Governor Kristi Noem's 2020 Budget Address

Well, Mr. President, Mr. Speaker, members of the House and the Senate and my fellow South Dakotans, we meet today with yet another incredible year behind us. When I stood before you last year, I presented a prudent and a cautious budget proposal. We were coming off a historic year of blizzards, flooding and tornadoes. Fortunately, as the session went on, our projections showed promise. Then we were thrown another unexpected challenge COVID-19. Now before we begin today, I'd like to ask that we all please just stand for a moment of silence to remember all of the South Dakotans that we have lost to this horrible virus. Thank you. Today, I will walk you through the state's response to this virus. And then I'll outline the state's economic position, including our revenues and our expenses. I'll lay out our proposals to set up South Dakota families, our workers and our businesses for success for many generations to come. Now following months of economic lockdowns, sheltering in place, and a huge numbers of businesses being forced to close permanently. Many of my peers are likely not looking forward to standing before their legislators like they are like I am today. Some are going to propose tax increases. Others will take on billions of dollars more in debt, and a few will be forced to make significant budget cuts in South Dakota. As we have done throughout this pandemic, I am pleased to report that we will be forging a different path. Rather than following the pack and mandating harsh rules. South Dakota provides our residents with information about what is happening on the ground in our state, the science, the facts and the data. Now then we ask each of our South Dakotans to take personal responsibility for their health. The health of their loved ones and in turn our communities. The state hasn't issued lockdowns or mandates. We haven't shut down businesses or closed churches. In fact, our state has never even defined what an essential business is. That quite simply is not the government's role. Since March, many of my peers have attempted to stop the spread of the virus without considering their citizens social or their mental well being, or the state of their economies. Even amid a pandemic, public policy ought to be holistic. Daily needs must still be met, people need to eat, they need to keep a roof over their heads, and they still need a purpose. That means that policymakers cannot have tunnel vision. They must balance public health concerns with people's mental and emotional needs, their economic livelihoods and their social connections and liberty, among many other important factors. Now many in the media have criticized this approach. They have labeled me ill informed, a denier and reckless. You know, some have even asserted that South Dakota is as bad as it gets anywhere in the world. When it comes to COVID-19. That is a demonstrably false statement. At the same time, my critics praise states that have issued lockdowns that have mandated masks and shut down businesses lauding these states as having taken the right steps to mitigate the spread of the virus. As we continue to see spikes move throughout the country, the course of the virus does not seem to be quantifiably different in the states that according to the media did everything right. Despite harsh lockdowns in Illinois, coupled with a mask mandate since May 1, that state sadly experienced a new single day record in COVID-19 deaths on December 2. And it's active case counts are higher on a per capita basis than South Dakotans have ever been. New Jersey, which still has the most deaths in the country per capita, has had a mask mandate in place since June, and has imposed $15,000 a day fines on businesses that refuse to close. Still over the last two weeks of November, its hospitalizations have increased by 34%, a six month high. California passed a mask mandate in June, and has some of the harshest lockdown orders in the country, including shutting off residents water if they have too many visitors. Despite that the AP recently reported their hospital hospitalizations have increased nearly 90% and that they could triple by Christmas. Until we have an effective and a widespread vaccine, this virus is going to spread. The science tells us that. That's one of the reasons why at the outset, the nation's goal was to manage hospital capacity. In South Dakota, we have kept our focus on this goal. We've continued to ensure that our hospitals are not overwhelmed, and that they can serve their communities well. To date, we have less than 500 individuals in the hospital for COVID. And the first time since November six, and we are on a steady downward trajectory. We've continued to work with communities across the state to fight the virus. We have kept an open dialogue with our county, our city, our tribal communities to offer information, resources, knowledge, mass testing events, and PPE. We recently wrapped up mass testing events in 11 communities across the state. And we're continuing to fight this virus together. Now South Dakota is entering 2021 in one of the strongest financial positions in the country. And today I will be unveiling ways in which we can further improve our state by investing in infrastructure, paying off our debt from 2010 and bolstering our rainy day fund, as good stewards of the public's money should do. In contrast, Illinois plans to borrow 2 billion from the Federal Reserve. New Jersey, which