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Gov. Kristi Noem delivers South Dakota budget address, headlined by grocery tax cut, strong revenues

The budget, which features a topline dollar figure of $7.2 billion, makes investments in state employees, providers and the state's correctional infrastructure. Noem will look to push her proposals through the legislature, which has final say on all spending matters.

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Gov. Kristi Noem delivers her annual budget address, which features her proposed budget and serves as the unofficial kickoff of the 2023 legislative session. Noem began speaking just after 1 p.m. in the state capitol building in Pierre on Dec. 6.
Jason Harward / Forum News Service
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PIERRE S.D. — Speaking from the state capitol building in Pierre, Gov. Kristi Noem delivered her 2022 budget address to the joint chambers of the legislature.

The fiscal year 2024 budget, which recommends some special appropriations over the next six months but mainly covers the period between July 1, 2023, and June 30, 2024, features more than $7.2 billion in total spending.

“The last four years, we have made South Dakota the strongest state in America,” Noem said to open her address, saying her budget continues the tradition of a government that is “small but effective.”

'People of SD overwhelmingly want this tax cut' on groceries

The governor began her speech with the context her budget sits within — she pointed to high rates of housing developments and business applications as proof of the robust state of South Dakota’s economy.

She announced that, as of the end of November, state sales tax receipts were growing at 14% compared to the previous year.

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Revenue forecasts for the 2024 fiscal year include a $310 million jump in ongoing revenues, a “conservative” estimate Noem promised to “invest wisely.”

Headlining her address was the campaign proposal to eliminate the state portion of the sales tax on groceries, a policy that Noem expects to cost the state just over $100 million in reduced revenue if implemented.

“The people of South Dakota overwhelmingly want this tax cut, and they know we can afford it,” Noem said.

Sen. Jean Hunhoff, who chairs the Senate Appropriations Committee, said she was not yet on one side or the other, but explained her decision would be made looking at a longer time horizon than just 2024, since inflation and heightened federal funds should continue to cycle through the revenue side.

“That's part of the vetting process is looking at the long-term effects,” Hunhoff said. “Again, if you take $100 million out and you don't replace it — because once you take a tax away, you're not going to get it back — it's going to be gone forever. So we have to look at how that impacts future expenditures of state government.”

Considering the proposal passed through the House late in last year's session, the Senate is likely the major roadblock for implementing the tax cut.

Budget proposal includes 5% increase for 'Big Three,' targeted increase to providers

Responding to economy-wide inflation, Noem also proposed a $90 million, 5% inflationary increase to state employees, care providers and state aid to education, a number short of the 10% that advocates for state employees and schools said was required to keep up with rising costs.

“I think the 5% is too low, and I think that there are others in the Republican Party who would like to see that number being higher as well,” Democratic Sen. Reynold Nesiba said.

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However, the Bureau of Finance and Management estimates that the combined increases from last year and this year will outpace inflation.

For certain care providers like nursing homes and those working with disabled individuals, Noem proposed $22 million in investments to raise the rate at which the state reimburses Medicaid costs to 90%. Another $22 million will go to more targeted pay increases.

“We cannot dictate to schools and healthcare providers how these dollars are spent. But I would encourage all of them to put as much of it into pay increases as they can,” Noem said about these investments. “South Dakota has the fastest growing incomes in the country, but if you don’t continue to invest in your workers, providers, and teachers, they will find good paying jobs elsewhere.”

House Speaker Hugh Bartels called the increase in provider reimbursement rate a “huge step.”

“I’ve been a legislator for six years, and every time there was leftover money that’s where it went,” Bartels said. “And so now we’re putting a bunch of money there, and it will really make a difference.”

Implementing Medicaid expansion, funding one-time and ongoing priorities

Referencing the successful Initiated Amendment D, which expands Medicaid to nearly 140% of the federal poverty, Noem promised to implement the policy and estimated the state’s share of the cost at about $29 million over the first two years.

She also criticized the policy as “an expansion of a government program that will give free healthcare to a population of the state that the majority are able-bodied, single males.”

In keeping with campaign promises to seek funding for policies helping families and developing the state’s workforce, she hopes to spend $3 million annually to cover 100% of paid family leave for state employees and $20 million over four years to “incentivize private businesses to buy in to a new paid family leave opportunity.”

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Other investments included $5.6 million to expand regional behavioral health centers in Watertown and Pennington County, an increase to full tuition reimbursement for the National Guard and a $60 million investment from the Incarceration Construction Fund to kickstart the construction of a new women’s minimum security prison in Rapid City.

The governor also announced both a $52 million investment and a transfer of reserves above 10% to begin the process of replacing the state penitentiary in Sioux Falls, which, with reserves currently at over $400 million, would represent at least $200 million in funds.

“We know it is outdated, not compliant with ADA requirements, and overcrowded,” Noem said. “It has been an issue for many years, long before I was your governor.”

The necessary improvements to the state’s correctional system were top of mind for several legislators and dominated two different committees during the interim session.

Rep. Mike Derby, who will chair the House Appropriations Committee, supported the large investment announced by the governor.

“The more one-time funds we can use, the lower the interest payments will be [when we use bond financing], so we have to start putting away some dollars for that,” Derby said.

Missing from her speech was a new investment in child care in the state, which Democratic Sen. Reynold Nesiba said was a key issue in his Sioux Falls district.

“We continue to have a childcare crisis in SD," Nesiba wrote in a statement responding to the budget address. "Affordable, high quality childcare, that pays its workers a living wage will require SD to do what every other successful state does. We need to subsidize it."

Concluding her speech, Noem re-centered the focus on what is right about South Dakota.

“It is a beacon to the rest of the nation for what is possible when we follow conservative principles and fiscal responsibility,” Noem said to begin closing her address. “We have become a success story because we keep government limited and live within our means.”

MORE BY JASON HARWARD
“We see that when things happen in the coastal areas, a few years later, they start trending toward the Midwest,” said Rep. Ben Krohmer, serving his first term in the House.

Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or jharward@forumcomm.com.

Jason Harward covers South Dakota news for Forum News Service. Email him at jharward@forumcomm.com.
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