South Dakota finished Fiscal Year 2019 with a $19 million budget surplus, but some aspects of revenue collection underwhelmed, which could become a trend in Fiscal Year 2020.
Much of the $19 million surplus was a result of budget reversions from state departments with more than $17 million in reversions. Revenue collection came in $2.3 million above projections that were amended and adopted by the legislature in February.
Department of Revenue Secretary Jim Terwilliger called the year in revenue collection “a tale of first half versus second half” as the first six months of FY19 saw a 5.4 percent growth in sales tax, but the last six months were at 1.7 percent.
Terwilliger noted the second half of the fiscal year was “certainly below average of what we expect.”
A major issue in the below expectation revenue collection was the state’s sales and use tax, which accounted for 61 percent of the overall state collection, as it came in nearly $10 million below the adopted projection.
Terwilliger said the sales tax shortfall was the “most concerning” part of revenue collection. The shortfall in FY19 in sales tax is carrying over into FY20, as well.
“We’re a little bit more cautious about the economic outlook today, than we were in February,” Terwilliger told Appropriators. “You can see that in the sales tax.”
FY20’s sales tax estimation is currently $11 million lower than the figure that was adopted by the legislature in February and the overall revenue collection estimate is $8.2 million under the adopted projection.
Mehlhaff’s overall revenue collection estimate is more positive than the Bureau of Finance and Management’s figure with LRC’s current prediction about $1 million higher than the legislature’s adopted projection.
With FY20’s collection underway, the next few months will be very critical, as Gov. Kristi Noem will be preparing her budget proposal for FY2021 to be presented in December.
“Everyone knows how critical these figures are,” ASBSD Executive Director Wade Pogany said. “These numbers will determine where the starting point for negotiating an increase in state aid is set.”
“We’re still waiting to see where CPI-W comes in at and if revenue is stagnant it could impede the statutorily required increase schools should receive.