South Dakota Governor's Budget Address for FY2014 [HD]

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>> Hello and welcome
to the Governor's Budget Address for 2013.
We are coming to you live from the State Capitol in Pierre.
This is South Dakota Public Broadcasting's live coverage.
I'm Stephanie Rissler alongside Cara Hetland.
>> And in just of few minutes,
Governor Dennis Daugaard will make his way in
and deliver his 2014 fiscal year budgeted address.
>> We really don't know what the governor is expected
to talk about.
Typically, in year's pasts,
the governors have given a press briefing
to the statehouse reporters.
This particular governor, Governor Dennis Daugaard,
has chosen not to do that,
instead giving a briefing following his address.
So what those key issues will be, we won't know
until he delivers the address in just a few minutes.
>> But what we do know is that all state agencies needed
to present their budget proposals by October 15th.
And so, that has been in front of the governor
and he's been working the numbers
and we will be hearing more from the governor
and his detailed plans in just a few minutes.
>> And right now what we have happening is the current Speaker
of the House, Val Rausch, has taken the podium.
We have new members here, we have returning members,
and of course, those that were reelected.
So we have a full house on the floor
of the House of Representatives.
And we do know that the governor is standing
by to deliver his feet in just a few moments
to this joint assembly of the legislature.
>> -- eight years I've spent in the house
and a very excellent two years as speaker.
I've enjoyed it very much.
And because of that I get some unique privileges and one
of those is to introduce to you my first speaker
when I was a freshman member of this house, and he happens
to now be our lieutenant governor.
He's a very dear friend of mine.
Would you help me welcome Lieutenant Governor Matt Michels
to the--
[ Applause ]
>> Very, very humbling.
Thank you very much.
And I would say it's great to be in the people's house,
but also welcome you on behalf of everyone who works here
from the individuals that take care of us
through the custodial work and everyone who's made this capital
so beautiful understanding the holiday season.
Would you please take this opportunity?
This is run, as you know, those who have just been elected
and those who'll be sworn in a month
and to those who are serving.
This is run by people who are dedicated to service
and your speaker is certainly that.
Would you join me in thanking him for his life of service?
[ Applause ]
>> I got more [inaudible] to do.
[Applause]
>> It's my privilege
to introduce our guest speaker today.
Under our constitution and our state law requires
that the governor through the Bureau of Finance
and Management shall prepare and submit a budget report to you,
the legislature with the copies to be transmitted to each
of you not later than the first Tuesday of the first Monday
of December immediately proceeding this session
for consideration with or without amendments
and modification by you, the members of the legislature.
In addition, our constitutional amendment that was just passed,
the governor will speak to.
He must propose a budget in which the expenditures
or appropriations may not exceed anticipated revenue
and existing funds available for expenditure or appropriation.
It is an incredible honor not only to have a friend
who is the CEO of our state but somebody great of integrity,
who really does epitomize the upper Midwest
and specifically South Dakota, and hard work
and compassion all combined in one.
Ladies and gentlemen, it's a true privilege
to have you welcome the governor of the State
of South Dakota and, well, the sergeant-at-arms,
please announce the arrival of the governor
of the State of South Dakota.
>> Lieutenant governor and members of the legislature,
the honorable governor of the State
of South Dakota, Dennis Daugaard.
[ Applause ]
>> Please, sit down.
Thank you.
[Applause & Laughter] Okay, come on.
[Applause & Laughter] Thank you.
Thank you.
Thank you very much.
Can you hear me now?
No? There we go.
So that's why you wouldn't pay attention earlier.
Thank you for being here today.
Today is our opportunity to begin the discussion
about the state budget
as I offer my proposal for Fiscal Year 2014.
Before I do that, I want to take a moment
to recognize some people here.
This is the first time we've been together as a body
since the November election
and a new legislature will be sworn next January.
Many new legislatures are here today
and I welcome you to Pierre.
Also with us today and those I really want
to recognize are some who will not be returning next year.
They are friends who have served us and our state well,
and I'd like us to thank them for their service
if you'd join me and doing twhat.
[ Applause ]
I also like to say a special thank you to Jason Dilges
and everyone with the Bureau of Finance and Management.
Putting together this budget is no small task,
especially when you consider they need to project revenue
and expenses for a period that begins today and ends in June
for the Fiscal Year '13 proposed amendments and then begins
in July of next year and ends fully 19 months from now.
So they're projecting way on the future
and that takes some talent and some courage
and I'd like you to thank me.
I know Jason is-- where is Jason?
Back in there.
Jason is back there and some of his staff are here,
Elisa [phonetic] is here, and McCollin's [phonetic] here.
Let's give them a round of applause, if you would.
[ Applause ]
Today, I'm offering to you my proposal for Fiscal Year '14.
I'll begin by talking
about where we've been then I'll share some information
about our economic situation, and follow that with a look
at our revenues for the current year and then
for the following year, Fiscal Year '14.
I'll discuss my proposals for ongoing spending
in Fiscal Year '14 and ongoing adjustments in the year we're
in right now, Fiscal Year '13.
And then I'll discuss my proposals
for spending one-time dollars.
Dollars we don't expect to recur.
We're fortunate to have one-time dollars to spend this year
and although I'll be offering some ideas,
you'll see I've also left some of that decision making to you
without any suggestions from me.
Let's begin by looking at what we've done together.
The budget I'm proposing to you today will be a balanced budget
like every budget in the history of our state.
Last year, we propose
to the voters a constitutional amendment
to add a clear requirement to our state constitution
that requires a balanced budget.
And this principle is the bedrock
of our state's financial strength
and I'm proud it passed the legislature and was approved
by an overwhelming vote by the people.
Why did we need to do that?
Some ask that question.
Virtually, all the states have a constitutional
or statutory requirement for a balanced budget.
May, however, balance their budgets only nominally.
It's balanced, but in a way
that really can't be reliably sustained.
Let's look at some of the way other states balance
their budget.
Some states balanced their budget by accounting methods
which push expenses into the next year.
Thirty years ago, Minnesota did that.
They couldn't balance their budget.
And even though their fiscal year was ending at the end
of June, they can only afford to give their schools
about 70 percent of what they owe them
under the state formula funding.
So they gave them that 70, and then the other 30 the next year.
They did that 30 years ago
and they haven't been be able to undo it.
So every year, the schools are getting 30 percent
of their funding late and then 70 percent more in a given year.
A lot of states push their expenses into a future year.
Another common trick is to push the last payroll
of the year into the next year.
So instead of having-- if you have two payrolls a month,
instead of having 24 payrolls in a year,
you push that last payroll into the next year
and you have 23 and, oh surprise, now, we're balanced.
The flipside of delaying a payment is booking future
revenue ahead of schedule.
That's what Texas came up with just this budget year
that they're in right here.
They're in the biennial budget.
To close a mammoth budget gap over the next two years,
Texas devised a plan to collect some taxes sooner.
Under that deal, Texas large retailers pay some
of their sales tax collection early.
That added 231 million dollars to this budget,
but it also robbed next biennial budget of that same amount.
Some states use an asset sale
against their own going expenses.
It's like selling your car to pay your utility bill,
works once, but then what do you do?
You don't have that asset anymore.
I know many of you are going to remember that just
over ten years ago, South Dakota settled a lawsuit
against tobacco companies.
And we sold to bond holders the right of the revenue stream
that tobacco companies promised us.
And that gave us a lump sum of money,
and what South Dakota do with it?
We proposed, and voters agreed, to put those dollars
into the Educational Enhancement Trust Fund.
And those dollars have grown from over 300 million dollars
to closer to 400 million dollars today.
That trust fund throws off earnings
or distributions virtually every year
into perpetuity to support education.
You know, Minnesota did the same thing.
Maybe you're aware of that.
They sold their tobacco settlement proceeds.
What did they do with their lump sum?
They used it to balance the budget that year.
That money is gone.
Many, many states have balanced their budgets
over the past decade by making inadequate contributions
to their public pension plans.
Virtually, every public employee in South Dakota is
under the State Retirement Plan: policeman, teachers,
university professors, DOT truck drivers.
Every public employee that has a pension plan with the exception
of Sioux Falls whose employees going forward will be
on this plan, they're on the South Dakota Retirement system.
Many states have balanced their budget by failing
to make adequate contributions to those pension plans
to meet the promises that they've made to those employees
that when they retire, there will be an annuity payment
in their retirement years.
In other words, the amount contributed
to the pension plan was less
than the amount actuary say should be contributed.
Illinois hasn't contributed the appropriate amount in 30 years.
The Morningstar Investment Research firm, just last week,
published a report the judged 21 states public pension plans are
not fiscally sound.
Remember Illinois?
They were at the bottom of the list, 43 percent funded.
The best was Wisconsin, 99.8 percent funded.
South Dakota number 3 at 96.3 percent funded.
We're not perfect, but every year,
we make the contribution actuary suggest
and we're always adapting
to the changing interest rate environment
and keeping our plan fiscally sound.
We aren't one of those 21 states that are out of whack.
The point I'm making with all these examples is
that a state budget can be balanced nominally,
in name alone, or it can be truly balanced structurally,
correctly and in spirit, balanced in a way
that covers ongoing expenses with conservative estimates
that we can rely on of ongoing revenues.
Maintaining that kind
of balanced budget hasn't always been easy.
When I came into office two years ago, many of you here
with me made courageous decisions to bring our expenses
into line with ongoing revenues.
And our budget is structurally balanced.
Ongoing expenses are covered fully by ongoing revenues.
And that's something we can be proud of.
By acting responsibly,
we're building a South Dakota that's structurally sound
and a balanced budget is part of that but is not only part.
Building a stronger South Dakota, we're structurally sound
because we've restored structure balance.
We don't defer expenses or accelerate income.
We use conservative revenue and expense projections.
We don't always appropriate every dollar that's available.
And the state agencies, under my direction,
haven't spent every dollar that's appropriated either.
We saved our reserves for emergencies
and we replenish them when we're able.
In short, by making conscious decisions
and applying South Dakota common sense,
we're building our state for the long-term.
My focus today is on this theme,
"The structural solemness of our state."
Now, as I prepared this budget proposal, I saw that we're going
to have some revenues that are not expected
to recur in the future.
They're one-time revenues.
I believe we should expand these one-time funds for things
that strengthen our state in one of four ways.
We should eliminate a liability, build or improve an asset,
secure an asset, or endow a program for the future.
You'll see some of these uses of one-time moneys that I propose
in the budget offering just like today.
