Optimism, caution in Gov. Noem’s budget proposal
PIERRE, S.D. — South Dakota heads into 2021 in one of the strongest financial situations of any state in the country. That was the overarching theme of Governor Kristi Noem’s annual budget address to the State Legislature on Tuesday.
“We cannot recklessly spend every taxpayer dollar that we have,” she said. “When we do invest in our state, we must invest wisely and strategically.”
Gov. Noem’s FY 2022 budget recommendations fall into three broad categories: paying off debt from 2010, restoring and reinvigorating the state’s infrastructure, and strengthening communities.
Highlights include a one-time $21 million expenditure to retire debt incurred in 2010 to expand key programs at three of the state’s four technical colleges, an additional $100 million to fund continuing efforts to expand access to broadband internet in rural areas of the state, and bolstering the state’s “rainy day” fund by increasing the state’s budget reserve by 2%.
She is also calling for inflationary adjustments of 2.4% for medical provider reimbursements, state aid to education, and per-student allocations for the technical colleges.
Acknowledging the impending arrival of the B-21 Raider at Ellsworth Air Force Base, Gov. Noem proposed $12.7 million for a new recreational facility near the base to replace the on-base facility that will have to close in order to accommodate the new B-21 squadrons.
The Governor’s speech as prepared:
Mr. President, Mr. Speaker, members of the House and Senate, and my fellow South Dakotans.
We meet today with yet another incredible year behind us.
When I stood before you last year, I presented a prudent and cautious budget proposal. We were coming off a historic year of blizzards, flooding, and tornadoes. Fortunately, as the session went on, our projections showed promise. Then, we were thrown another unexpected challenge – COVID-19.
Before we begin today, I’d like to ask that we all please stand for a moment of silence to remember all the South Dakotans we have lost to this horrible virus.
Today, I will walk you through the state’s response to the virus. Outline the state’s economic position, including revenues and expenses. And lay out my proposals to set up South Dakota’s families, workers, and businesses for success for many generations to come.
Following months of economic lockdowns, sheltering in place, and huge numbers of businesses being forced to close permanently, many of my peers are likely not looking forward to standing before their legislatures like I am today. Some will propose tax increases, others will take on billions more in debt, and a few will be forced to make significant budget cuts.
In South Dakota, as we have done throughout this pandemic, I am pleased to report that we will be forging a different path.
Rather than following the pack and mandating harsh rules, South Dakota provides our residents with information about what is happening on the ground in our state—the science, facts and data. Then, we ask each South Dakotan to take personal responsibility for their health, the health of their loved ones, and – in turn – our communities. The state hasn’t issued lockdowns or mandates. We haven’t shut down businesses or closed churches. In fact, our state has never even defined what an “essential business” is. That, quite simply, is not the government’s role.
Since March, many of my peers have attempted to stop the spread of the virus without considering their citizens’ social or mental wellbeing or the state of their economies.
Even amid a pandemic, public policy ought to be holistic. Daily needs must still be met. People need to eat and keep a roof over their heads. And they still need purpose. That means policymakers cannot have tunnel vision. They must balance public health concerns with people’s mental and emotional needs, their economic livelihoods and social connections, and liberty, among many other important factors.
Many in the media have criticized this approach, labeling me ill-informed, a “denier,” and reckless. Some have even asserted that South Dakota is “as bad as it gets anywhere in the world” when it comes to Covid-19—a demonstrably false statement. At the same time, my critics praise states that issued lockdowns, mandated masks, and shut down businesses—lauding these states as having taken the “right” steps to mitigate the spread of the virus.
As we continue to see spikes move throughout the country, the course of the virus does not seem to be quantifiably different in the states that, according to the media, did everything “right.”
Despite harsh lockdowns in Illinois, coupled with a mask mandate since May 1, that state sadly experienced a new single-day record in Covid-19 deaths on December 2nd. And, its active case counts are higher, on a per capita basis, than South Dakota’s has ever been.