already has the highest debt per taxpayer in the nation, is issuing an additional 4.3 billion in bonds. In New York, they're looking at a nearly $60 billion revenue shortfall. It likely goes without saying that each of these states is also counting on federal bailouts to keep them afloat. South Dakota will not be raising taxes on our citizens or our businesses. We will not be borrowing billions of dollars to cover our budget shortfalls. And we won't be looking to Congress to send us more stimulus money. When I travel across the state and talk to people and I travel around the country, people often congratulate us on how strong South Dakota's financial position is compared to the rest of the nation. Like all of you, I take pride in the fact that we structurally balance our budget, and that we have a triple A credit rating, and I'm committed to maintaining it. Though our fight against COVID-19 is not over, our unique approach to the virus has left us in a strong financial position today. When the virus first hit, every state's economy shrunk. But South Dakota overcame that quickly. We closed the 2020 budget year in June with a $19 million surplus, and our general fund revenues are up by 19.4% right now, compared to the same time last year. We took steps last year to cut spending, to be cautious with our taxpayer money, and we're seeing the fruits of that today. In addition to higher than expected revenue, the influx of stimulus money from the federal government has allowed for further general fund savings, and I'll go into that in a little bit more detail in a moment. But we are seeing this approach pay off right now in the everyday lives of South Dakotans. After peaking at 11% in April, our unemployment rate as of October was 3.6%, the third lowest in the country. Perhaps an even more important number to consider is total employment. This chart looks specifically at non-farm employment, a statistic that can better capture our current business climate. It shows a year-over-year percentage change, so we can see an apples-to-apples comparison. This chart compares South Dakota to the United States and all the states in our region. Michigan is the worst performing state in the Midwest region, according to the Bureau of Labor Statistics. Now throughout the pandemic, as you can see, South Dakota has fared much better than the rest of the country, including states in our region. To fully understand our current economic climate and the money that we have available this year, it's important to take stock of the federal dollars that we received and how they were used. This chart illustrates all the estimated direct payments that South Dakotans and businesses have been able to take advantage of. That includes the PPP program for small businesses, the Food Assistance Program for farmers and ranchers, the stimulus checks for families, and unemployment assistance for those who lost their jobs. In total, that's about $3.9 billion in federal stimulus. This does not include any other grant funding the state received, like the $1.25 billion from the Coronavirus Relief Fund. Now this next slide shows quarterly personal income in the state. As you can see, we saw a sizable aberration in the second quarter this year. This is due in large part to that federal stimulus that I just talked about. As I stated, many South Dakotans received direct payments from the government. Additionally, many small businesses received assistance from grants or other relief programs. The gold line here is our forecast for income growth moving forward. As you can see, we are projecting that this spike will be a one-time event and that there will be a downward adjustment. That means that people will feel the impact when that federal money runs out, even though we are in a much stronger situation than most other states. The important takeaway here is a measure and a message of caution. We should remain prudent and conservative moving forward. We need to carefully consider these unusual circumstances as we project revenue, and we cannot recklessly spend every taxpayer dollar that we have. When we do invest in our state, we must invest wisely and strategically. Before I dive into my recommendations, I do want to call out one budget provision related to the disappointing votes on marijuana at the ballot box this year. There are significant safety and regulatory costs associated with both the medical marijuana measure and the recreational one. Given the latter is facing constitutional challenges, we are going to have to present two courses of action, a path forward with both recreational and medical, and a second one with just medical. And I want to be very clear, we will not see any revenue from marijuana until at least April of 2022, though it could be even longer than that. And in the meantime, to comply with the predetermined timeline, the Department of Revenue needs to get to work now. This funding would go toward staff, technology, consultants, and other costs until revenues from the program are enough to sustain it. But there will also be several other collateral costs like safety, training, and enforcement, among many others. Now on top of this, the Department of Health has specific needs related to the medical marijuana program. My budget recommends just over $136,000 over three years to cover staff and other costs that are related to setting up a program. That should be enough to support program costs until revenue starts to come in. To implement just