And I'll return to these points later in the proposal
and I hope you'll consider them during the coming session
as well.
We owe it to South Dakota to use the revenues we have available
to improve the structural solemness of our state
for future generations.
With these thoughts in mind now, let's look at some economics.
The Unites States economy is recovering
but it's not yet recovered.
These four charts show how the recession has impacted four key
indicators and how they perform since 2007.
Look at the upper left hand graph.
The US real gross domestic product is the only indicators
shown here that surpass the pre-recession level.
Real GDP peaked at 13.3 trillion in 2007.
In late 2012, almost five years later,
real GDP is at 13.6 trillion which is a growth
of total 2.3 percent since that pre-recession peak five
years ago.
In the other chart, on the right, US jobs declined
by 8.8 million jobs during the recession
and only 4.5 million have been added back.
So we've only covered about half of the jobs lost, nationwide.
Lower left hand, US housing starts declined
from nearly 1.5 million starts
on an annual basis in early 2007.
And in third quarter of 2012,
housing starts were just 786,000 units on an annual basis.
Just about little over half of where they were in early 2007.
The US unemployment rate, on the bottom right hand, remains high.
It jumped up to 7.9 percent--
excuse me, 7.9 percent now compared to 4.5 percent
in early 2007 before the recession.
The bottom line is the national economy isn't healed yet.
And so, we need to cautious going forward.
These charts show by four indicators
that South Dakota's economy has
out performed the United States' economy
over the past several years.
The top left graph shows non-farm employment levels
of the US economy on the left axis
and South Dakota numbers are
on the right axis on a ratio of scale.
US employment decline much more sharply during the recession
as compared to South Dakota's decline.
US employment declined 6.8 percent from the peak into 2007
to the trough at the bottom of the recession, 6.8 percent drop.
In South Dakota, we declined less than half as much
at 3.1 percent, peak to drop.
Next chart top right, you can see South Dakota's unemployment
rate remain significantly less than the US unemployment rate.
In October 2012, the most recent figure available,
NASL employment, unemployment rate was 7.9 percent compared
to South Dakota's rate of 4.5 percent.
The two graphs on the bottom shows
up Dakota's income has grown at a faster rate
than the United States over the past four to five years.
Now, I'm going to refer back to this point
so fix it in your mind.
Our income has grown at a faster rate than the United States
over the past four to five years.
In 2011, our non-firm income group 5.7 percent compared
to the United States growth of 5 percent.
Our per capita personal income growth
which includes firm income along
with non-firm income made us number one in the United States
from 2010 to 2011 in terms to our growth
which was 11.8 percent.
Our strong firm economy was a significant reason.
Now that point again is something I'm going
to return to later.
South Dakota's 2011 per capita personal income was 44,217 per
person which is a hundred and--
106 percent of the national figure of 41,560 per person.
Let me say that again, the average income earned
if you divide the total income by the
over 800,000 South Dakotans is 44,000 dollars.
In the United States, that average is 41,000 dollars.
We're fortunate that South Dakota's economy continues
to outperform the national economy by many measures.
Let's take a lot at the tax revenues upon
which our budget is built.
This chart shows projected receipts
for 2013, fiscal year 2013.
That left column is the numbers you adopted
when you adopted the budget, that's in law.
The middle column shows what we think revenue will be.
It's better in most cases than what you adopted.
And the right column, of course,
is the difference between the two.
Several sources have been revised higher.
Sales tax is up to 6.4 million mostly
because of a strong July number.
They haven't been as strong since July
but they are up in general.
Property tax reduction fund shows video lottery revenue is
up, 5.7 million as we're beginning to see some return
on investment in new line games
that video lottery operators are using.
This will be the first year since the smoking banned
that we'd seen an increase rather than a decrease
in video lottery proceeds.
The third lying contractor's excise tax is up 10.6 million.
Last March, you adopted a budget which assumes the passage
of Referred Law 14, the Large Project Fund.
Under that assumption, 7.3 million was allocated
for the last half of this fiscal year away from this tax,
because it did not pass at the ballot box, the estimate
for contractor's excise tax is now higher by 7.3 million.
The remaining increase of 3.3 million is due to growth
and construction activity.
The ongoing bank franchise tax is down 3.3 million.
Our bank franchise tax has been very volatile lately due
to the some of the changes in federal banking law
and FDIC requirements.
That number, the 22.9 number is off set below by a negative 16.6
as a negative one-time receipt as we're uncertain
when this revenue source will get back to normal.
And we're going to discuss this in more detail later.
Charges for goods and services, it's up 2.6 million
on an ongoing basis mainly due
to higher unclaimed property receipts.
There is also one time unclaimed property revenue
that is shown below the line in on time receipts, I'll discuss
that in more detail later also.
Total ongoing receipts, total ongoing receipts
up 24 million compared to the adopted estimate.
One-time receipts are up a net, a net of 5 million.
This is the combination of a positive one-time receipt
or 12.6 million and unclaimed property.
One-time receipts of 1.7 million from refinancing bond, gains,
2.4 million from miscellaneous national court case settlements,
a 4.1 million transfer from the tax relief fund
and a 1.8 million transfer from the budgetary accounting fund.
All those increases are offset
by the one-time reduction I mentioned earlier,
16.6 million onetime reduction of bank franchise tax.
Again, more about that later.
In total, the revised one-time collections total to 6 million,
5 million up above where it was when the budget was adopted.
Total changes, 29 million higher than the adopted estimate
in total receipts for the current year, the year we're
in right now, fiscal year 2013.
Now let's look at 2014, beginning next slide.
On this chart, the left hand column was carried
over from the prior chart.
It's the revised numbers, the revised numbers.
The middle column, of course, is what we're projecting--
predicting revenue will be from the period July 1 of next year
through July 30 of fiscal year 14.
Fiscal year, again, runs July 1 to June 30
of the following year.
Growth is expected in all categories, sales tax,
property tax, reduction fund which, you know,
is video lottery money, contractor's excise tax
and insurance company tax are the big four.
The ongoing bank franchise tax we're showing, again, ongoing,
we're showing estimated at 23.2 with little growth
for fiscal year 2014, and, again, I'm offsetting
that with another negative 16.6 million of the revenue
as a one-time negative down below.
And again I'm going to explain why
that was done a little bit later.
Charges for goods and services are up 15 million
on an ongoing basis and fiscal year 2014 due
to some bank reorganizations,
we expect we would begin receiving new ongoing unclaimed
property revenue
of approximately 15 million more every year, and I'm going
to talk more about unclaimed property in another chart later.
Other ongoing receipts include alcohol taxes, cigarette taxes,
severance taxes, licenses, permits and fees among others.
Total ongoing receipts are up 63 million compared
to the revised 2013 numbers.
One time receipts for 2014 are a net increase of 12.6 million.
This net includes the onetime receipt of unclaimed property
as I mentioned a bit ago estimated at 29 million dollars
and offset by a one-time negative,
the 16.6 bank franchise number I talked about earlier.
In total, we expect a net of 12.6 million one-time receipts,
that's 6.6 million higher than the revised 13 number.
We're not going to use cash carry forward for 2014
as we did last year leaving total receipts of 1,333,000,000
in revenue for next year's budget year,
that's 41 million higher
than fiscal year 2013 including both ongoing
and one-time receipts.
Let's recap now, because it's important
to understand ongoing revenue if you want to be attentive
to the structural deficit.
When you left after adjourning last year, you left 16 million
on the bottom line, if you recall.
Of that, 9 million was ongoing.
Now, I just told you that we believe revenue in an ongoing--
in ongoing categories is going to be up 24 million
for the year we're in right now, 5 months in the fiscal year 13.
And then next year, we believe it'll be ongoing revenue will be
up still 63 million more for a grand total of 96 million
in ongoing revenue that is available to extend
in ongoing expenditures in fiscal year 14.
By ensuring our revenue growth is probable rather than hopeful,
we've been able to use fiscal year 13 ongoing revenue growth
to offset ongoing expanding in fiscal year 14.
Without this, we'd only be able
to propose 63 million dollars in ongoing spending.
I need to talk to you more in depth
about the revenue the state derives from our banking sector.
The past few years had been a time of instability
in the banking industry in South Dakota and around the world.
The economic collapse of 2008 saw the failure
of several prominent banks and, in response,
Congress passed the Dodd-Frank Act.
That law has prompted a wave
of bank restructurings across the nation.
In South Dakota, two
of our larger multi-state banks have undergone mergers
or changes in their charters.
Other multistate banks have moved operations
to South Dakota.
Overall, I believe these changes have been good to South Dakota.
Our business climate is attracting banks to our state.
But one consequence of this change is that South Dakota
and the banks are grappling with how to calculate taxes
on their bank income, a very changed structure.
These banks are national organizations and they need
to aportion their nationwide income among all the states
in which they do business.
This discussion is ongoing.
And I'm confident that we'll ultimately see this revenue
streams stabilized.
And I'm hopeful that will be clarified before the end
of the legislative session.
But I do not know yet today.
Let's take a look at some history
of the bank franchise tax.
This chart shows 10 years of our bank franchise tax.
And as you can see in the last 10 years, our best year
for this tax was 42 million dollars.
A worse case would be nearly zero.
I think neither is likely to occur this year.
And the next chart shows how we calculated an estimate based
on history and statistical analysis.
And what we're after is how are we going to figure
out what's our ongoing revenue from franchise tax
that we should use to guide us
as we consider ongoing expenditures.
This chart attempts to show how we computed an amount to assume
for bank franchise tax.
Again, I want to stress that while we're counting
on this revenue source to return to an ongoing revenue source,
we're subtracting any ongoing numbers down below
until we can determine the future state
of our bank franchise receipts.
So we're showing them up in ongoing
and we're taking them away below.
In the box shown on the upper left, you can see, again,
the 10-year history of the tax, same information you saw
in the bar chart in the last chart.
In the last 10 years, our best year, again, was 42 million,
our worst year was nearly zero.
For today, I ask the folks at the Bureau of Finance
and Management to calculate an estimate that looks
at our historical averages collected
and then make some conservative assumptions going forward.
We took the average of the 10 years
which is 27.7 million dollars, then we looked at the variances
and computed the standard deviation, that is,
of all the collections, 68 percent fall
within a fixed range, that range is plus
or minus 11.1 million dollars.
If you assume a standard bell curve as our distribution
of future collections, we can subtract one standard deviation
from the mean, and be 84 percent confident
that future ongoing collections will be at least that high.
