Legislators and guests wait for Gov. Kristi Noem to deliver her budget address on Dec. 6, 2022, in the House chamber at the Capitol in Pierre. (Joshua Haiar/SD Searchlight)
With her annual budget address set for Dec. 5, Gov. Kristi Noem used her last weekly newspaper column of October to help set the mood for the coming legislative session. The mood she’s going for: overwhelmingly conservative.
For the past few years, the state had enjoyed strong economic growth coupled with a windfall of federal pandemic funds. The federal funds are gone, so Noem is already trying to lower expectations about what to expect from the state government budget in the next year. She wants legislators to know that their spending days are over.
This is a wise move on Noem’s part because almost half the legislators who go to Pierre have known nothing but flush years during their service. As Noem noted in her column, 49% of the Legislature’s 105 lawmakers have been serving only since 2020.
“These legislators are used to having huge revenues and surpluses to spend on whatever they want,” Noem said in her column. “They have not had to do what more and more families across America are having to do — stick to a tight budget.”
What those lawmakers will learn is that in most budget years, there are some groups that are typically losers. It’s not uncommon, when the budget is tight, for a lack of revenue to leave education, health care and state employee salaries underfunded.
Faced with a lack of funding, it’s likely lawmakers will look around for other sources of revenue. Noem was adamant in her column that they should keep their hands off what she refers to as the “tax holiday” implemented in the last session when the Legislature cut the state sales tax from 4.5% to 4.2%.
While this tax cut doesn’t provide much relief at the cash register —spend $100 to save 30 cents — it will account for an estimated $104 million that won’t be flowing into state coffers. It’s no wonder that some lawmakers are already talking about putting an early end to the tax holiday.
Aside from the state’s regular funding needs, there are new financial challenges on the horizon. A legislative summer study looked at ways to help financially strapped counties. One solution would be for the state to take on some of the cost of tax collection, criminal justice and emergency management. Good luck paying for those added burdens in a normal budget year.
Another summer study sought sustainable models for long-term care. One news report said the committee had developed a dozen recommendations that came with a $9 million price tag. Finding an extra $9 million won’t be easy now that the federal well has run dry.
Another challenge the Legislature faces is teacher pay. Depending on who is making the national rankings, South Dakota once again generally ranks close to last in teacher pay. The last time the Legislature tried to do something about that, they ended up raising the sales tax. Just as she was adamant about not ending the tax holiday, Noem’s column was just as forceful about not raising taxes.
While Noem is smart to start lowering expectations for lawmakers who are accustomed to spending, in this case she may not be the best voice to offer this particular message. During the last session, lawmakers were less than receptive to her legislative agenda.
They opted to lower the overall state sales tax rather than endorse the governor’s plan to cut the state sales tax on groceries. They didn’t approve of her push to add more family leave for state employees, forcing Noem to make the change administratively. She offered a bill that would create a board to vet the sales of agricultural land to foreign countries. Despite the governor’s backing, the Legislature said no thanks.
That’s not the way anyone would expect a super-majority of Republican lawmakers to treat the leader of their party. While Noem is working to set the mood for the next legislative session, only time will tell if lawmakers are in the mood to follow her lead.
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