New Jersey, which still has had the most deaths in the country per capita, has had a mask mandate in place since June and has imposed $15,000-a-day fines on businesses that refuse to close. Still, over the last two weeks of November, its hospitalizations increased by 34%, a six-month high.
California passed a mask mandate in June and has some of the harshest lockdown orders in the country, including shutting off residents’ water if they have too many visitors. Despite that, the AP recently reported their COVID hospitalizations have increased nearly 90% and could triple by Christmas.
Until we have an effective and widespread vaccine, the virus will spread – science tells us that. That’s one of the reasons why, at the outset, the nation’s goal was to manage hospital capacity.
In South Dakota, we have kept our focus on this goal and continued to ensure our hospitals are not overwhelmed and can serve their communities well. To date, we have less than 500 individuals in the hospital for Covid, the first time since November 6, and we are on a steady downward trajectory.
We’ve continued to work with communities across the state to fight the virus. We have kept an open dialog with our county, city, and tribal communities to offer information, resources, knowledge, mass testing events, and PPE. We recently wrapped up mass testing events in 11 communities across the state and are continuing to fight this virus together.
South Dakota is entering 2021 in one of the strongest financial positions in the country. And today, I will be unveiling ways in which we can further improve our state by investing in infrastructure, paying off debt from 2010, and bolstering our rainy-day fund, as good stewards of the public’s money should do.
In contrast, Illinois plans to borrow $2 billion from the Federal Reserve. New Jersey, which already has the highest debt per taxpayer in the nation, is issuing an additional $4.3 billion in bonds. And New York is looking at a nearly $60 billion dollar revenue shortfall. It likely goes without saying that each of these states is also counting on federal bailouts to keep them afloat.
South Dakota won’t be raising taxes on our citizens or our businesses. We won’t be borrowing billions of dollars to cover our budget shortfalls. And we won’t be looking to Congress to send us more stimulus money.
When I travel across the state and around the country, people often congratulate us on how strong South Dakota’s financial position is compared to the rest of the nation. Like you all, I take pride in the fact that we structurally balance our budget and have a AAA credit rating, and I’m committed to maintaining it.
Though our fight against COVID-19 is not over, our unique approach to the virus has left us in a strong fiscal position today. When the virus first hit, every state’s economy shrunk. But South Dakota overcame that quickly. We closed the 2020 budget year in June with a $19 million surplus, and our general fund revenues are up by 19.4% right now, compared to the same time last year. We took steps last year to cut spending and be cautious with taxpayer money, and we are seeing the fruits of that today.
In addition to higher-than-expected revenue, the influx of stimulus money from the federal government has allowed for further general fund savings, and I’ll go into that in more detail in a moment.
But we are seeing this approach pay off, right now, in the everyday lives of South Dakotans.
After peaking at 11% in April, our unemployment rate as of October was 3.6%, the third lowest in the country.
Perhaps an even more important number to consider is total employment. This chart looks specifically at nonfarm employment, a statistic that can better capture our current business climate. It shows a year over year percentage change so we can see an apples to apples comparison.
This chart compares South Dakota to the United States and all the states in our region. Michigan is the worst performing state in the Midwest region, according to the Bureau of Labor Statistics.
Throughout the pandemic, as you can see, South Dakota has fared much better than the rest of the country, including states in our region.
To fully understand our current economic climate, and the money we have available this year, it’s important to take stock of the federal dollars we received and how they were used.
This chart illustrates all the estimated direct payments South Dakotans and businesses have been able to take advantage of. That includes the PPP program for small businesses, the food assistance program for farmers and ranchers, the stimulus checks for families, and unemployment assistance for those who lost their jobs. In total, that’s about $3.9 billion in federal stimulus.
This does not include any other grant funding the state received, like the $1.25 billion from the coronavirus relief fund.
This next slide shows quarterly personal income in the state. As you can see, we saw a sizable aberration in the second quarter this year. This is due in large part to that federal stimulus I just talked about. As I stated, many South Dakotans received direct payments from the government. Additionally, many small businesses received assistance from grants or other relief programs.
