State of the State: South Dakota
South Dakota Governor Dennis Daugaard recently delivered his seventh State of the State address. Though he did not focus heavily on fiscal issues, Daugaard discussed the need to balance the budget, roll back burdensome regulations and make government more efficient.
The Mount Rushmore State is one of only two states (the other being Wyoming) with neither a personal income tax nor a corporate income tax. Although South Dakota dropped out of the top ten most economically competitive states in the latest edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, it remains at a respectable 11th out of 50. In an effort to increase teacher salaries, a sales tax increase was put into effect last year. The pay increase paired with low revenue collections has strained the budget, particularly due to the weakness in the agricultural sector and increase in online sales. However, Amazon recently announced it will begin to collect and remit a sales tax in South Dakota, which should help bolster the state’s revenue stream.
Governor Daugaard lauded the state for receiving the highest possible ratings from all three major credit rating agencies, an especially impressive feat considering South Dakota boasts one of the lowest overall tax burdens in the country. These quality credit ratings benefit state-affiliated borrowers, such as the state universities, as they are able to obtain loans with lower interest rates.
Our AAA rating is the consequence of the many sound financial decisions that governors and legislators have made over the years. We have balanced our budget for 128 years and recently placed an explicit requirement for a balanced budget in the constitution. We’ve made it the norm to have a structurally balanced budget, which supports ongoing expenses with ongoing revenues only.
Daugaard also plans to continue “red tape repeal” efforts to eliminate unnecessary or obsolete laws and rules. In his effort to make the state government more open and accessible, many additional documents are now viewable online, including economic development grants and restaurant inspections. He vowed to continue this drive for transparency and access to information through his “Better Government Initiative.”
The state will continue to face several fiscal challenges in the coming year. For instance, South Dakota–similar to other parts of the country–is struggling to maintain its vast infrastructure network. The state has already appropriated millions of dollars to upgrade state-owned rail line, and money will continue to be siphoned to build and repair roads and bridges. And as noted by the governor, “the state’s average [teacher] salary increased by 11.9 percent,” resulting in larger demands on the state’s budget.
South Dakota undoubtedly remains in a strong economic position. However, with recently legislated tax increases, revenue shortfalls and large budgetary requests, the state should proceed with caution.