Legislative Budget Cuts
Obviously, the most important topic was the budget finally approved by the SD Legislature. Since that happened late Tuesday evening, the fiscal analysis was very limited.
Of course, the budget did not include any funds for salary increases again. My guess is we will not see a salary increase in the next legislative session as well. So, that would be three consecutive years of flat salaries. Since we face some inflation, it means declining purchasing power for all state employees.
Thanks to all of you who contacted state legislators. We will need to continue to hold their feet to the fire and ask them how they expect to recruit and retain high-quality faculty with zero salary policy.
Here is what I gathered (but please note these are the figures I heard, which may not be entirely accurate). The BOR will face $8.9 million in cuts next fiscal year. According to Regent Harvey Jewett, 62% of the budget cuts this year came out of the hide of the BOR's budget, which constitutes only 15% of total state expenditures. He reports we took 100% of the budget cuts last year (about $3.8 million).
This is on top of the fact that we have seen no increase in operational budgets for more than fifteen years as well as escalating costs in both utilities and health care insurance, which the BOR must absorb. The state continues to cover increases in utilities and health costs for all other state agencies!
However, this $8.9 million figure is a bit misleading, because it includes three major programs that were not funded: the new Ph.D. in physics, the already-implemented phasing out of a large program at the School for the Deaf, and a large cut to the Tech Fellows program.
Nonetheless, the BOR will still need to find more than five million dollars to cut from existing programs. They think they can do this without any reduction in services, which means it will be the same ol' refrain of doing more with less. They said if they face a similar cut next year, they will need to reduce services or place an enrollment cap at the universities.
Personally, I wish they would cut services that would generate some pain for the general citizenry. If we keep absorbing these small cuts, the Legislature and the population will think there is lots of fat in our budget. We all know that we run very lean operations and that to cut anything is taking away meat. If we face even larger cuts next year, they will need to sever a limb or two.
The BOR delayed their tuition decision until a special meeting on April 15. They will need to raise tuition more than they had anticipated. My interpretation is that they had thought to raise it about 5% as usual, but now they say they will need to raise it more. However, they suggested it would not be a double-digit increase. So, we can expect students to pay an even larger share with a tuition increase of around 8 to 9%.
All of this is happening with $600 million in reserves that is not even discussed at the Legislature! They only focus on the $107 million in what I call ready reserves, which require smaller majorities to spend. However, the state has several trust funds that require large majorities to expend, for example, a ¾ vote of each house.
In the case of the two hundred million dollars in the Cement Trust Fund, there is no constitutional provision for spending the principal. Instead, the state transfers the proceeds from these invested funds into the general revenue fund in good years.
In my view, state government should not be run on an endowed basis, which is what they do with the Tobacco and Cement Trust funds, trying to live off the annual returns on investments. Those reserve funds should be spent down during this financial blizzard.
For those who have paid close attention, the state has actually faced a structural deficit for several years, spending more than the revenues it collects. The Great Recession only exacerbated the effects of that shortfall. Fortunately for the Legislature, the federal stimulus monies gave them some breathing room this year and last, but that money expires soon.
Oh, one side note, if the U.S House of Representatives pass the JOBS bill that has already passed the Senate, the feds may bail out the Legislature once again. This is why they delayed the budget decision to this two-day "veto session." (Normally, they only consider any vetoed bills on this last legislative day.) But they still have one legislative day in the bank, so they could call themselves back into session and it would not technically be a special session.
Anyway, the federal JOBS bill gives monies to the states to cover increased Medicare costs, which totals about $19 million for South Dakota in the next fiscal year. Not coincidentally, this is the amount of the spending cut the Legislature approveed for next year's budget.
So, if the JOBS bill gets approved and signed by the President prior to the beginning of our fiscal year (July 1), the Legislature can return for a one-day session to appropriate these federal dollars for Medicare and then reallocate those formerly state-appropriated Medicare funds to reverse the cuts they approved earlier this week.
All of this means that South Dakota is really over a barrel. According to Regent Dean Krogman, an old hand at Pierre politics, Republican legislators are saying if next year is as bad as this year, they will need to look seriously at additional revenue sources. The other regents thought a one percent sales tax was likely (or maybe something smaller). One percent can bring between $100 to $150 million dollars in additional revenue.
Of course, no South Dakota politician wants to talk about raising taxes during an election year. Moreover, a sales tax hurts the poorest citizens. An increase in the sales tax would likely include a sunset provision and an exemption on food.
However, Krogman reported that many Republican legislators said if times continued to be this tough, they would need to look at an income tax, probably on corporations. We already have a fairly high "franchise fee" on banks. So, an income tax would broaden the burden to other corporations as well.