The gold line here is our forecast for income growth moving forward. As you can see, we are projecting that this spike will be a one-time event, and there will be a downward adjustment. That means people will feel the impact when federal money runs out — even though we are in a much stronger situation than most other states.
The important takeaway here is a message of caution: we should remain prudent and conservative moving forward. We need to carefully consider these unusual circumstances as we project revenue. We cannot recklessly spend every taxpayer dollar that we have. When we do invest in our state, we must invest wisely and strategically.
Before I dive into my recommendations, I do want to call out one budget provision related to the disappointing votes on marijuana at the ballot box this year. There are significant safety and regulatory costs associated with both the medical marijuana measure and the recreational one.
Given the latter is currently facing constitutional challenges, we’re going to have to present two courses of action. A path forward with both recreational and medical. And a second with just medical.
I want to be very clear, we will not see any revenue from marijuana until at least April of 2022. Though it could be longer.
And in the meantime, to comply with the predetermined timeline, the Department of Revenue needs to get to work now. This funding would go toward staff, technology, consultants, and other costs, until revenues from the program are enough to sustain it.
But there will also be a number of other collateral costs, like safety, training, and enforcement, among many others.
On top of this, the Department of Health has specific needs related to the medical marijuana program. My budget recommends just over $136,000 over three years to cover staff and other costs related to setting up a program. That should be enough to support program costs until revenue starts coming in.
To implement just medical marijuana, the Department of Health will need additional resources -beyond the $136 – though, the Department of Revenue would need much less.
Over the coming weeks, we hope to know more about which path we need to take.
By now, I am fairly confident that people all across America know that South Dakota is open for business. In the next few minutes, I’m going to walk you through some of the specifics of what we’re looking to do to build on this pledge.
My recommendations fall under three primary categories: paying off debt from 2010, restoring and reinvigorating our state’s infrastructure, and strengthening our communities across the state.
First, as it relates to paying off inherited debt.
In 2010, the state issued bonds to finance expansions in key programs at Southeast Technical College in Sioux Falls, Mitchell Technical College, and Lake Area Technical College in Watertown. This project has led to investments in stronger auto body and maintenance programs, effective student services, and modern facilities. Our students are better prepared to be leaders in their industries because of these upgrades.
I recommend that we dedicate just over $21 million to pay off two of the technical college bonds. This will save $1.7 million in ongoing debt service. That would result in a savings of $500,00 to the general fund and $1.2 million for the technical colleges.
Unburdening the tech schools from this debt will allow them to refocus their attention. Their dollars can instead be used to further improve the caliber of their programs. They are already receiving well-deserved national attention for their high-quality offerings, and this unleashes their potential even more.
Next, we should focus on restoring and reinvigorating our state’s infrastructure. Sound infrastructure is closely tied to economic opportunity. The most important investment we can make this year is to finish connecting the state to broadband.
As I said during my State of the State last January, in America’s early days, mail was delivered via post road. The Founders thought communication was so important to the business of the people and the nation that they included a provision in the Constitution to allow for the government to establish post roads.
Well today, in the modern economy, technology allows for the transportation of goods and services over the internet – a whole different kind of post road. We must create an environment where people aren’t forced to choose between the modern economy on the one hand, and life at their hometown on the other. We must make sure our people can harness the latest technology to take advantage of what has become the modern equivalent of a post road.
As I said, we’ve made significant strides thus far. But we must bring it over the finish line. I’m recommending we invest $100 million to fully connect the state over the next few years.
The benefits of this investment are hard to overstate. It makes it easier for our farmers and ranchers to communicate with their suppliers, access weather forecasts, and participate in online marketing and auctions. It ensures that the next generation of entrepreneurs stay in small-town South Dakota to start their business. It tangibly improves the lives of our students by making it possible to do schoolwork at home. The same is true of our employees, who would be able to telework. And of particular importance this year – it would allow even the most remote residents, including folks in the Black Hills and those in tribal communities – to access telehealth opportunities.
Over the last two years, the Connect SD program has devoted nearly $17 million to broadband projects, which in turn leveraged roughly $35 million in federal money and $37 million in industry money, for a total investment of just shy of $89 million in broadband in South Dakota.