And the number you come up with doing
that calculation is 16.6 million.
So that's the number that's in the ongoing
and that's the number I also subtract below
because we're uncertain about what it will be near term.
The longer term, the 16.6, I believe,
is a very reliable figure upon which we can be relying.
The effect of this is we're going to be--
we're being conservative counting on zero
from this tax net for fiscal year of 13 and 14,
but we're projecting that'll be restored to at least 16.6
in future year's budget.
And if for some reason, the changes in national law
and bank restructuring result in a condition
that appears otherwise, I will come to you and ask you
to amend our bank franchise tax laws so that we get
to where we need to be.
Now, the state also derives revenue from banking operations
through unclaimed property.
The news here is better.
In all states, bank sometimes lose contact
with their customers.
You might establish a bank account and then leave town
and you forget you left 5, 10, 100 bucks in the account
or you might have a credit card
and you overpay your credit card.
And then you forget that there's that credit balance
and you decide to abandon that card
and you use a different card.
But for whatever reason, banks end up with some accounts
where they have a modest amount of money
and they can't find the customer.
Those banks hold these unclaimed bank accounts for a period
of years fixed by law while they try to find their customers.
They can't spend that money, they can't use the interest
on that money, they just have to hold it for their customer
and look for their customer.
If the owner cannot be found after the fixed period of years
in law, these unclaimed property assets are turned
over to the state.
That's why the treasurer puts in the paper,
goes to the state fair looking for people, "Hey,
Joe Smith of South Dakota, we think we've got property
that is owed you," that's where that's from.
Traditionally, unclaimed property deposits
into South Dakota,
South Dakota's general fund were a few million.
However, in recent years, as banks have merged
or moved their headquarters to South Dakota or their charter
to South Dakota, we've been the beneficiary of more
and more national unclaimed property
that cannot be attributable to any one person or state.
Therefore, because we're the headquarters,
the unclaimed property is turned
over to the state of South Dakota.
This chart shows the history
of unclaimed property receipts coming
to South Dakota since 2003.
The ongoing revenue is represented by the blue bars
at the bottom that looks almost purple in this projection.
One of the bank restructurings that I've mentioned resulted
in a one-time payment of unclaimed property
in the current fiscal year, 13 year, the year we're
in right now, and that's represented
by the green bar in fiscal year 13.
We did anticipate that payment but it ended
up being a lot larger than we thought it would be.
So there's some one-time money that popped
up in the current year.
Another bank restructuring undertaken recently will cost
still additional unclaimed property to accrue
to South Dakota in 2014, that's represented
by the light blue bar, the checkered bar
and that will be ongoing starting next year.
We'll also be receiving a one-time increase
in unclaimed property in fiscal year 14 represented
by the longer green bar on the right.
In the past, you might remember South Dakota banks were told
to hold unclaimed property
for five years while they look for their customer.
If they couldn't find their customer after five years,
turn it over to South Dakota.
This five-year period was set in South Dakota law,
and then I learned that neighboring states,
most of our neighboring states had a three-year law.
So last year, I proposed and you agreed to change our law
to a three-year stature.
So next year, we will get five-year-old property,
four-year-old property and three-year-old property,
and that's the five and the four-year-old property,
the one-time bump is represented by that green bar.
And years after that will just revert
to a three-year-old property and it'll drop down again.
The one-time amount by that upper right hand green bar is
29.2 million.
In summary, although the changes
in banking have created uncertainty
in the bank franchise tax which I think we can correct,
they have increased our revenue stream on both the one-time
and an ongoing basis for unclaimed property.
Now that we've talked about revenue,
let's look at the other side.
Let's look at expenses.
As we approach new spending, again,
we need to invest our revenues cautiously and in targeted areas
that have long-term sustainability.
One-time dollar should be spent in accordance
with those principles that I outlined earlier,
eliminate a liability, build or improve an asset,
secure a current asset or endow a program for the future.
We need to continue to be conservative
in estimating revenue in order
to maintain our structural balance over the long term.
Remember, when I first came into office, in the prior four years,
we had every year overestimated our revenue.
An actual revenue came in below projections.
Our worst overestimation was when we overestimated revenue
by more than 50 million dollars.
We've got to be careful going forward and we have been careful
in the last two years, let's continue to that.
Once again, I'm proposing a budget that's
structurally balanced.
Here's a summary of the ongoing increases that I'm proposing,
which if you agree will become part of the base budget.
I'm proposing 3 percent for state A to K-12 education
and special ed, and this follows the formula funding
for the K-12 per student allocation.
I'm also proposing 3 percent
for the technical institutes following their formula.
The Board of Regents does not have a formula funding policy
but instead, they make specific request for specific things.
The last year, they received a 1.4 percent request,
increase rather, and this year I'm recommending funding
for specific items which total a 3.2 percent increase,
and I'll talk more about those items later.
The formula we used for Medicaid would require a 1.8 percent
increase for inflation.
In the K-12 funding formula, we look back
at historical inflation.
Inflation went up for a while and now it has come back.
You may have seen that in the chart earlier.
It went up for a while and came back down.
It's around 2 percent now.
Since you're looking historically at K12,
historically, inflation,
over the past several years has been 3 percent.
Prospectively, it's judged to be around 1.8 percent.
Not withstanding that,
I'm recommending the same 3 percent increase
as K12 and others.
Finally, I'd propose a 3 percent cost of living adjustment
for state employees' salaries, and I'm going to go into some
of these things in more detail.
Many of you are going to recall as an aside that I want
to mention that in the last two budgets, we used one-time funds
to soften the effect of the budget cuts.
Remember, most places were cut,
10 percent schools were cut, I think 8.6 percent.
But one-time funding prevented any of those recipients
from falling to that level.
Medicaid providers did not fall
to a 10 percent cut 'cause one time funds helped avoid that.
K12 did not fall to the 8.6 percent cut
because one time funds
in the last two years prevented that from happening.
This year, we're returning to formula increases
and have funded increases of 3 percent for each
of these categories but I'm not proposing the use
of one time funds to augment any
of these increases for this year.
Let's talk about the education increases.
This breaks down the funding for education.
State aid educations, 15.8 million
to general education funding on the funding formula,
increase of 3 percent, and also recognizing some enrollment
increase projection.
Special education would increase 6.3 million based
on a 3 percent increase and also
on aligning the base with increased need.
So part of its inflation,
part of its realignment of increased need.
The Board of Regents' proposal is of 3.2 is 5.3 million.
That's on top of the proposed salary increases I want
to talk about in a moment.
The 5.3 figures includes 1.9 million
to establish a physics program, a doctoral, a PhD program
in physics at UST and School of Mines in support
of the Sanford Underground Lab.
It also includes 1.7 million for maintenance and repair funding,
1 million for research at the Ag Experiment Station,
and half a million to pay physician assistant preceptors.
Tech institutes proposed 650,000 in increase funding
for 3 percent and also for enrollment increases.
Again, this is on top
of proposed salary increases I'll talk about in a minute.
The other education is technology, sparcity,
and consolidation incentives.
Education has dispersed big category of spending,
a total of 28 million dollars, 28.6 million.
A second large spending category is medical assistance
including Medicaid.
If a frail elderly person enters the nursing home and can't pay,
they're placed on Medicaid.
You know, the nursing home sends that bill up here.
We pay that bill partly with federal money
and partly with state money.
The next graph I'm going
to display will show the average percent that federal
and state governments each pay.
For Medicaid, the Children's Health Insurance Program
and others, it's a blended FMAP.
Mostly, it's Medicaid, I'm just going
to call it Medicaid for simplicity.
Let's take a look.
On this graph, the red line shows the percentage
of each Medicaid dollar paid with federal money.
So, the nursing home bill was 10,000 bucks, and 60 percent
of it in 2008 was paid by the federal government,
and about 40 percent of it or little less was paid
by the state government.
The blue line, of course, shows the state paid percentage.
As you can see, as I mentioned,
in 2008 South Dakota was shouldering a little less
than 40 percent of each payment
that our government was paying the rest.
Then the recession hit and stimulus funding passed
by Congress relieved the burden on all states.
The federal government said, "We're going to shoulder more
of the burden during this recession."
The states were having a tough goal.
And so you can see, the stimulus money shifted the burden
to the federal government away from the state.
So our share dropped in '09, it dropped again in '10.
It was still low in '11.
Then when the stimulus money ran out and we went back
to a normalized, we jumped back up again and a little bit higher
than we had been in 2008.
And then again, remember that per capita income growth.
How is Medicaid apportioned
between the federal government and the states?
Not everybody is this breakdown that I'm showing here.
Every state is different.
Some states are 50 percent, 50-50, North Dakota is 50-50.
Some states are different.
How do they decide who pays what?
Well, the federal government uses a three-year average
of state per capita personal income
to calculate each state's reimbursement rate change.
If the state average is growing faster
than the national average, then the federal government pays less
of each Medicaid payment.
If the state average is going slower
than the national economy, the federal government pays more.
Well, what's been happening to our personal income?
It's been going faster, growing faster
than the federal per capita income.
And as I mentioned in 2011, it rose by 11.8 percent,
the highest rate of growth in the nation.
So because our three-year average
of per capita personal income is growing faster
than the US average, the federal FMAP rate,
their share of Medicaid expenses is going down by 2.73 percent
and our share is going up by 2.73 percent.
You can see we're getting closer and closer
to that 50 percent mark and at the rate we're going
because 2011 numbers are going to be included not just
in this year's three-year calculation
but in next year's three-year calculation
and the following year's three-year calculation.
Unless we really go upside down in South Dakota,
odds are very high that we'll be at a 50-50 share by 2016.
Every percentage point of match cost the state
over 7 million dollars in general funds.
So let's see how that FMAP change impacts the budget
this year.
This breaks down the funding
for medical assistance mostly Medicaid and the top one,
top line that 20 million dollar expense,
our new FMAP raises our blended rate to 45.8 percent.
That means 20 million dollars in loss federal funding
that is replaced with 20 million dollars of state.
We're not getting-- we're not serving any more people,
we're not paying our providers any more money.
We're just using more state dollars than--
and fewer federal dollars to pay the same bills.
So that's just a shift in burden
from the federal government to us this next year.
The second line as I mentioned earlier,
I'm proposing a three-percent inflationary increase
on average to medical providers.
This cost 13.2 million.
So if you paid X dollars to set a broken arm
of a Medicaid-eligible patient, next year,
you'll get paid X dollars plus three percent,
it would be a one way to look at it.
