South Dakota lawmakers adoptedrevenue projectionsThursday at the Capitol in Pierre, confirming what many had feared: significant budget cuts could be unavoidable.
Republican Gov. Larry Rhoden, speaking at a news conference following the decision, said he had been optimistic that revenues would improve. They have not.
If anything, theyve declined even more, Rhoden said.
State governments day-to-day operations are funded by ongoing revenue, such as sales taxes, while money from federal stimulus programs and other one-time sources are typically used for one-time needs such as construction projects.
The deficit or gap between expected ongoing revenue and ongoing expenditures has expanded with the new projections. Former Gov. Kristi Noemsproposed budgettackled a $51 million shortfall of ongoing revenue to ongoing expenses, and the new revenue projections have pushed that gap to $57.4 million.
After delivering her budget address in December, Noemdepartedin January to become U.S. secretary of Homeland Security, elevating Rhoden to governor.
The legislative budget committee settled Thursday on a revised projection of $2.39 billion in ongoing revenue for the current budget year, which is less than 2024s actual ongoing revenue of $2.41 billion. This is the first year of declining revenue since 2010, when South Dakota was still recovering from the Great Recession.
For next year, lawmakers adopted an ongoing revenue estimate of $2.46 billion, reflecting a 2.9% increase over this years revised revenue estimate. Sales tax revenues are projected to be $1.5 billion, a 4.3% increase from the $1.44 billion revised projection for this year.
Next years ongoing revenue estimate is close to what the Legislative Research Councilrecommendedand is in line with then-Gov. Noems initial projection. The state economist, who works for the governors office, this weekrecommendeda slightly lower estimate for next year of $2.44 billion. He said drivers of his projection are slowing economic growth, persistently high interest rates and a dip in farm income.
Compounding the revenue problem is the temporary state sales tax rate reduction from 4.5% to 4.2% that lawmakerspassedin 2023, which is scheduled to remain in effect until 2027, costing the state more than $100 million per year in lost revenue.
With the new revenue estimates locked in, the Legislature will now work to finalize the states fiscal year 2026 budget by next month, determining where cuts will fall. The states total budget, including one-time, federal and other funding sources, is in excess of $7 billion.
Noem recommended numerous cuts in her proposed budget, including to the Department of Social Services, Department of Human Services, theState Library,South Dakota Public Broadcastingand numerous additional departments and programs.
When asked at his Thursday news conference if he still views Noems proposed cuts as the starting point, Rhoden said that is the budget.
Looming over the budget talks is $182 million that Noem and Rhoden proposed using to complete funding for construction of a proposed $825 million mens prison near Sioux Falls, which lawmakers have been saving for in recent years. A legislative committeeforwardeda bill providing spending authority for the project this week to the budget committee, but without a recommendation, signaling the unease some lawmakers have about the project.
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