This is an impressive return of more than $5.50 for every $1 invested in broadband by the state.
The estimated cost of providing high-speed internet to every remaining unserved or underserved South Dakotan is $200 million . I believe this $100 million dollar investment from the state can leverage enough federal and private dollars to get the job done.
In the early hours of October 31st, a fire destroyed the State Fair Open Class Beef Complex. Fortunately, no people or animals were injured, but the building was a total loss. Thank you to our State Fair staff for their response and to the firefighters and first responders who were on the scene that day. We are grateful for your service.
The beef complex held many memories for fairgoers. It truly was a special place.
In South Dakota, we know out of adversity comes opportunity and a chance to build for the future. Immediately after the fire, we began discussing plans to rebuild a new and improved complex. Our goal is to become the number one choice for equestrian and livestock events in the country, and for attracting new opportunities to South Dakota.
It is my pleasure to present to you our plan for the State Fair Livestock Complex. The new, multi-purpose facility will be 200,000 square feet. That’s more than 100,000 square feet larger than the old beef complex.
This new space will be capable of housing up to 2,000 head of cattle, and allow for indoor regional and national rodeos, equestrian events, and livestock exhibitions. In addition, the new livestock complex will enable us to replace the sheep barn. Many of you here know that the sheep barn has long outlived its useful life. This step will minimize livestock transportation safety issues within the fairgrounds.
This state-of-the-art facility will position us to better compete for national rodeo and equestrian events and provide new opportunities for the city of Huron and the state of South Dakota. Like its predecessor, the new livestock complex will be a special place, and I can’t wait to see families and fairgoers making new memories.
To fund this project, my budget proposal includes $12 million in one-time general funds to supplement the $3 million dollar insurance claim and $4 million raised through fundraising efforts.
Like an old-fashioned barn raising, it will take all of us to get this project done, but I know it’s worth it.
I look forward to seeing you all in the new livestock complex at the 2022 State Fair.
Next, we must address the growing cyber risks facing our state. Cybercrime is one of the biggest threats of the modern era, and state and local governments are among the biggest targets. In July alone, South Dakota sustained more than 14 billion attacks from 165 different countries. Let me repeat that: 14 billion attacks. Without significant investments to protect our state, it is only a matter of time before one of these attacks becomes a disastrous data breach.
I recommend $10 million in one-time funds be allocated to upgrade vulnerable infrastructure throughout the state. This funding would allow the Bureau of Information Technology to conduct significant system upgrades to protect our state and employee data from malicious attacks in the future. This also will allow us to develop a comprehensive plan to replace many of our oldest and most critical applications.
One of my top priorities is keeping South Dakotans safe. One component of that is equipping our first responders with the tools they need to protect our communities. After September 11th, Governor Janklow created the state radio system – forming a single, uniform communications system for first responders in every corner of this state. However, with the aging infrastructure and software, our current system needs further upgrades.
We have invested in this system over the last two years, and I recommend we build on this investment with an additional $3.2 million in one-time money to ensure that first responders can continue to serve and protect our residents and visitors.
This investment will target three key areas.
In the Black Hills, a heavily trafficked tourist area, we would build new towers in Rockerville, Keystone, and Hill City. These towers will work together to provide comprehensive coverage across the entire region.
In Hot Springs, this funding would allow us to further leverage the existing tower to cover a wider area. The lack of reliable communication in Hot Springs is particularly pressing given the issues with wildfires as of late.
Likewise, in Reliance, this investment would leverage another existing tower to enhance and improve our state, local, and tribal response in cases of emergency.
We must continue to prioritize this system and ensure that it is functioning at the highest possible level to support the efforts of our first responders.
We must also invest in our training programs for the next generation at our technical colleges. From agriculture and manufacturing technology programs to health sciences and law enforcement studies – our colleges are preparing our future workforce today.
I am recommending investing $3.4 million in one-time money to provide much needed equipment for the four tech colleges. The state’s funding, coupled with a $1.6 million-dollar match from the technical colleges, results in a $5 million dollar investment.