medical marijuana, the Department of Health will need additional resources beyond the $136,000, though the Department of Revenue would need much less. So over the coming weeks, we hope to know more about which path that we're going to be taking. But by now, I'm confident that the people all across America know that South Dakota is open for business. And in the next few minutes, I'm going to walk you through some of the specifics of what we're looking to do to build on this pledge. My recommendations are going to fall under three primary categories. Number one, paying off debt, especially debt from 2010. Restoring and reinvigorating our state's infrastructure. And number three, strengthening our communities across our state. Now first, as it relates to paying off inherited debt. In 2010, the state issued bonds to finance expansions in key programs at Southeast Technical College in Sioux Falls, at Mitchell Technical College, and at Lake Area Technical College in Watertown. This project has led to investments in stronger auto body and maintenance programs, effective student services, and modern facilities. Our students are better prepared to be leaders in their industries because of these upgrades. Now I recommend that we dedicate just over $21 million to pay off two of the Technical College bonds. This would save us $1.7 million in ongoing debt service. That would result in a savings of $500,000 to the General Fund and $1.2 million for the Technical Colleges. Unburdening the tech schools from this debt will allow them to refocus their attention. Their dollars can instead be used to further improve the caliber of their programs. They're already receiving well-deserved national attention for their high quality offerings. This will unleash their potential even more. And then next we should focus on restoring and reinvigorating our state's infrastructure. Sound infrastructure is closely tied to economic opportunity. The most important investment that we can make this year is to finish connecting the state to broadband. Now as I said during my State of the State last January, in America's early days mail was delivered via the post road. The founders thought communication was so important to the business of the people in the nation that they included a provision in the Constitution to allow for the government to establish post roads. Well today in the modern economy, technology allows for the transportation of goods and services over the internet. A whole different kind of a post road. We must create an environment where people aren't forced to choose between the modern economy on one hand and life in their hometown on the other. We must make sure that our people can harness the latest technology to take advantage of what has become the modern equivalent of a post road. As I've said we've made significant strides this far, but we must bring it over the finish line. So I'm recommending that we invest 100 million dollars to fully connect the state over the next few years. The benefits of this investment is hard to overstate. It makes it easier for our farmers and our ranchers to communicate with their suppliers, to access weather forecasts, to participate in online marketing and auctions. It ensures that the next generation of entrepreneurs stay in small towns in South Dakota to start their businesses. It tangibly improves the lives of our students by making it possible to do their school work at home. The same is true of our employees who would be able to telework. And of particular importance this year it would allow even the most remote residents, including folks in the Black Hills and those in tribal communities, to access telehealth opportunities. Now over the last two years the Connect South Dakota program has devoted nearly 17 million dollars to broadband projects, which in turn leveraged roughly 35 million dollars in federal money and 37 million dollars in industry money for a total investment just shy of 89 million dollars in broadband in South Dakota. This is an impressive return of more than five and a half dollars for every one dollar that we invested in broadband by the state. The estimated cost of providing high-speed internet to every remaining underserved or underserved South Dakotan is 200 million dollars. I believe this 100 million dollar investment from the state can leverage enough federal and private dollars to get the job done. In the early hours of October 31st we also had a fire that destroyed the state fair open class beef complex. Now fortunately no people or animals were injured but the building was a total loss. Thank you to our state fair staff for their response and to the firefighters, the first responders and all those who were on the scene that day. We are so grateful for your service and your response. The beef complex held many memories for fair growers. It was truly a special place and me and my family in particular spent hundreds of hours in that building and at the state fair. In South Dakota we know out of adversity comes opportunity and a chance to build for the future. Immediately after the fire we began discussing plans to rebuild a new and an improved complex. Our goal is to become the number one choice for equestrian and livestock events in the country and for attracting new opportunities for South Dakota. It is my pleasure to present to our plan for the state fair livestock complex. The new multi-purpose facility will be a 200,000 square foot facility that is more than 100,000 