State Faces $75 Million Deficit Next Year, Gov. Rounds Says (SD)

December 7, 2010

South Dakota faces a $75 millionstructural deficit next year and should make cuts to K-12 education andMedicaid payments to balance its budget, Gov. Mike Rounds said Monday.

Rounds will present the final annualbudget address of his tenure as governor Tuesday at noon Mountain Time.Legislators gathered in the Capitol for the address will hear Rounds call forthem to use a mixture of cuts and reserve funds.

Gov.-elect Dennis Daugaard willdeliver his own budget proposal in January after he takes office. Daugaard, whohelped Rounds put together his budget proposal, said he will make some changesbut expects to use Rounds’ budget as a baseline.

"There is a structural deficitthat will be significant, and it will require the Legislature to work with thegovernor to come up with ways to further reduce ongoing expenditures if theywant to eliminate the structural deficit," Rounds said.

Among the cuts Rounds is proposingare a 5 percent reduction to state aid to school districts and millions lessfor Medicaid providers.

The education changes would resultin $240 less per student to school districts — saving the state more than $20million, though any savings are somewhat offset by a rise in the number ofstudents and the end of federal stimulus money.

Even with $15 million in net cuts tothe Department of Education, overall spending is still set to rise almost $30million — led by a major spike in Medicaid costs.

That’s because people continue tosign up for the health program, even as the state’s share of Medicaid paymentsis going up with the expiration of stimulus funding.

South Dakota will receive $37million in stimulus money for Fiscal Year 2012, down from $94 million in thecurrent fiscal year.

After plugging in the remainingstimulus money, the state is left with a $37 million deficit. Rounds isproposing to use money from the state’s reserves to cover that deficit — butsaid he expects lawmakers to reduce that with more spending cuts.

The state has $63 million in itsproperty tax reduct ion fund and $43 million in its budget reserve fund. Roundsis proposing to use $14 million from those reserves to cover shortfalls in thecurrent budget.

Most of the other departments instate government also have cuts between 0 percent and 17 percent — a combinationof scaled back and eliminated programs.

Though South Dakota’s economy isdoing better than the nation and sales tax receipts are up, the state’srevenues are still down because of plummeting income from video lotterymachines — expected to fall 15 percent due to the new smoking ban — and thebank franchise tax. The bank franchise tax has plummeted 85 percent, a declineRounds blamed on the economy and new federal laws governing credit cards.