It will include programs identified as both high-need and in-demand, ensuring that we are investing in the careers we need most in the coming years.
A key vulnerability that the pandemic exposed is that our nation and our state does not have enough processing capacity to meet demand. As we’ve seen, this can lead to disruptions for producers and consumers.
To address capacity, we are developing a grant program to provide funds needed to improve the state’s capacity to process and store South Dakota-raised meat products.
This program is for the small processors that our local producers rely on. Through this program, processors can apply for grants to pay for facility upgrades like new freezers or processing equipment, make facility improvements to manage increased capacity, or work to expand their operations.
I am recommending $5 million in one-time funds to facilitate these grants.
We are also working with USDA to give our farmers and ranchers another option to be able to sell their products across state lines. These efforts could dramatically improve South Dakota’s meat processing options in the coming months.
This past July, a major storm swept through Brown County and dealt significant damage to the area. Its impact on the Elm Lake Dam, which provides one-third of the water supply for Aberdeen, has been particularly concerning.
The state appropriated an emergency $521,000 for the dam in 2019 after an engineering report noted that the concrete in the dam was unfixable. That fix worked for a time, but it no longer meets state safety guidelines for capacity. After this summer’s storm, it is clear that the time has come to replace the dam entirely before more damage is inflicted on the area.
I recommend allocating $4 million in one-time money along with another $1 million for critical maintenance on other dams in the state.
Our state currently has three aircraft that are an average of 26 years old.
To help ensure the safety of all state officials who utilize this fleet, I recommend that we purchase a newer plane. Simultaneously, I am recommending that the state sell two of our older planes. This downsizing from three to two planes will be much more efficient for the state in the long run. As planes age, they require more frequent, complex, and very expensive maintenance.
The State’s top priority when considering aircraft must be safety. We all know that South Dakota tragically lost a governor, two state commissioners, three chief executives, and two pilots, 27 years ago. They died in service to our great state. While our state lost profound dignitaries in that crash, their families lost so much more. The plane we currently fly is the same plane purchased after that crash.
I’m recommending we invest $5 million to purchase a newer airplane. Combined with the sale of two older planes, again, this will be a safer and more cost-effective path forward for the state’s air fleet.
Finally, I would like to turn to our third category: strengthening our communities. We are entering the next year in an extremely strong financial position, but it is vital that we take this opportunity to strengthen our communities for the next economic downturn.
Accordingly, I am also recommending targeted investments in key industries, with both ongoing and one-time money. This money will help meet the needs of our communities moving forward.
My budget includes an inflationary increase of 2.4% for medical provider reimbursement rates, along with additional targeted rate increases for community-based providers.
Also, I am recommending a 2.4% increase for state aid to education, as well as a 2.4% increase to the per student allocation for the technical colleges. To be clear, this is above the statutorily required 1.5%.
This investment will help ensure that local school districts have the resources necessary to educate our children and grandchildren.
My budget also includes a 2.4% increase for state employee salaries.
Last year, I announced a plan to offer paid family leave to state employees when they welcome a new child to their family through birth or adoption. That new leave option took effect July 1st and has given nearly 100 of our employees support and flexibility to get a strong start with their new children.
I also asked my human resources team to reassess the health benefits we offer. The challenge I gave them was 1) to create benefits that are competitive with those offered by other large employers in the state; 2) to make the health insurance plan financially sustainable for the state; and 3) to simplify our plan’s administration.
The result of this effort, as reflected in my proposed budget, meets this challenge.
This plan will also create $12 million in healthcare savings. We will reinvest those funds directly into employee pay, especially for positions where the state’s base pay hasn’t offered competitive wages.
Individuals and their families face complex decisions, particularly when it comes to their health insurance. Providing several options that fit their financial and health needs is an important part of our strategy. My proposal keeps a premium-free insurance plan for state employees with the opportunity to purchase a plan that offers additional coverage.
My budget provides improved benefits to our employees and moves us forward in our ability to compete for top talent, all without adding any dollars to the budget.