square feet larger than the old beef complex. Now this new space will be capable of housing up to 2,000 head of cattle. It will allow for indoor regional and national rodeos, equestrian events and livestock exhibitions. In addition the new livestock complex will enable us to replace the sheep barn as well. Many of you here know that the sheep barn has long outlived its useful life. Now this step will minimize livestock transportation, safety issues that also happen within the fairgrounds. This state-of-the-art facility will position us to better compete for national rodeo and equestrian events and provide new opportunities for the city of Huron and the state of South Dakota. Like its predecessor the new livestock complex will be a special place. I can't wait to see families and fair goers making new memories in this facility. Now to fund this project my budget proposal includes 12 million dollars in one-time general funds to supplement the three million dollar insurance claim and four million dollars that will be raised through fundraising efforts. Like an old-fashioned barn raising it will take all of us to get this project done but I know that it'll be worth it. I look forward to seeing all of you at this new livestock complex at the 2022 state fair. Now next we must address the growing cyber risks that are facing our state. Cybercrime is one of the biggest threats in the modern era and state and local governments are among the biggest targets. In July alone South Dakota sustained more than 14 billion attacks from 165 different countries. Let me repeat that in July alone 14 billion attacks on our systems from 165 countries. Without significant investments to protect our state it is only a matter of time before one of these attacks becomes a disastrous data breach. I recommend 10 million dollars in one-time funds to be allocated to upgrade vulnerable infrastructure throughout the state. This funding would allow the Bureau of Information Technology to conduct significant system upgrades to protect our state and employee data from malicious attacks in the future. This will also allow us to develop a comprehensive plan to replace many of our oldest and our most critical applications. One of my top priorities is also keeping South Dakotans safe. One component of that is equipping our first responders with the tools that they need to After September 11th Governor Janklow created the state radio system. He formed a single uniform communication system for our first responders in every corner of the state. However with the aging infrastructure and software our current system needs further upgrades. We have invested in this system over the last two years and I want to thank you for your support of that. I recommend that we build on that investment with an additional 3.2 million dollars of one-time money to ensure that first responders could continue to serve and protect our residents and our visitors. This investment is going to target three key areas. Now in the Black Hills it's a heavily trafficked tourist area. We would build new towers in Rockerville, in Keystone and in Hill City. These towers will work together to provide comprehensive coverage across the entire region and in Hot Springs this funding would allow us to further leverage the existing tower to cover a wider area. The lack of reliable communication in Hot Springs is particularly pressing given the issues with wildfires that we've had there lately. And also in Reliance, this investment would leverage another existing tower to enhance and improve our state, our local and our tribal response in cases of emergency. We must continue to prioritize this system, ensure that it is functioning at the highest level possible to support the efforts of our first responders. And we must also invest in our training programs for the next generation at our technical colleges. From agriculture and manufacturing technology programs to health sciences and law enforcement studies, our colleges are preparing our future workforce today. I am recommending investing 3.4 million dollars in one-time money to provide much needed equipment for our four tech colleges. The state's funding coupled with a 1.6 million dollar match from the technical colleges results in a 5 million dollar investment. It's going to include programs identified as both high need and that are also in high demand, ensuring that we are investing in the careers that we need most in the coming years. Now a key issue that the pandemic exposed for our nation and for our state is that we don't have enough processing capacity to meet demand. As we've seen, this can lead to disruptions for producers and for consumers. To address capacity, we are developing a grant program to provide funds needed to improve the state's capacity to process and to store South Dakota raised meat products. This program is for the small processors that our local producers rely on. Through this program, processors can apply for a grant to pay for facility upgrades, like new freezers or processing equipment. We'll make facility improvements to manage increased capacity or work to expand their operations. I am recommending 5 million dollars in one-time funds to facilitate these grants. And we're also working with USDA right now to give our farmers and our ranchers another option to be able to sell their products across state lines. These efforts could dramatically improve South Dakota's meat processing options in the coming months. This past