Then look at the third line,
South Dakota has 116,000 South Dakotans on Medicaid
or the Children's Health Insurance Program more enroll
every month.
The rate of enrollment has slowed as the recession recedes
but we still see some enrollment growth.
In addition to more people coming on to the roles,
those who are on the roles tend overtime
to use services more and more.
So the Medicaid enrollees who went to the doctor 10 years ago,
they tend to go to the doctor more today
than they did 10 years ago.
So that's utilization growth.
So between enrollment growth and utilization growth,
we're predicting we need another 4 million-- 4.4 million dollars.
Add other medical assistance of, like food service, utilities,
bond payments and we have a total increase
of over 39 million to support only the current program.
And I know some of you expressed support
for expanding our Medicaid program and I'll talk about that
in a minute, but I want
to emphasize this dollar increase just supports our
current program and adds three percent inflation.
As part of the state employee compensation recommendation,
I'm proposing a three percent
across the board increase including market adjustments
for career-banned families
where our compensation is significantly below the market.
This is something you supported last year and I'm asking you
to continue your support.
I'm also proposing a 3.5 percent movement toward job worth
for employees covered under the performance
and compensation equity program and 0
to 4.5 percent performance-based increases per
career-banned employees.
Again, this is something you supported last year.
This career bans, some of those salary levels were way
out of the market.
IT and some of our engineers were just way out of the market
and we need to do some things
to start moving back closer to the market.
For the employer contribution to employee health insurance,
I'm recommending 7-1/2 million.
That's an increase of 14.7 percent in health insurance cost
to keep the program from incurring an under recovery.
Nationally, since 2008, employer contributions
to help plans have grown 40 percent.
Our state contributions have grown 14 percent.
We had a pretty optimistic belief
about how we'd be able to control cost.
We had some programs in last year's health management effort
that we believed would result in some cost and they're starting
to show us some cost savings as a result,
but they're not occurring at the rate and at the level
that we expected it so we are not putting enough money
into the plan and we're going backwards.
So, also, we've shifted about 12 million dollars
in cost to the employee.
One way of addressing increase claims is put more money
into the plan.
Another way to address it is force the insureds to pay more
in the way of deductibles or co-pays, and we've done
that to the tune of 12 million.
Ours is a self-insured program, we don't buy it
from an insurance company, we ensure ourselves.
We set aside a certain amount of money every year
which we believe will cover the claims that's not happened.
In our fiscal year 13 budget,
we underestimated our healthcare cost
and so this increase will address it
from fiscal year 14 going forward.
And I have a one-time request to fill the whole
for the current year that you'll see in a minute.
Let's look at the next chart.
Now, those three categories make up the vast majority
of proposed FY14 increased ongoing spending.
We have a little room for new ongoing spending but not much.
As we consider new ongoing spending, again,
I want to encourage us to follow responsible principles.
We also have opportunities for one-time spending.
Again, we want to promote structural soundness
with those one time expenditures, too.
Let's look at the bigger picture now.
I already talked about the first three,
education is 28.6 million, medical assistance 39 million,
state employee 20 million, what's left in ongoing spending,
criminal justice initiative.
We proposed to spend 3.4 million of new ongoing money.
Earlier this year, I joined with Chief Justice Gilbertson
and Senate Majority Leader Olson, and Senate Majority--
or excuse me, House Majority Leader Lust
to convene a workgroup, Brian Gosch was
at the initial gatherings.
Speaker like Gosch and a presumptive speaker-like,
I guess, to work in our criminal justice system.
The goals of this workgroup were to increase public safety,
hold offenders more accountable through community supervision
and reduce correction spending.
Last week the workgroup issued its final report,
I hope some of you have seen that,
and I appreciate the careful thought
and study they put into the process.
Many of their proposals are policies we should consider
and I'll discuss them in the State
of the State Address next month.
The recommended FY14 Budget includes funds
to expand drug corps, strengthen probation and parole,
and build our capacity to deal
with behavioral health and addiction issues.
I believe spending these dollars now may,
along with implementing statutory and procedural
and policy reforms, I believe it should significantly save more
dollars in the years ahead.
Again, I'll discuss more of this in the State of the State
but I ask your involvement in studying these things,
evaluating the facts and the proven evidence-based practices
upon which they're founded and judging
with me whether they are worthy of support.
I believe they are.
The fifth blind item proposes to spend nearly 2.8 million
for maintenance and repair.
Going back in history a little bit, in earlier years,
to balance our state budget before I became governor,
we departed from a policy that used to set aside 2 percent
of our total building values, set aside 2 percent to use
for maintenance repair.
So if we had a building worth a hundred thousand dollars,
we'd set aside 2,000.
And then that would be available for maintenance and repair.
In an effort to cut our budget, we reduced that to one percent.
And I'd like to return to that policy.
So I'm proposing gradually returning
to this approach over 4 years.
So fiscal year 14, we'd budget one-fourth of 1 percent
as an ongoing number planning to add another one-fourth
of 1 percent the year following, another one-fourth after that,
another one-fourth after that,
and get us up to not just 1 percent but 2 percent.
The six-line item proposes new ongoing spending
of 600 thousand dollars, increase for food services based
on our service plans, increase for utilities based
on our energy manager's productions.
The last line before the total combines a number
of miscellaneous items including additional support
to legislative audit, support to weights
and measures, and other items.
You could see that's about half a million dollars.
These are all proposed fiscal year 2014 ongoing expenditures.
The following three slides are going to discuss amendments
to the fiscal year 13 budget.
This is 14 we just talked about.
We going to go back now and look at the year we're in right now,
fiscal year 13, we're five months into it.
Let's look at where we are.
A few of the adjustments that we're going to talk
about our mid-year adjustments where revenue
or expenses has differed in our five months of experience
from what we projected last March.
Others that you'll see are proposals that I offered
to spend one-time money and I have additional proposals
to spend one-time money in FY14
that you'll see also in a minute.
Again, I believe that one-time money is an opportunity
to strengthen our state structural soundness,
and again I'll repeat it, well,
how should we spend one-time money?
This is my philosophy.
We should defray a liability, we should build something,
we should improve the stability or secure of something
that we-- I've already built.
Or we should endow something
that will be perpetually available and draw off earnings
for funds-- some program for perpetuity.
Those are my philosophies about one-time money
and they will keep us out of trouble and keep us
out of a structural deficit.
Now these are the changes I'm recommending mid-year
to the current year budget, FY13 budget, health insurance.
I mentioned that we're upside down.
We're not setting aside enough money to cover our claims.
So there are one-time cash sources in the revenues
which offset most of this one-time cost but you--
again, see, it's about a little--
little shy of 8 million dollars to get us to back where we need
to be and then we're covering the ongoing part
in our ongoing expenses that you just saw.
The second item GOED economic development.
I'm asking for 5 million dollars in one-time money to go
into the future fund for economic development projects.
As you know, the voters rejected the Large Project Refund
program, and I respect that decision.
Two projects made the decision to invest
in South Dakota relying in part
on the availability of that program.
They made their decisions after the law was passed
but before it was referred.
Once the law was referred, I pledge future funds as back-up
so these programs could move forward.
Bel Brands in Brookings and Baldwin Filters
in Yankton were companies that I pledged future funds
so they would make their decision to be in South Dakota
and both companies made that decision to be in South Dakota.
I'm asking the legislature to put one-time dollars
in the future fund to help meet these obligations.
There's two lines there, 5 million in general,
5 million in other; it's the same 5 million.
It would be spent by placing in the future fund
and then the future fund would have other fund authority
to spend it in distributions to those companies.
Criminal justice initiative, I talked earlier about ongoing.
This would be a one-time start-up cost
of 2.6 million for this initiative.
Again, I'm hopeful this one-time investment
and the ongoing dollars will offset
and reduce a future greater liability
and avoid construction cost of new prison facilities.
State Aid, the special ed, this covers a short fall
in the State Aid the special ed formula this year.
The short fall is primarily due
to lower property evaluation than projected.
This will eliminate a current liability.
Cement Plant Retirement Fund, you know, over ten years ago,
we sold the Cement Plant and we froze the retirement plan
and closed it but the amount of money that was
in that plan has suffered as a consequence of the poor economy
and there's not enough money
to make the projected retirement payments.
You might remember those of you who were here last year,
we put an extra million dollars into this fund as a start.
I proposed the another couple million.
The short fall is in totalled between 12
and 15 million were into the actuary.
Internal service rates, these are rate increases occurring
in the bureaus due to the cost increases for operations
and a major software upgrade to several departments.
Funds are for agencies to cover these rate increases.
These will again, reduce a current liability
and leverage federal funds as well.
State Aid, the general education,
these covers the short fall and the state aid
to general education appropriation.
It's short because of a lower property evaluation
than was budgeted and thus, state general funds have
to make up the difference.
Veteran services for higher ed, these are funds
that will be available
to the higher ed institutes both border regions
than the Technical Institutes
to provide veteran services on those campuses.
And then finally, the GOED Research Commerce Grants,
this is to start a proof of concept grant program.
The Board of Regions and the Board of--
or the governor's office of economic development work--
would work together on this.
It would support a program to provide small,
less than 50,000 dollar proof of concept investments in research
that is believed to be commercially viable,
where they're trying to turn research into a business.
If the commercially successful, the investment would be repaid.
If not, then it would lost.
So, there's a little bit of risk, but the idea is
to encourage commercialization of research
and support entrepreneurs right here in South Dakota.
Additional proposed amendments,
DOE Jobs for America's Graduates programs.
The Department of Education would provide many grants
to school districts to help implement the Jobs
for America's Graduates program
at school districts that are in need.
The JAG program is primarily a dropout prevention program.
It's been highly successful across the nation
to help keep our students, and school
and on a path through success.
Department of Education Teacher Evaluation Software,
these would pay for the one time cost
of the Teacher Evaluation Software
which will provide a consistent teacher evaluation tool
that can be used at all public school districts
across South Dakota.
Uniform and consistent evaluation
of our teachers is a key component
of our education systems.
New accountability model, and these will provide a tool
that school districts can use.
They can choose to use
which will meet accountability standards.
School districts will be free to create
or use alternative credible tools of their own if they wish.
But many districts have requested assistance
in this area.
DOE sparsely money, these covers a small shortfall
and sparsely funding due to more students than budgeted.
A Technical Institutes, M&R, this increase
and other funds authority is needed
to appropriate maintenance and repair fees
to the technical institutes, a BR, Budget Authority,
due to increase in the higher ed facilities fund for MNR
and enrollment growth.
