Governor Rounds says no solution has been found for South Dakota's budget woes

State government’s budget situation is like a car headed over the edge of a Missouri River bluff, Gov. Mike Rounds told about 30 businesspeople Thursday morning at the Highland Conference Center in Mitchell.

“You’re driving along, and the revenue is what’s holding you up. Pretty soon, the revenues drop like this,” he said, gesturing in a downward angle. “You say, ‘Oh, OK, we’ll just follow the road down.’ But you can’t, because you’ve got expenses that have to be there.” That’s where the stimulus money from the federal government enters the analogy. “What we’ve done is we’ve built a bridge to maintain about where our spending level was. And we’ve used the stimulus stabilization money to bridge us during this time in which our revenues are down.”

Unfortunately, the bridge doesn’t stretch all the way across the river. Rounds expects the stimulus money to run out this year, leaving next year’s projected expenses about $170 million higher than anticipated revenues.

How will the state fill its budget hole? That’s the $170 million question heading into Rounds’ December budget presentation and January’s opening of the state legislative session.

“We do not have a solution put together yet,” Rounds said.

His early budget ideas include making unspecified cuts and tapping into two reserve accounts worth a total of $110 million. He has “no intention of asking for a tax increase,” even though such a move is being contemplated by some legislators.

“I think you do everything you can to not raise taxes during a time in which you’re trying to grow your economy,” he said.

Rounds is banking on the theory that the economy will eventually rebound and revenues will return to normal. He said most experts think the economy’s trend line will resemble a Nike swoosh — a big dip to the bottom, followed by a very slow return to full recovery as late as 2014.

In the meantime, Rounds would like to keep at least some money in the state’s reserve accounts so they’re not empty when he hands them over to a new governor at the start of 2011 (term limits forbid Rounds, a two-term Republican, from serving beyond next year).

To realize that goal, he’ll have to keep a tight grip on expenses.

Cutting state government’s expenses, or even stunting their growth, is easier said than done. As the ranks of the unemployed have grown in recent months, the demand for government services has increased. Instead of cutting staff, state government is adding staff and paying overtime in departments such as Labor and Social Services, Rounds said.

Medicaid, the joint federal-state program that pays health-care costs for the poor, is growing so large that Rounds called it the state’s “biggest budget-buster.” He said 33 cents of every dollar spent by state government goes to that program.

Another 51 cents of every dollar goes to education. Given the public demand for education and the federal strings attached to Medicaid, Rounds said he considers both of those programs “pretty much untouchable” as he searches for budget cuts.

Eleven cents of every state dollar is spent on public safety, the courts and corrections. Those programs also are difficult to cut, as Rounds proved when he ignited a controversy with his $2 million cut to the Highway Patrol budget last year.

What’s left to cut is the mere 5 cents of each dollar that funds the rest of state government.

“You could totally eliminate eight departments, four bureaus, all the constitutional offices, the Legislature, the governor’s office and our economic development office,” Rounds said, “and you would pick up less than half of the structural deficit that we’ve got.”

Budget difficulties could make Rounds’ final year in office his most difficult. It’s not the capstone he imagined when he presented his ambitious and multifaceted 2010 Initiative to the state seven years ago, but he continues to profess optimism. His Mitchell visit was part of a multi-city tour designed to educate businesspeople about the budget and economy, and to thank them for their persistence through the recession.

“This will pass,” he told his Mitchell audience near the end of the meeting. “The economy will come back.”

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