Budget committee looks to revenue post-COVID federal funds, adopts ‘conservative’ projection

From left, Rep. Mike Derby, R-Rapid City; Sen. Jean Hunhoff, R-Yankton; and Rep. Tony Venhuizen, R-Sioux Falls, participate in a Joint Appropriations Committee hearing in January 2024 at the Capitol in Pierre. (Joshua Haiar/South Dakota Searchlight)

The Legislature’s Joint Committee on Appropriations officially adopted the revenue projections for the remainder of fiscal year 2024 and fiscal year 2025 on Wednesday morning at the Capitol.

The committee adopted a revised ongoing revenue estimate of $2.4 billion for the current fiscal year, which is a 4.1% increase over last fiscal year’s revenue and $41 million more than Gov. Kristi Noem set in her December budget . The committee also adopted an ongoing revenue projection of $2.42 billion for fiscal year 2025, which is 0.7% growth over the revised 2024 numbers.

The estimates are a reflection of a cautiously conservative economic outlook as COVID-19 pandemic federal funding finishes making its way through the economy and as inflation is projected to remain at 3% for the foreseeable future.

The adopted revenue projections are used to set the fiscal year 2025 budget. The fate of several bills is dependent on the numbers in that budget.

Joint Appropriations Co-Chair Sen. Jean Hunhoff, R-Yankton, said that while not all federal pandemic dollars have been spent yet, it’s a good choice to “reset prior to COVID.”

“I think we have to remember that, again, those federal dollars are gone,” Hunhoff said. “We’re looking at how we’re going to generate more revenue. Certainly in fiscal year 2025 we’re going to see a lot of activity, but we’re also going to see how everything’s going to shape out.”

State revenue projections ‘cautiously conservative’ as COVID federal funding ends

The projections were a compromise between two revenue estimates provided by the Legislative Research Council, which works for the Legislature, and the state Bureau of Finance and Management, which is under the governor in the executive branch.

Legislators primarily adopted the average of the LRC and BFM’s revenue projections for fiscal year 2025 revenue, except for unclaimed property. The $60 million adopted by the group represents the typical revenue from unclaimed property pre-pandemic. It’s a 52% drop from unclaimed property estimated revenue in fiscal year 2024 — driving a decrease in revenue growth compared to recent years.

If unclaimed property and interest income were removed from the ongoing revenue equation, said Sioux Falls Republican Rep. Tony Venhuizen, then the “traditional revenue sources” (such as sales and use tax, lottery and contractor’s excise tax) would have a growth rate of 2.5%.

The state treasurer has said the unclaimed property record this year was driven by banks catching up on unclaimed property work that went undone during office-work disruptions caused by the pandemic. Finance Commissioner Jim Terwilliger told lawmakers the same during revenue projections on Tuesday.

“I don’t think we should go any higher than this,” Terwilliger said of the $60 million estimate.

Joint Appropriations Co-Chair Rep. Mike Derby, R-Rapid City, said he is excited about the committee’s revenue projections.

“I think it’s conservative,” Derby said. “It’s a conservative number for the state of South Dakota.”

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