The Technical Institutes Funding Reduction is due
to actual student numbers being 179 lower,
fewer than budgeted for FY 2013.
Therefore, these funds are no longer needed
and can be eliminated from the 2013 budget.
Medicaid enrollment revision, we're seeing Medicaid
and Children's Health Insurance Program enrollment growth
flattening out.
We still see growth, but the growth is much more moderate
than it was a year ago.
And even when we adjourn, we weren't confident
that enrollment would be as slow as it's turned out to be.
And so, lower growth than previously
as anticipated is allowing us to I guess,
unappropriate those dollars if I can call it that.
Let's talk about some emergency specials.
Now, I don't know that this would be really emergencies
in the sense that the fire bell is ringing.
But there are two-thirds votes in any course, in any case.
And by including an emergency class,
they can be spent sooner rather than waiting until July 1.
And this is again, is coming from 2013 dollars.
So, the money would be available.
The first emergency special
on this slide involves a Human Services Center Campus
in Yankton.
Now, I'm proud that we have a modern first class facility
in Yankton that has served patience since 1996.
In 1992, Governor Nicholson proposed replacing the outdated
and older structures
on the Human Services Campus with a new facility.
And that facility was dedicated in '96 and has been there since,
and is a very nice facility.
I'm sure many of you have been there.
But many of the old hospital building is now unused.
And even some farm buildings that date back a century
to when the Human Services Center wasn't operating dairy
farm, there-- they remained vacant on the HSC campus.
And some of these buildings
like the Mead Building are beautiful historic buildings
that we should preserve.
But as I said in the Yankton paper last July, many others are
in significant disrepair and are well-passed the point
of being remodeled or restored.
Over the years, studies have been made because we've been
in this condition for two decades.
Many studies have been completed to seek other uses and options
for the vacant buildings.
But due to the outdated structures, poor condition,
and expense of rehabilitating the buildings,
few viable options were found.
Now, some of the old buildings have been put to reuse.
The Pierce Building is occupied as a trustee unit
for the Mike Durfee Prison.
The Dietary Building remains in use for the probation
of food service to the trustee unit.
The Canner Building was remodeled
and is the office building
for most state agency locations in the Yankton area.
If you're going to DSS or some other agency in Yankton,
you'll go to the Canner Building on the HSC campus.
The Campus Chapel was renovated and turned
into a training center.
Some buildings are used for stores.
So, there are some buildings that are being used.
But numerous vacant buildings
on the old campus continued to deteriorate.
I personally inspected the entire campus on foot.
I've been through every building myself,
some more than ones, some three times.
Many of the buildings have leaking roofs, broken windows,
animals and birds living in them.
They're littered with mold, feces and animal remains.
Last summer, I convened a team to evaluate the old campus
and offer recommendations.
The team determined that while the land is an asset,
the vast majority of the buildings are beyond the point
of repair and have become a liability to the state.
Some are attractive nuisances
that are dangerous to trespassers.
I support a restoration of the Mead Building,
which was the first building at the HSC campus
and includes many notable architectural features including
a beautiful Italian marble staircase.
Through a partnership with the Yankton Historical Society,
we can restore this building and make an asset for the state
and the Yankton community.
And I also hope that we can save a historic [inaudible]
in the Burbank Building.
I proposed that the rest of the buildings
which are beyond repair should be demolished.
The easy path would be to do nothing.
We have done nothing for two decades.
The politically expedient path is to hide from that problem.
It's time to face that situation.
The easy path would be to do nothing to allow these buildings
to continue to deteriorate and fall into disuse.
But I propose we turn from the easy path
to the responsible path
and address a long developing liability and danger,
and yet preserve what we can preserve.
Now, let's look at the remaining emergency specials
that I proposed to this year's FY13 Budget.
Wildland's fire suppression, we need to backfill the fire fan
for Wildland fires that have taken place in the past year.
As you know, we can not predict what the expense will be
in these categories.
So, we spend into the red and then we backfill the deficit.
The State Veterans Home construction,
the general funds will fund a biomass heating unit
which spends more one time
but will reduce utility cost over the long haul.
So, we can use woodchips.
The federal funds are 65 percent
of the approved construction package be funded
by a federal grant which we have been awarded the largest federal
grant in this program.
The other funds are South Dakota's 35 percent match
and some, 100 percent state funded construction.
And these other funds, the 14 million,
would represent the maximum amount that we would bond.
And I believe we'll bond less than that.
The Rapid City Wildland fire remodel for renovations
and improvements of the South Dakota Department of Ag,
Rapid City office facility,
this is the old Game Fish & Parks buildings that was vacated
when Game, Fish & Parks moved into the Outdoor Center.
The Department of Ag will remodel it for their use.
They're being kicked out of the Rapid City airport facility
where they're leasing.
They're required to vacate by December of 2013.
The Department of Military land purchase in Sioux Falls is
to purchase land from the city of Sioux Falls.
We leased some property, but it's not renewed
and we need this land for training exercises
and the Department of Military would like to purchase it.
They would also like to use some federal fund appropriation
authority to build a motor pool building again in Sioux Falls.
This would be at the Readiness Center
at the Sioux Falls airport.
It would be-- all federal funds.
There are currently no vehicles covered from the elements
that belong to the motor pool.
The water Omnibus Bill, you've seen every year
since you've been here.
This is a yearly appropriation for water--
from the water and environment-fund,
the water pollution control revolving sub-fund,
and the drinking water revolving sub-fund, it makes loans
and grants to local communities
for water lines, for sewer lines.
And you've seen this bill before.
Now, the last item is inmate housing at the State Fair.
This would provide permanent housing, governor's houses.
They have used other funds that are generated, fair admissions
or camping fees to pay for some governors' homes
that then will be the place where the prisoners stay
when they're on site for maintenance.
Now, let's look at proposed one-time expenditures next year,
fiscal year '14.
The first one is a large 4 million dollar appropriation
that would fund three separate projects
that I'm calling outdoor heritage projects.
This would be long term assets for the state.
Two million, I'm proposing for the blood run nature area
which is well on the way to becoming a valuable part of
or Game, Fish and Park system.
The funds will develop roads and parking, visitor,
and day use facilities, offices and a trail system.
The State of Iowa is interested in dedicating land
across the Sioux River from our land.
And this has the potential
to be the first two state park in America.
This will enlarge further this nature area
and cultural landmark.
500,000 would be used to seize an opportunity
to expand the George Mickelson Trail.
The federal government has finally given permission
for the state to extend the Mickelson Trail
to Mount Rushmore.
These funds would begin the development
of the 18-mile expansion.
Every general fund dollar would be matched
with 3 dollars from other sources.
1.5 million would be used for a new Theater
and Visitor Center at Custer State Park.
It would be matched by Game, Fish & Park, other funds
and parks and Wildlife Foundation dollars.
Every year, more than 1.8 million visitors go
to Custer State Park.
The theater will improve the experience
at the Norbeck Visitor Center and most importantly,
encourage the visitors to stay longer.
This has been something that's been tried in other parks
around the nation by having a theater that can talk
about other things in the park or in the area.
You encourage visitors to become interested in those things
or aware of those things either extend their stay
or come back again later.
These three outdoor heritage projects totalled 4 million
dollars in one time spending.
Let's look at other one-time proposals I'm suggesting
for FY14.
Pine Beetle Suppression, 2 million dollars.
Last year, I asked for 6 million dollars
for the Black Hills Forest Initiative.
Our Pine Beetle Suppression efforts have already treated
over 290,000 trees and partnered with more
than 700 private land owners.
And we have been largely successful so far
in protecting Custer State Park from the worst of the epidemic.
Our flyover map that I hope you'll ask to see from Game,
Fish & Parks and from the Black Hills Forest collaboration group
shows very clearly that Custer State Park has been largely
protected from mountain pine beetles.
Thanks to the hard work that we've been doing.
But there's still to be done--
more to be done in this battle against the beetles.
I've met with County commissioners and land owners
in the Black Hills and this year,
I'm recommending an additional 2 million dollars in funds
to continue our beetle suppression efforts.
The Sanford Underground Lab at Homestake, the Ross Shaft,
I'm recommending 2 million dollars in one time funds.
I spoke earlier about my proposal to create a PhD program
in physics at our state universities,
support the cutting edge research that's done
at the Sanford Underground Lab at Homestake.
I'm proposing we spend 2 million dollars in one-time funds
to continue to improve
and restore the infrastructure at the lab.
The funding will accelerate the work that's being undertaken
to rehabilitate the Ross Shaft which is one
of the two vertical shafts that give access to the Davis Campus
where both of the major experiments
that are presently underway are located.
South Dakota has worked over 10 years
to make the underground laboratory a success.
It hasn't been easy but with the opening of the Davis Campus
and the installation of new experiments, things are moving
in the right direction.
And I'd encourage every one of you if you have not gone
to go visit the underground campus on the 4850 level,
see the progress for yourself.
It's very impressive.
The railroad trust fund,
I'm proposing 1 million dollars be added to that fund
which makes loans to the companies for railroad projects.
We need to support agriculture and industrial development
and one way to do that is by providing loans
from the railroad trust fund.
Moneys from the railroad trust fund are loaned out for projects
such as sidings or mainline rail improvements
which have a direct impact
on economic development in South Dakota.
There's many good worthy projects
that would benefit from these funds.
And this proposal would be a good start.
Tax refunds for the elderly and disabled,
this is an annual appropriation for incomes
who meet income guidelines.
Physician tuition, again, that's--
this is dependent upon tuitions locating in rural areas
and this repays their medical school tuition in return
for their commitment to stay in these rural areas.
This pays for two doctors, one dentist,
and one physician assistant repaying their tuition.
Clover Hall replacement, that's 4 million dollars
and other funds, not general funds, but other funds
that would replace the current Clover Hall,
two thirds of which has become unusable at the State Fair.
The State Fair Foundation, the state--
the South Dakota 4-H Leaders Association
and others are leading a fund raising effort
to replace to Clover Hall.
And this is an appropriation authority
to permit the expenditure of those private dollars
on State Fair property.
Conservation grants, this will use a portion of gas tax refunds
that were formally available.
The last year, you change the law to make those refunds
that would be otherwise available for taxes paid
by farmers and ranchers on their property, instead,
the money will now go through as was part
of the arrangement last year.
Make grants to conservation districts to help fight erosion
of our soils, lakes, and rivers.