July, a major storm swept through Brown County and it dealt significant damage to that area. Its impact on the Elm Lake Dam, which provides one-third of the water supply for Aberdeen, has been particularly concerning. Now the state appropriated an emergency $521,000 for the dam in 2019 after an engineering report noted that the concrete in the dam was unfixable. That worked for a time, but it no longer meets the state's safety guidelines for capacity. And after this summer storm, it's clear that the time has come for us to replace that dam before more damage is inflicted in the area. So I recommend allocating 4 million dollars in one-time money, along with another 1 million for critical maintenance on other dams in the state. I would hope that you would support that as well. Like virtually all other states in the country, South Dakota also maintains a small fleet of aircraft for use by state officials and employees. The fleet is also used to respond to fires in the Black Hills. Our state currently has three aircraft that are an average of 26 years old. To help ensure the safety of all of our state officials who utilize this fleet, I recommend that we purchase a newer plane. Simultaneously, I'm recommending that the state sell two of our older planes. This downsizing from three to two planes will be much more efficient for the state in the long run. As planes age, they require more frequent, complex, and very expensive maintenance. The state's top priority when considering aircraft must be safety. We all know that South Dakota tragically lost a governor, two state commissioners, three chief executives, and two pilots 27 years ago. They died in service to our great state. Now while our state lost profound dignitaries in the crash, their families lost so much more. The plane that we currently fly is the same plane that was purchased right after that crash. I'm recommending that we invest 5 million dollars to purchase a newer airplane. Combined with the sale of the two older planes again, this will be a safer and a much more cost-effective path for the state's air fleet. Now finally, I would like to turn to our third category, which is strengthening our communities. We are entering the next year in an extremely strong financial position, but it is vital that we take this opportunity to strengthen our communities for the next economic downturn. Accordingly, I am also recommending targeted investments in key industries with both ongoing and one-time money. This money will help meet the holistic needs of our communities moving forward. This starts with funding inflationary increases for medical providers, k-12 education, technical colleges, and state employees. My budget includes an inflationary increase of 2.4 percent for medical provider reimbursement rates, along with additional targeted rate increases for community-based providers. Also, I'm recommending a 2.4 increase for state aid to education, as well as a 2.4 percent increase to the per student allocation for the technical colleges. To be clear, this is above the statutorily required 1.5 percent. This investment will help ensure that local school districts have the resources that are necessary to educate our children and our grandchildren. Now, my budget also includes a 2.4 percent increase for state employee salaries. Last year, I announced a plan to offer paid family leave to state employees when they welcome a new child to their family, whether it was through birth or adoption. That new leave option took effect July 1st, and it has already given a hundred of our employees support and flexibility to get a strong start with their new children. I also asked my human resources team to reassess the health benefits that we offer. The challenge that I gave to them was to create benefits that are competitive with those that are offered by other larger employers in our state, to make the health insurance plan financially sustainable for the state, and to simplify the plan's administration. The result of this effort, as reflected in my proposed budget, meets this challenge. This plan will also create 12 million dollars in health care savings. We will reinvest those funds directly into employee pay, especially for positions where the state's base pay hasn't offered competitive wages. Now, individuals and families face complex decisions, particularly when it comes to their health insurance. Providing several options that fit their needs, their health needs, is an important part of our strategy. My proposal keeps a premium free insurance plan for state employees, with the opportunity to purchase a plan that offers additional coverage. My budget also provides improved benefits to our employees, and it moves forward in our ability to compete for top talent, all without adding any dollars to the budget. Now, I also want to allocate some additional ongoing money to support our health care facilities and our providers across the state. These exceptional individuals work around the clock to provide needed medical care for our state's residents, and I am incredibly grateful for all the time that they put in each and every day caring for individuals. Here in South Dakota, we have to ensure that our rural residents have easy access to skilled nursing care. The Access Critical Nursing Facility Program, which was implemented in 2011, does exactly that by reimbursing rural facilities to keep them financially viable. There are currently nine rural nursing facilities supported by this