Gov. Kristi Noem is preparing to deliver her annual budget speech, which may be her last. She will need to explain how the state will fund its government while facing some tough challenges, including lower-than-expected revenue and growing calls for property tax relief.
State lawmakers haven’t faced this situation in recent years.
“The revenues are down and below target,” said Jeff Mehlhaff, the chief fiscal analyst for the Legislative Research Council. “Our growth is slower than we expected.”
Mehlhaff recently shared this information with lawmakers who help create the state budget. They meet after the short 10-week legislative session in March.
He warned that if this trend continues, the state could see a 2% decline in revenue, which would mean about $78.2 million less than what was planned in February.
The main reason for the shortfall is a drop in sales tax collections, which are the main source of funding for South Dakota. The state hasn’t seen a decline in sales tax since 2010.
“There are many things that can change before the end of the fiscal year,” Mehlhaff added. “Maybe people have been cutting back on spending.”
The governor’s office also expects revenues to be lower than predicted.
Derek Johnson, the state economist, explained that while corn production is good, high input costs, high borrowing rates, and lower commodity prices have led to a drop in farm income.