State Treatment and Rehabilitation Academy,
the STAR Academy in Custer State Park, this will provide
for construction of a new maintenance building
and also demolition of three buildings,
one of which is the old Maintenance Building.
That would use available DOC cash.
The new budget bottom line, we've talked about a lot
of proposed amendments.
And this is what the bottom line would look
like in both fiscal year '13 and '14.
It shows total proposed revenue and total expenditures
in nominal terms, nominal terms.
When the FY13 Budget was adopted last March,
the legislature left 16.3 million dollars
on the bottom line.
Even with the many revisions I'm proposing,
I've left 16.4 million dollars on the bottom line.
And I'm offering no proposal to spend it at this time.
Similarly, I'd left a nominal surplus of 10.2 million dollars
on the bottom line for 2014.
Again, both of those numbers represent about one percent
of the budget for each fiscal year.
Because we live in a time of so much uncertainty,
I believe we should wait to see what direction is taken
by the president and congress in the next several months,
and what impact it may have on our economy.
Congress may fail to reach an agreement on the sequester cuts
and they may take effect.
If they do, they'll take the effect January 2nd.
These-- if they don't, if congress doesn't reach agreement
on the expiring tax cuts, the combination of tax increases
with the cuts expiring.
Tax increases plus the automatic sequester cuts,
I believe by most economy-- economist to create a recession
in calendar year of 13.
So, I think we should wait
and see what happens on those two fronts.
Both have them have deadlines.
The tax cuts will expire automatically at the end
of this year unless congress takes action.
So, in action creates a change.
If congress does not act on the sequester,
those sequester cuts will take place January 2nd.
So again, in action will create a change.
So by the time you-- we reconvene next January,
we'll know what has happened on those two fronts.
We may not know much more if they just simply defer
to another date down the road.
But it's something that is cost for concern.
One area of great uncertainty I mentioned is the sequester cuts,
whether those will come about on January 2nd.
And those across the board cuts
of federal funding could have a significant impact
on South Dakota State budget.
Three weeks ago, just three weeks ago, the Pew Center
on the states released a report that compared the effect
of the sequester cuts on the 50 states.
Let's look at their chart.
This isn't my chart.
This is their chart.
The chart evaluates what percentages
of total state revenue comes from federal grants
which are subject to the sequester.
Our state is at the top.
Federal grants subject to the sequester make up 10.3 percent
of our state revenue, the highest percentage of any state.
The average state gets about 6.6
of its revenue from federal grants.
South Dakota, 10.3.
But let's do the math.
For fiscal year 2013, we adopted a budget
which predicted state revenue including general funds,
federal funds, and other funds with total just
under 4 billion dollars.
That's a budget that's already adopted.
You adopted it.
Pew was saying the federal grant subject to the sequester make
up 10.3 percent of our revenue.
That would be roughly 412 million dollars
of grants subject to the sequester.
That's not the cut, but that's the total amount
of grants subject to the cut.
Based on OMB estimates of across the board percentage cuts,
the federal fiscal information to the states,
that a subscription that we in most states subscribe to.
They estimate that sequestration would result in cuts
of roughly 7 percent of federal non-exempt, non-defense grants
to states compared with fiscal year 2012 funding levels.
This is a very rough map now,
but 7 percent would be 29 million to South Dakota.
So if the cuts take place,
our best judgment now is they would result
in about 29 million dollars of loss federal funds.
What happens then?
What do you do then?
Well, you could do nothing and let those cuts be felt
by the programs that will otherwise depend upon them.
Or you could replace those cut federal dollars
with state dollars.
I don't propose one way or the other.
I think you need to evaluate that as a policy decision.
I'm just saying that if the sequester takes place,
29 million dollars of federal funds will be cut-off dollars
that you included and expected and put in the budget
for the year we're in right now.
Now, there's been some discussion recently
that the lame that congress will act
to prevent sequestration from occurring.
And that maybe true, but we should be prepared for cuts
that ultimately must come unless taxes are raised dramatically.
The federal government cannot sustain current
deficit spending.
And action must be taken very soon.
Now, don't go to the next slide.
I just want to emphasize this.
I'm not being political.
I'm telling you the numbers are significant,
and I'm going to show 'em to you.
Let's understand the breadth of this problem.
It is big.
Federal fiscal year 2012 just ended,
September 30th, ten weeks ago.
Federal fiscal year total revenue was
about 2.4 trillion, the green bar.
We spent about 3.5 trillion.
The deficit for the year was 1.1 trillion.
So, there's the gap.
That red bar if it was stuck on top of the green, it would equal
to the height of the blue, right?
The total sequester across the entire nation
or reduced spending in the new federal fiscal year
which just began by about 120 billion.
So, look at that little tiny cut, that's the sequester.
Including the non-defense or including the defense part,
that's the whole sequester.
So, this drastic cut that we want so desperately
to avoid is just a tiny sliver of what we need to face.
This isn't the accumulated debt, this is just like last year,
this is just last year.
Now, let's put this in some numbers because when we talk
about millions and billions and trillions,
my head spins with the zeros.
I have to think and count.
Let's see.
Billions, 9 zeros, trillion, that's 12 zeros.
It's hard to keep tracking.
Well, let's just cut-off 8 zeros, cut-off 8 zeros
and pretend that your family, and your son
or daughter has just taken their first job
at a monthly salary of 25, 000.
That's what they're going to get paid.
They're going to get paid 25, 000 dollars.
And then, you talk to them and say, "Well,
I've got a new apartment.
I bought some health insurance.
I bought a new car in the car payment."
And what do you spending, honey?
You say, "Well, I'm spending 35,000 dollars a year."
Wait a minute, you're earning-- excuse me--
24, you're earning 24, 000 spending 35, 000.
Oh, my gosh, you got to cut your expenses
or you got to get another job.
You got to something.
You can't spend 11, 000 more than you're making.
Now, probably you're going to have to put some of the money
on your credit card until you get this straight around.
What's your credit card balance?
Well, let's look at what does the credit card balance
would be.
The chart shows the proportion.
The credit card balance is 168,000 that your child has.
168, 000, that's the debt on your child's credit card.
Add those 8 zeros, and that's our national debt.
100 and-- excuse me, a 163,000.
So, that's the breadth of the problem.
This is our debt on the right, our revenue on that green
in the left, 24 or 2.4 trillion,
spending 3.5 trillion, a deficit of 1.1.
And those cuts are so small
that you almost can see 'em anymore on this chart.
So, I tell you that because I don't want to be an alarmist.
I don't want you think that I'm being crazy when I say,
"We got to worry about this in the future," because we do.
We really have to worry about this.
If this were your own personal budget, you'd be very alarmed.
So, let's go to the next chart.
Because of all of these uncertainties, I think we need
to be conservative about committing
to future ongoing expenses.
Beyond the uncertainty in Washington is another area
of uncertainty, the optional expansion of medicaid
under the federal health care reform.
As you know, South Dakota joined with many other states
to challenge the constitutionality
of the federal health care legislation.
Like it or not, that happened.
And the Supreme Court upheld the law except for the medicaid part
that was to be mandated.
The deal was, under the law as written,
if you're in the medicaid program, you have to expand.
That's the way the law was written.
And the Supreme Court said, "No.
No federal government.
You overstepped your authority.
You can allow and make it optional for the states
to expand, but you can't require them to extend--
expand as a part of maintaining the medicaid program they're
already in."
So, I'm not recommending
that South Dakota expand its medicaid program
in our fiscal year 2014.
Our best estimate right now is this expansion.
We add 48,564 able bodied adults to the medicaid roles.
And I want to stress that.
These are able bodied adults.
They're not disabled.
We already covered the disabled.
They're not children.
We already covered children.
These are adults, all of them.
There are far too many unanswered questions for me
to recommend adding 48,000 adults
to the 116,000 already on our roles.
Now, in the first three years,
the expansion would be 100 percent funded
by the federal government.
The claims would be, not the administration,
not if other currently eligible people come on.
Those wouldn't be covered a 100 percent,
but all the new people would be covered for their claim,
a 100 percent, and that's a lot
of the cost in those first years.
That's a lot of the cost.
Then in 2017, the cost changes to 95 percent paid
by the federal government, then 2018, 94 percent, 2019,
93 percent, and then by 2020, it's 90 percent federal covered,
10 percent state covered.
The state has just obtained a second round
of actuarial studies.
In fact, I saw it yesterday for the first time
to understand some of the impacts of the expansion.
And our best estimate is the expansion wouldn't ramp
up to a state cost between 43 and 44 million,
additional dollars by 2020.
Be lower than that, and considerably lower than that
in the first few years.
But by 2020, we'll be spending about 43
to 44 million more in state dollars.
Now, we don't know what will happen after 2020.
Will the federal share remain at 90 percent?
Will it drop to 80 percent or 70 percent?
Will it drop to the F map rate?
We expect it will be at 50-50 at that point.
We simply don't know.
We just don't know.
We also don't know if the expansion is it all or nothing?
We know it's not a "now or never decision."
We can decide not to expand
in fiscal year '14 which I am proposing.
We don't expand in '14.
And we can still do it '15 or we can do it in '17 or '18.
Whatever the share is on that year,
we jump in at that shared rate.
If we jump in in 2020, we jump in at the 90-10 rate.
We don't start at a hundred percent, just to make it clear.
So, it's not a now or never decision.
We don't know if it's all or nothing.
That is do we have to enlarge the expansion
to the entire 48,000 adult population
or can we enlarge to a smaller subset?
We're trying to find out the answer to that question.
We need good answers from the federal government.
And I've joined many of my fellow governors and asking
to meet with President Obama about this.
And in the meantime, I do not recommend expanding medicaid
in 2014.
And still another uncertainty are largest economic driver,
agriculture, suffered a sever drought in 2012
and we don't know when that will end.
The National Drought Monitor last week showed over 93 percent
of South Dakota right now is in severe, extreme
or exceptional drought, the three worst categories.
Conversely, seven percent is not in severe
or worst drought, seven percent.
Time will tell what will be the full impact of the drought
on our ag producers and how it will affect economic activity
in South Dakota.
Until we emerge from the drought,
I think it would be prudent to be remained cautious.
And unfortunately, the recession, the uncertainty
in the United States is no longer recession
but remaining uncertainty is also seen elsewhere.
Last year, Europe slipped back into a recession.
This is the first time that Europe has been in recession
when the United States has not been.
So, that's something to worry about.
Japan is in recession.
China's growth is slowing.
So, there's lots of unknowns out there.
And so, I don't want to again, seemed to be and alarm us,
but these are global scale things
that we can't be oblivious to.