I also want to allocate some additional ongoing money to support our health care facilities and providers across the state. These exceptional individuals work around the clock to provide needed medical care for our state’s residents, and I am incredibly grateful for the time they put in every single day.
Here in South Dakota, we must ensure that our rural residents have easy access to skilled nursing care. The Access Critical Nursing Facility Program, implemented in 2011, does exactly that by reimbursing rural facilities to keep them financially viable.
There are currently nine rural nursing facilities supported by this program. I recommend allocating an additional $1 million in ongoing funds to expand the program to three other facilities in Platte, Sisseton, and Madison. This investment will ensure that these areas have access to the high-quality nursing care.
Finally, we must look out for our residents with intellectual and developmental disabilities who require specialized care. I am committed to providing these individuals with care that allows them to live their lives to the fullest every day.
I recommend $8.3 million in one-time funds to establish small-scale, private, adult Intermediate Care Facilities for these individuals in both Rapid City and Sioux Falls. These facilities will create regional access to top-tier care and allow these individuals to be served much closer to their homes. In addition, these facilities will reduce capacity and costs at the South Dakota Development Center and allow them to focus more on the residents in their geographical area.
The base will be undergoing extensive mission growth in the very near future. Preparations have begun in support of the next generation bomber, the B-21 Raider, and its placement at Ellsworth. We are honored that the Air Force selected Ellsworth as the site for the first operational squadron as well as the training mission.
This selection comes with a high level of investment from the Air Force. Specifically, we’re looking at a $1 billion-dollar construction investment into the state of South Dakota. As a result, Ellsworth will no longer be able to use a large hangar on base that is currently being used as a recreation facility.
To replace this loss and enhance the local and military community, I recommend using $3.2 million in one-time funding to support a new recreational center near the base. In conjunction with funding from the Department of Defense and Pennington County, this $12.7 million facility will offer a year-round space for the community.
It will be a place for community and connection, which anyone in our military, along with their spouses and children, will tell you is critical for a family that is constantly on the move.
Traditionally, once we have final enrollment numbers for the school year, we adjust the budget to reflect actual enrollment versus what we projected last year. This year, COVID-19 has led to declines in enrollment across the state. This means that if we follow the traditional model, we would cut $11 million from the school funding formula.
I do not want to do that this year. Instead, we will propose that we invest this $11 million on a one-time basis. Our hope is this will help provide a final bridge for schools past the pandemic.
South Dakota’s future is very bright. But we’ve faced real challenges this year. And we will face more in the future. To safeguard against unforeseen economic setbacks, we must continue to take a prudent and conservative approach to state government.
Again, we need to carefully consider our present unusual circumstances as we project revenue.
To be prepared, we need to save.
For this year, I am recommending we add an extra 2% to our regular 10% budget reserves. In addition, I am also recommending that we put $50 million in a trust fund in order to protect ourselves against any future economic hardships.
These two strategic investments will create one-time and ongoing funding streams for the future.
Frankly, I expect the road could be rough under a Biden administration.
We can expect him to try and raise taxes. Similarly, we can expect him to try and eliminate fossil fuels by passing the Green New Deal. And, whatever else a Biden administration might do, it would certainly drown us in new regulation. I expect Biden’s federal agencies to see South Dakota not as a partner but as a subordinate.
So, we must be prepared.
As with years past, I have presented a high-level overview, rather than touching on everything in my budget. If you would like to review all the details, please read through my budget book and the deck of slides attached to this presentation on the Bureau of Finance and Management’s website.
I’ll close with the wise words of President Calvin Coolidge: “I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. This is the chief meaning of freedom.”
I cannot think of anything more descriptive of my administration’s hope for the people of South Dakota. Under God, the people rule. All of us here are stewards of their hard-earned tax dollars. And the budget I have proposed sets up our children and grandchildren for decades of prosperity.
I firmly believe our mission is the same: a safer, stronger, healthier South Dakota. I look forward to working with you all in the coming months to accomplish this mission.
Thank you all for your work as public servants. God bless you. And God bless the great state of South Dakota.