PIERRE, SD (KELO) — The two agencies that guide the state government’s budget process delivered starkly different forecasts on Wednesday.
Neither looked promising.
The Governor’s Office of Finance and Management conservatively predicted only 0.4% growth in state general fund revenue for the budget year that began July 1.
The Legislative Research Council was more optimistic at 2.5%.
These perspectives, given to the legislature Credit Committeecame in the wake of the state government last week reporting a record surplus of nearly $114.5 million for the fiscal year that ended June 30.
All of this money went into budgetary reserves.
Rep. Chris Karr, R-Sioux Falls, chairs the joint House-Senate committee. On Wednesday, he asked the two economists at the other end of the long table: “What is the acceptable difference or delta between your projections and reality?” “What is this number for you?”
BFM economist Derek Johnson went first. “That’s a difficult question to answer. The past two years have been extraordinary times,” he said.
Johnson noted that the two agencies were within 1% of each other before the past two years. “Moving forward, our goal would be to get closer to that,” he said.
Karr chimed in, “We’re making a pretty big decision here in the Legislative Assembly that affects the entire state.”
LRC chief budget analyst Jeff Mehlhaff said he wanted the difference to be as small as possible, preferably less than 1%.
“It was an outlier year,” Mehlhaff said. He looked back 12 months. “We were all over ten percent behind,” he said. “But it was such an uncertain situation. We weren’t expecting inflation. We weren’t expecting stimulus.
Rep. Taffy Howard, R-Rapid City, asked how BFM recovered $40 million in revenue from unclaimed property. “Why not choose a higher number and stop having reversions every year?”
Johnson pointed to unclaimed property receipts dating back to 2014. The trend line was heading down towards the $40 million mark. But the actual final amount for fiscal year 2022 was $65 million. “We will continue to monitor this,” he said.
Howard also noted that BFM expects sales and use tax growth of 2.2% while LRC forecasts 3.9%. Sales and use tax revenue grew 12.2% in 2022. The 20-year average growth was 4.7%.
Rep. Linda Duba, D-Sioux Falls, asked if the contractors’ excise tax forecast reflected upcoming stimulus spending for infrastructure projects. Johnson assured him that the estimate reflects ARPA projects, which he said will take place over several years.
“I think everywhere it’s hard to find contractors to do these types of projects,” he said.
Top Five Sources of State Government General Fund Revenue
Sales and use tax: 2022 actual 1,356,844,793. Latest estimates for 2023: BFM 1,387,086,556; CRL 1 408 168 687.
Lottery: 2022 actual 171,609,682. Latest estimates for 2023: BFM 173,474,011; CRL 175 951 443.
Contractor’s excise tax: 2022 actual 155,823,772. Latest estimates for 2023: BFM 160,388,197; CRL 162 732 483.
Tax on insurance companies: 2022 actual 103,995,420. Latest estimates for 2023: BFM 106,992,280; CRL 104 902 861.
Unclaimed property: 2022 real 65,097,628. Latest estimates for 2023: 40,000,000 BFM; LRC 55 619 750.
Total income in progress: 2022 actual 2,126,409,366. Latest estimates for 2023: BFM 2,135,163,037; CRL 2 180 459 192.
Sources: Presentations by state Office of Finance and Management and Legislative Research Council to the Appropriations Committee of the Legislature.