So for these reasons,
I have left significant dollars unspent.
I'm hopeful we'll know more, by the time the FY13
and '14 budgets must be adopted.
But before we conclude,
I want to update you on some other things.
This is our emergency reserve fund.
The blue line shows a little history combining the property
tax reduction fund and the budget reserve fund.
Over the past decade those funds combined have ranged from a high
of a 160 million in fiscal year '04 to a low
about 87 million last year after you approved the use
of 20 million for emergencies.
The floods, the fires, the mountain pine beetles.
We ended fiscal year 2012 with a nominal surplus of 47.8,
so we're able to restore the 20.2 million
and add another 27 million both what we spent and still more.
So, our reserve balances today totalled 134.7 million.
Now, if you choose not to spend the 16 million I left
and you left on the bottom line for FY13 and that went
in the reserves, that would go up to 11.9 percent
of our funding-- of our spending rather.
And if you didn't to choose to spend the other 10 for FY14
and it went to the reserves, it would end up with a balance
of a 161 about where we were in FY04.
I'm not suggesting you should do that,
I'm just saying that's what would happen.
Report by the Center on Budget
and Policy Priorities is shown in the green line.
They recommend reserves should be maintained at 18 percent
of general fund expenditures.
Again, that's a policy decision.
That's a good thing to debate.
I'm not suggesting it's the right thing to do
or the wrong thing, I'm just offering it as a benchmark.
[ Pause ]
There aren't many states today
that can consider how large should be their reserve funds.
That's something that should make us all very proud.
In my inaugural address almost two years ago,
I said that South Dakota could show our sister states
and even our Federal Government that there is a better way.
This year, we're considering a balance budget
for the 124th year.
We'd strengthened our balance budget requirement
with the constitutional amendment.
We replenished our reserve funds after the flooding,
fires and pine beetle emergencies.
We're preparing for federal sequester cuts.
We've avoided raising taxes.
We're improving our financial practices.
We're even working to upgrade our credit rating.
And Barron's has recognized South Dakota
as the best run state in America.
I want to thank you for your public service.
To those legislators who are not returning a "thank you"
for your work, for our state this past two years
and years before.
And I know many others in the state joined me in thanking you
for participating in this great representative government.
To those legislators who are returning next year
and to the new legislators who will join us,
I ask for your continued diligence in the face
of an uncertain future.
We can face that future with courage, with the knowledge
that our predecessors have left this strong South Dakota
in our hands.
In South Dakota, we know we can't spend
and borrow our way to prosperity.
We understand you can't think about today's benefits
without being concern
and considering tomorrow's consequences.
In South Dakota, we know that we have
to keep our state structurally sound for the future.
That's my focus this year.
I hope you'll join me in that focus.
It's our duty to the people of South Dakota.
And I thank you for your attention.
[ Applause ]
>> And Governor Dennis Daugaard has just wrapped up his speech,
his recommendations for his proposed budget
for fiscal year 2014.
[background noise] Of course,
according to Governor Dennis Daugaard,
the proposed budget allows
for more modest and sustainable grow.
Some of the things that we did here from the governor,
we'll see money going for education, medical services
for the poor, and for state employees.
Some highlights that the governor talked about,
our economy has recovered better than any other state in America.
The governor is saying that is because this legislature,
some of the folks that have returned back,
they really cleaned up their own fiscal house.
As you remember a couple years ago when we had great cuts here
at the state level, he said that is why our state is better
than any other state in America.
Some of the other things talked about today is going to be some
of the money that will be left on the table.
Once the ballot-- the budget is balanced in fiscal year 2013,
we're going to see 16 million dollars left uncommitted to.
And fiscal year 2014, we will see 10 million dollars
uncommitted to.
What the governor wants to do is have a healthy discussion
with the legislature as to where that money will go.
He's indicated, "We do not have to spend every penny
of those uncommitted dollars, but they are left on the table."
Some of the reasons those mo--
that money will be money
on the table are some emergency situations that we may have
to deal with as a state including the drought situation,
the expansion in medicate.
Those are some of the things that came up today
as Governor Dennis Daugaard delivered his proposed budget
for fiscal year 2014.
Again, this budget will go and to effect on July 1st of 2013.
It will then run until June 30th of 2014.
This legislature will comeback together.
Well, some of the members
of this legislature will comeback together in January.
They'll begin looking at those numbers,
where those dollars will go.
There were some increases that we'll see education is expected
to get a 3 percent increase.
The board of regions will see a 3.2 percent increase.
We'll also see state employees with the cause of living.
They too will receive a 3 percent increase.
Again, these are all proposals from the governor's office.
How everything falls on the table is
yet to be seen once this legislature comes together
and ends in March.
But those are some of the things
that Governor Dennis Daugaard talked today
as he did deliver his proposal for fiscal year 2014.
If you're just tuning in on TV, radio or online
and you miss part of today's speech, it will be archived
on our website at sdpb.org.
Just go to our State House section.
And of course, we will re-air this speech tonight
on SDPB television at 10:30 Central Time.
Right now, what were doing is we've got Cara Hetland
with public radio and myself.
We're going to be getting some reaction interviews from some
of our state law makers to see what they think
about what Governor Dennis Daugaard had to say,
what their hopes are as we begin the 2014 legislative session.
And I understand Cara Hetland is ready to go with one
of our first interviews, Cara.
>> Thanks, Stephanie.
And joining me now is Angie Buhl,
State Representative in Sioux Falls.
Thanks for joining us, first your initial reaction
to the Governor's speech and his proposal?
>> Well, I think it's important to remember
that this conversation is not just about numbers on a page,
numbers in a budget that it really speaks to our priorities
and our values as a state for where these dollars go
and how they're used to impact people's lives.
>> How do you feel about his plan to be very cautious?
And we don't have to spend everything that we have.
Let's see what happens with the Federal Government,
the recession.
How do you feel about taking that conservative approach?
>> Well, I think everyone in the legislature
and in South Dakota agrees with the cautious approach.
And at the same time, we recognize that there are--
there's still damage being done from cuts
that happen two years ago.
And so, I think we need to recognize that we are
in a generally strong place fiscally in terms
of the reserve funds that we have on hand.
And that caution is always good at the same time
that there are people out there who are still struggling.
>> So, do you think that we need to spend a little more money
to make up what we cut in a sate two years ago?
>> I think, we need to address the damage that was done
from two years ago to use the--
use that as a base and then move forward from there especially
if were moving to, you know, pre-recession levels
and other areas of the budget like state infrastructure
and state building repair.
>> Do you think law makers can agree on damage that was done?
>> Well, I think that everyone recognizes the--
that there was damage done.
They've heard from their constituents, they've heard
from the small-time nursing homes and the clinics
that are having a really hard time making ends meet.
And they hear it everyday just like I do.
And so, I think that it's just a question
of whether we can find a well to dig in and fill in that hole,
and then move forward from there.
>> How do you feel about just straight
across the board three percent increased?
>> I think it's a good jumping off point.
I think it's, you know, certainly a better point
than we were at when I came first in two years ago
and we were looking at, you know, 3 percent cuts instead
of 3 percent increases.
So, I'm glad that we're starting at that point
but at the same time, it still fails to recognize
that there are still providers
and schools struggling out there.
>> Do you thin more needs to go schools and medicaid
than some of the other areas?
>> I think some of the one-time funds could be used to sort
of back fill those cuts and then to, you know, get them back
to point where they're supposed to be.
I mean at this point, schools are still
at 2005 levels of funding.
And I think that's a serious problem for our kids.
You know, kids can't repeat fifth grade just
because we had a few years of tight funding.
And so, we got into go Mac and make sure that we are addressing
that and then moving forward from there.
>> All right.
Representative Buhl, thank you so much for joining us.
>> Thank you.
>> Back to you Steph.
>> And I am joined now by Representative Peggy Gibson.
She's from Huron representative.
Thanks for being with me today.
An interesting speech what we heard from the Governor,
first off, your overall thoughts on what you heard?
>> Well, my first overall thought is we haven't fixed the
problem yet with education and medicaid.
So, we need to think about that.
Seriously, think about that medicaid expansion
and those 48,000 people that will be impacted
if we don't do the medicaid expansion.
So, I'm very concerned about that particular problem.
It'll add about 200 million dollars
to the South Dakota economy,
and turn over 7 times in the economy.
First three years, it would be totally paid
for by the Federal Government,
and so many of our poor would be impacted by that decision.
>> I'm hearing mixed thoughts on the one-time funds issues.
A lot came up on where some of those one-time funds could
or should go, your thoughts?
>> Those I have-- I agree more with the Governor on--
the corrections program is very good,
the state park improvements,
money going to the South Dakota State Fair impacts here in
and my community and authorizing funds there.
So, I'm very appreciative of those.
Tackling the pine beetle problem, the PhD physics degree,
I'm very, very pleased with some of those one-time fund moneys
and agree that they need to be done.
I like he's putting money into our state parks
and into the state fair.
And really, thinking about boosting our tourism
in South Dakota that gives us so many positive reinforcements
and people coming to our state
and making it just better for everyone overall.
>> Okay. Those are some issues
that obviously will be of importance to you.
Anything else that came up today
that you really going to keep your eye on?
>> Well, just mainly the medicaid expansion money
because that's really important.
And of course, education
and economic development are partners.
And that's how we're going to move our state forward.
Our small business has established them not
to corporate giveaways.
That is one thing that's been very, very important to me.
I was a big opponent of House Bill 1230
and certainly, Referred Law 14.
And don't think New York Times is just been a big study
on corporate giveaways, and they're not effective.
We need to put that money in education.
We need to put that money in our healthcare systems
to help our poor South Dakotans move forward.
>> All right.
Before I let you go, you were a one returning law maker.
You're a veteran now, but we're going to have a lot
of new faces this legislative session.
As your constituents and the rest
of South Dakota watches today, what are your final thoughts
as you look forward with all these new faces
to the 2014 legislative session?
>> I look forward to it with a very positive attitude working
across the aisle, working with my fellow democrats,
working with the second floor, and moving South Dakota forward.
So, I'm very happy to be back in the legislature.
I do feel I have some experience under my belt now
and I can just hit the floor running.
And I'm very pleased to be back and making good so--
laws for South Dakotans.
>> All right.
Representative, thank you.
>> Thank you.
>> And of course, this is Representative Peggy Gibson
from Huron.
We'll now throw it back to Cara.
>> Thank you.
