Slash and burn?

South Dakota State Roundup

Published November 1, 2002  | November 2002 issue

Crops and ponds aren't the only things drying up in South Dakota this year. Sales taxes, the major source of revenue for the state's general fund, bumped up just 1.2 percent in fiscal year 2002 compared with the year prior, and some legislators are predicting, in the words of one, "a slash and burn stage" in state expenditures. Sales taxes make up more than half of the state's general fund, but 2002 sales tax revenues were just $458 million, about $3.4 million less than expected.

The sales tax shortfall adds gloom to an already dark fiscal picture that lawmakers had hoped to brighten by tapping into state savings accounts. In February, the Legislature and Gov. Janklow decided to draw on the state's reserve funds rather than cut spending. The agreement was to pull $13.3 million from the $122 million sitting in state reserves to cover projected fiscal year 2002 shortfalls and another $36.3 million to cover the gap forecast for fiscal year 2003, leaving projected reserves in September 2003 at $72 million, 59 percent of last year's reserve balance.

The good news is that state agencies spent $2.8 million less than forecast, and small revenue sources brought in $3.4 million more than expected, which meant that just $7.1 million of the fiscal year 2002 reserve appropriation was spent. Other silver linings: Contractor's excise taxes and insurance company taxes exceeded projections. And although South Dakota voters abolished the inheritance tax in 2000, those revenues were stable at $21.1 million, as tax collectors continued to close out estates of those who died before the law changed.

Another bit of fiscal sunshine: State schools got a new source of revenue in late August when the governor completed the sale of future state receipts from the 1998 settlement of national tobacco lawsuits. When the settlement was announced in 1998, it was estimated that South Dakota would receive $700 million over 25 years of annual payments. Gov. Janklow cut a deal selling those future receipts for a lump sum payment of about $275 million. The money, designated as the Education Enhancement Trust Fund, will be invested and earnings—projected at roughly $10 million annually—will be spent on state education.

Douglas Clement