid City. The House appropriators voted 8-0 to accept his amendment. 

Rep. Jean Hunhoff, R-Yankton, said, “Hopefully those dollars will be restored at the end of the day because we need those individuals.”

Rep. Fred Romkema, R-Spearfish, sounded optimistic.

“I think that we’ll come to a positive conclusion of this discussion,” Romkema said. But he added, “I think this is a bit of a Band-Aid in this area.”

Dryden said he was “hopeful we can put all the money back into it when we get down to the end.”

The January 2015 revenue numbers didn’t encourage optimism, however. They were nearly $1 million behind, or a negative 0.7 percent, from January 2014. The sales tax category was up just 2.1 percent.

Lt. Gov. Matt Michels described the economy as “somewhat soft” Friday as he sat in for Daugaard at the governor’s weekly legislative news conference.

“We’ve had to revise down where we’re at,” Michels said. “We’re not flush with cash.”

The situation affects adjustments the Legislature would make for the remainder of the 2015 budget year that runs through June 30 and for the 2016 budget that starts this summer on July 1.

Legislators will decide in the next few weeks the amounts that their 2016 revenue estimates should be. That in turn will drive decisions on the governor’s recommended increases in state aid to public schools, Medicaid services providers and state employee salaries.

Those recommendations already were lower than had been typical a decade ago. The economy’s slowdown also limits what legislators can consider regarding K-12 teachers’ pay, which is lowest in the nation.

Michels said that after the governor’s council of economic advisers met last week with state officials, the expectation was, “We’re going to see moderate growth the next fiscal year.”

Tourism should be stronger because of lower fuel prices, but agriculture overall isn’t as strong, and that affects money farmers and ranchers can spend on equipment, buildings and other improvements, Michels said.

Sales tax receipts are forecast to grow 3.5 to 4 percent in the coming budget year, he said.

“Workforce, workforce, workforce” was Michels’ summary of the difficulty in the economy. He said business managers continually tell the governor and him that they can’t find enough workers.

Welders are scarce — “Orders are being turned away,” he said — and nursing homes are turning away new patients because they can’t get employees.

“That’s really going to be our growth constraint,” Michels said.

As for a bump in tourism from low fuel prices, it’s up to consumers whether they buy things with the windfall or save the money, he said.

“At this point," Michels said, "they’re not spending it.”

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