And joining me now is State Senator Corey Brown
from Gettysburg.
Thanks for joining us today.
>> Sure.
>> And your initial reaction to the Governor's speech.
>> Well, you know, I'm always--
it's always good to get this day done
so that we can finally get a look at the details
that the Governor has and his plan.
We kind of have a road map
for what we can expect this next year.
And, you know, my initial reaction is that we went
through some difficult years the last of couple of years.
But I think the goal was to try to put in place a structure
that allowed nice, moderate growth into the future.
And I think what you saw here today were revenue estimates
that probably largely reflect that.
And so, I think it's good when we can have those conversations
about continuing to move forward when we have a lot
of these states that Cara are facing huge deficits again
and they're looking at additional cuts.
They have pensions that are unfounded,
and that's not the case here.
>> Is there any conversation in your caucus
about back filling some of the cuts from a couple of years ago
and making that money up?
>> I think the Governor and I think many of us, legislators,
were pretty clear that two years ago was kind
of intended to be a reset.
There should not be the expectation
that we're necessarily going to just fill those cuts back
in because now, if there are programs that make sense,
and clearly there's a return on that investment,
I do think there's revenues increase.
We will continue to put more money towards those things.
But, you know, I think you even can see here
if you make the inflationary adjustments
that the Governor has suggested and you look
at the anticipated growth in revenue,
there's really not a lot of extra ongoing money that's left
over by the time you do those things.
>> Do you think 3 percent is enough
for education and medicaid?
>> I guess that's what we're going to find
out in January, isn't it [laughs]?
>> What are you hearing from constituents?
>> You know, it depends.
I mean interestingly, you know, we just went
through an election cycle
where the voters made it pretty clear they didn't want
to see a massive increase to education or to medicaid.
Yet, I think there are reasonable places where we have
to continue to look at putting additional funds there
because it's-- they've demonstrated a need.
>> Your legislative priorities?
>> You know, I really wouldn't say necessarily have
anything specific.
I served on appropriation
so clearly the budget has been one of my priorities.
And I think that this is kind of where it all starts.
When you put dollars behind the programs, that kind of indicates
where your priorities were at.
>> All right.
Senator Corey Brown, thanks so much for joining us today.
>> And I'm now joined by Representative Tom Jones.
He's a democrat from Vyborg,
but will soon be a Senator when you come back.
Welcome sir.
First of all, your overall thoughts
in what you heard today.
>> Well, I think this is so much better
than what I heard two years ago
when on my first encounter with the new budget.
So instead of the 10 percent cuts, now we're looking
at doing some increases for some very important parts
of our expenses that we're going to have.
>> Let's talk about some of those uncommitted dollars
for fiscal year 2013 which is what we're in.
We're looking at about 16 million, next year 10 million,
your thoughts on those uncommitted dollars.
>> Well, the governor didn't--
he didn't spell out any specifics that he wanted to do
with that money but I think he left that up to legislature
and I for one would like to make sure
that we don't put those into another reserve.
I think this is some money that we've taken from us as taxpayers
and I think it's time to pay those back to the taxpayers
in forms of help to-- healthcare, education,
and I am really glad to see the state employees get another
boost again this year.
We're still behind there, too.
>> As you mentioned, we're seeing increases instead
of cuts, 3 percent for education,
3 percent for state employees and Medicaid.
Do you feel that that will be adequate
and I know it's too early to tell
but do you feel the legislature will go along with that number?
>> Oh, I think that they'll go along
with it whether they'll increase it some more,
that remains to be seen.
I would like to see more increases especially along the
education field and maybe some more help in the Medicaid field.
>> After voters decided to vote down the reform in education,
do you anticipate some of those issues coming back up again?
>> Well, if they do, they won't come
in with a five-piece package this time.
I'm sure there'll be separate bills for each item
that they want to bring up.
But that was, to me, a very poorly constructed bill
and I was very pleased to see
that the people were smart enough to go along with the idea
that this bill should not be passed.
>> I know education near and dear to your heart.
Before I say goodbye, any other issue
that you'll be following closely?
>> Well, I think the biggest thing
that I'll be probably looking at is what are we going to do?
Are we going to do anything with the reserve cash funds?
How much money do we have to store away that we do nothing
but gain interest on it and when we got--
when we have so many people
that are needing a help in critical areas.
>> All right.
Representative, thank you, sir, very much
and we'll see you back here in January.
>> Yes, you do.
>> All right, Representative Tom Jones from Viborg
and Cara we'll throw it down to you.
>> Thanks, Stephanie,
and Senator Mark Johnston joins me now from Sioux Falls.
Thanks for being here.
>> Absolutely.
>> Let's talk a little bit, first your initial reaction
to the Governor's speech.
>> Well, there's a lot of positive things to talk about.
It makes me feel pretty good about the condition
at South Dakota, again, economy wise.
You know, we believe that we should grow our budget
through job growth and we've got a very broad sales tax, very--
it covers a lot of spectrums but it's not very deep.
And so, what I saw today is
that South Dakota is really in pretty good shape.
>> Some people were anticipating a little bit more
on economic development perhaps in here.
We're you disappointed they didn't really talk about that?
>> You know, this is the Governor's approach.
You know, this is a recommendation that he is making
to the citizens of South Dakota.
We do have three branches of government and while
at it's A plan, I don't think that's going to be the plan
at the end of the day.
We did-- there was some acknowledgment
of economic development in this budget.
I don't necessarily believe that maybe there is enough.
Certainly, I was just doing some rough math in the back
and about 71-72 percent of all the increases
that we saw today were really enveloped into two places;
taking care of people and education.
And that kind of goes along the lines
with our state budget normally, but because of the vote
on 1230-- excuse me, House Bill 1230, the referral
that we just came out of in November, I think we need
to have a look, another discussion about having a pool
of money to address those needs that we do have economically.
>> And you hinted that 1234 and with--
and that's the education portion, the reforms.
Do you think we're going to see an attempt
to have more education reforms or separate amount a little?
>> I think we're going to put that on pause.
There's a lot of great work that was done by working groups
across many aspects of the former House Bill 1234.
I think those groups are going to continue to work on some
of those, some of the pieces of it.
But absolutely, it's gone.
There are some things that we need to do to continue
to get greater outcomes to make sure our students are college
and career ready.
I just had a conversation this morning with folks
from the teachers, South Dakota Education Association,
the School Board Administrators of South Dakota,
the Associated School Boards of South Dakota.
I'm having a meeting tomorrow morning in Sioux Falls
with members of the similar groups.
And so everybody's talking.
I'm not sure exactly where we're going to go for 2013
but most importantly, I think we're having discussion today
for a more cohesive, collaborative approach possibly
for the 2014 school district, or excuse me,
2014 legislative year.
But getting, you know,
we're fully funding the formula this year
where there's given a little bit more money
in the FY13 budget for education.
But a lot of conversations are going between now,
and when we leave here at March 8.
>> All right, Mark-- Senator Johnston,
thanks so much for being here.
>> Thanks, Cara.
>> Stephanie, back to you.
>> All right, thank you, Cara.
I'm now joined by Representative Scott Munsterman
from the Brookings area.
Welcome Representative.
I want to talk about the 3 percent increase to education
but the 3.2 percent increase to the Board
of Regents obviously is the issue being
up in your area, your thoughts.
>> Well, it's nice to be in a position
where we're actually adding some revenue into some
of these organizations and institutions and, of course,
Higher Ed, you know, being a very important component
to the Brookings economy as well
as just overall education in the state.
And so, I think the folks back home will be enthusiastic
about that.
Of course, nothing is a done deal
and through the legislative process,
we have quite a road hole and to look
at all the details of the budget.
But overall, I saw that as a positive as well as some
of the other funding, you know, through K12 and some
of that that's been proposed at this point.
>> Now, one of the things the Governor talked about and you
and I didn't discuss this, but are some of those risk factors
with the expansion in Medicaid and the drought and you know,
what direction Congress will decide to do.
How concerned are you at this moment not knowing some
of those issues?
>> I mean, those are big factors.
I mean those are-- I'm so glad that the governor brought
that up today and especially the depiction
of really the situation that the federal government is in.
I mean, we all need to be very cognizant of that.
And these are things that, I guess,
I and many others have talked to people
about looking ahead into the future.
That, you know, there's a fiscal situation there
that there's not much forgiveness there
when it comes to these numbers.
You know, you have to deal with it and they're not dealing
with it and eventually I do believe it's going
to come back to us as a state.
In terms of reduced revenue from the federal government,
just like, you know, he talked about.
So there's a very real factor in our minds and as we continue
to move forward in our budgeting process,
we have been very conservative in our budgeting process
and really it has been good for us to be that way
because we do see some better revenue now
and we're returning South Dakota to a fiscal position of strength
which has been, I think, one of the hallmarks.
And I'll congratulate the Governor in the legislature
in that the last 2 years making hard decisions, you know,
conservatively projecting revenue and being
in a position now where we actually do have some revenue
that we can begin to look at.
Okay, now where do we reinvest?
And has a position of financial strength that we need to be
and that we need to continue to maintain.
And as we look ahead into the future to things happening
in the federal government and how that can impact us,
the drought, some of these other economy things,
we have to maintain that conservatism that we are so,
you know, familiar with in our state and I think that's one
of our strengths in our state and we need to maintain
that mentality and we can't go over the edge.
And you mentioned the Medicaid expansion.
I believe we do need to proceed cautiously,
we need to get all the facts,
and we need to understand what the rules are going to be
that the federal government is handing to us.
But once we get those facts and we get those rules
and we understand that, then we need to weigh
that against our moral obligation as a people,
you know, should we be covering these people that are uninsured.
How many are there?
You know, and is there a way that we can actually get
that done and fulfill what I would call our moral obligation,
you know, as a group of people in the state.
So there's a lot to talk about, a lot of moving parts out there.
>> There are definitely is.
Again, Representative Scott Munsterman
from the Brookings area.
Thank you for taking the time to come up and visit with us
and we'll see you back here in January.
>> Thank you.
>> All right.
And that will conclude South Dakota Public Broadcasting's
coverage of Governor Dennis Daugaard's budget address
for fiscal year 2014.
Remember the speech will re-air tonight
at 10:30 central time on SDPB television.
You can also watch it at your convenience online at SDPB.org.
On behalf of everyone with us at SDPB,
we thank you for tuning in.
Goodbye.
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>> [Background Music] State House program funding provided
by the South Dakota Bar Foundation, the education
and charitable arm of South Dakota lawyers and judges.
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