program. I recommend allocating an additional $1 million in ongoing funds to expand the program to three other facilities. Those would be in Platte, in Sisseton, and in Madison. Now, this investment will ensure that these areas have access to high quality nursing care. And then finally, we must look out for our residents with intellectual and developmental disabilities who require specialist care. I am committed to providing these individuals with care that allows them to live their lives to the fullest every day. I recommend $8.3 million in one-time funds to establish small-scale private adult intermediate care facilities for those individuals in both Rapid City and Sioux Falls. These facilities will create regional access to top-tier care and allow those individuals to be served much closer to their homes. In addition, these facilities will reduce capacity and costs for the South Dakota Developmental Center and it will allow them to focus on the residents in their geographical area. Now, switching gears to some other uses of one-time money, I want to start with a new facility to improve the quality of life and community for our servicemen and our women at Ellsworth Air Force Base. The base is going to be undergoing extensive mission growth in the very near future. Preparations have begun in support of the next generation bomber, the B-21 Raider, and its placement at Ellsworth. We are honored that the Air Force selected Ellsworth as the site for the first operational squadron as well as the training mission. Now, this selection comes with a high level of investment from the Air Force. Specifically, we are looking at a $1 billion construction investment into the state of South Dakota. As a result, Ellsworth will no longer be able to use a large hangar that is on base that is currently being used as a recreational facility. To replace this loss and to enhance the local and the military community, I recommend using $3.2 million in one-time funding to support a new recreational center near the base. In conjunction with funding from the Department of Defense and Pennington County, this $12.7 million facility will offer a year-round space for the community. It'll be a place for the community and connection where anyone in our military along with their spouses and children will tell you is so critical for a family that is constantly on the move. And continuing in the spirit of strengthening communities, in addition to the 2.4% inflationary increase for K-12 education, I'm also recommending an additional $11 million one-time investment. Now, traditionally, once we have final enrollment numbers for the school year, we adjust the budget to reflect actual enrollment versus what we projected last year. This year, COVID-19 has led to declines in enrollment across the state. This means that if we follow that traditional model, we would cut $11 million from the school funding formula. Now, I don't want to do that this year. Instead, we will propose that we invest this $11 million on a one-time basis. Our hope is that this will help provide a final bridge for schools past the pandemic. Now, South Dakota's future is very bright, but we face some real challenges this year. And we will face more in the future. To safeguard against unforeseen economic setbacks, we must continue to take a prudent and a conservative approach to state government. And again, we need to carefully consider our present unusual circumstances as we project revenue. To be prepared, we need to save. So for this year, I am recommending that we add an extra 2% to our regular 10% budget reserves. Now, in addition, I'm also recommending that we put $50 million in a trust fund in order to protect ourselves against any future economic hardships. Those two strategic investments will create one-time and ongoing funding streams for the future. And frankly, I expect the road could be a little bit rough under the Biden administration with some of the policies that they've embraced. We can expect that they may try to raise taxes, they have said that. Similarly, we can expect that they will try and eliminate fossil fuels by passing the Green New Deal. And whatever else the administration might do, it would certainly give us a lot more regulation. I expect that federal agencies will see South Dakota not necessarily as a partner, but as a subordinate based on what they have already communicated with us. So we are preparing for that. As with years past, I've presented a high-level overview. Now rather than touching on everything in my budget, if you would like to review all the details, please read through my budget book and the deck of slides attached to the presentation on the Bureau of Finance and Management website. I'll close with some wise words from President Calvin Coolidge. I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. This is the chief meaning of freedom. I cannot think of anything more descriptive of my administration's hope for the people of South Dakota. Under God, the people rule. All of us here are stewards of their hard-earned tax dollars. And the budget that I propose sets up our children and our grandchildren for decades of prosperity. I firmly believe that our mission is the same. It's a safer, a stronger, a healthier South Dakota. I look forward to working with all of you in the coming months to accomplish this mission. I want to thank you for all of your work as public servants. God bless you, and may God bless the great state of South Dakota.