P - Present
E - Excused
A - Absent
Roll Call
P Apa, Chair
P Bartling
P Dennert
P Earley, Vice-Chair
P Gant
P Glenski
P Greenfield
P Hanson (Gary)
P Haverly
E Hunhoff
P Klaudt, Vice-Chair
P Napoli
P Peters
P Rausch
P Smidt
P Sutton (Duane)
P Tidemann
P Putnam, Chair
OTHERS PRESENT: See Original Minutes
The meeting was called to order by Representative J.E. "Jim" Putnam
Angela VanScharrel, Bureau of Finance presented Revenue Estimates
Documents 1 and 2 distributed.
Key Variables
1 *
Nonfarm Employment (See chart on page 3 in Document #1). The monthly nonfarm
employment in SD has grown 1.9% since March 3, 2004, adding 7,200 jobs. Average growth
after the '90-'91 recession was 3.8% in SD. Growth after 2001 recession is 0.3% in SD.
Annual Growth in Nonfarm Employment is not expected to increase as quickly as the first
recession concluding that there will not be as much demand for workers in the next few
years. The growth in SD nonfarm employment has a smaller forcecast and will therefore have
less tax base.
2 *
Unemployment Rate is continuing to remain well below the US.
3 *
Income - Sales tax collection has an expectation for an increase but not as high as before.
4 *
Housing Starts are projected to slow down. Continued demand and a growing economy are
going to keep housing start from crashing.
Global Insight's Forecast Summary
5 *
Growth in consumer spending must and will slow to come into line with employment and
income growth.
6 *
Housing activity will no longer outgrow the economy.
7 *
Growth in government spending will slow.
8 *
Slower growth in consumption, housing, and government spending means that overall
growth in the economy will slow.
9 *
Business investment and exports are projected to be the leaders of the expansion, rather than
consumption and housing.
US GDP Growth. Average during last expansion is 3.7%.
Senator Earley asked how business investment and exports are going to effect jobs. Ms. VanScharrel
answered that the business investment is a broader range and will add more to jobs. There is still an
expectation of construction workers even though housing is expecting to decrease. Expansion within
the state in manufacturing employment is expected due to business investment.
Senator Apa asked if segregation in government spending has been done to see the effects on the
economy. Ms. VanScharrel answered that she had not done it personally.
Representative Putnam asked if the non-farm income tied very closely to the sales tax collection. Ms.
VanScharrel answered that yes, this is true and therefore the use of this information helps with
forecasting.
The sales and use tax is the single largest revenue for the general funds. (Page 3, document 2).
Sales and Use Tax (page 4, document 2)
The sales and use tax in SD is very broad based which makes it fairly stable revenue source to the
General Funds. The rate of the state's sales tax is 4% with a couple of exceptions: 1) the sale or lease
of farm machinery and attachment units and irrigation equipment used exclusively for agricultural
purposes are subject to 3% state sales tax; and 2) the sale of oil and gas field services performed at
the oil or gas field site are subject to 3% state sales tax. In addition to the state Sales and Use tax,
cities may impose a general Sales and Use tax of up to 2%.
The repeal of trucker tax has changed for an overall decreased amount of $3 million in total
revenues, which is 0.6% of total collections.
Estimate has 7 regression equations. These are used because there are certain variables that are
assumed to come up with the estimates. Total estimate for FY05 is $533,936,163 and $565,207,678
for FY06. Solid growth of 5.6% in collections.
Contractor's Excise Tax (page 7, document 2)
An excise tax of 2% is imposed on the gross receipts of all prime contractors on construction
projects. The average annual increase in contractor's excise tax collections between FY1997 and
FY2004 was 7.25%. Collections from the contractor's excise tax account for approximately 7% of
ongoing general fund revenues. In the first seven months of FY2005, contractor's excise tax
collections were $42.7 million, an increase of 6.93% from the first seven months of last year.
Contractor's excise tax collections were estimated using a single regression equation. The equation
and its coefficient of determination are shown on page 6 of document 2.
Alcohol Beverage Tax (page 9, document 2)
This tax is levied on manufacturers and wholesalers of alcoholic beverages, and is computed on all
alcoholic beverages purchased, received, or imported from a distiller, manufacturer, or foreign
wholesaler for sale to a retail dealer. Collections from this tax account for approximately 1% of
ongoing general fund revenues. Through the first seven months of FY05, $4.3 million has been
collected from this tax. This is a decrease of 9.46% from the first seven months of last year. Year-to-
date collections are 50.76% of the estimate.
Cigarette Tax (page 11, document 2)
The cigarette tax is imposed at the rate of twenty-six and one-half mills on each cigarette ($0.53 per
pack of 20 cigarettes). In addition, there is a tax upon all tobacco products at the rate of 10% of the
wholesale purchase price. Collections in this category account for approximately 3% of ongoing
general fund revenues. Collection increased in FY03 and FY04. The estimate is $27.1 million in '05
and $26.8 million in '06.
Bank Franchise Tax (page 12, document 2)
The forecast for '05 and '06 is seen on page12. Ms. VanScharrel commented that they contact the
largest taxpayer for their opinion of the projection for this source.
Insurance Company Tax (page 13, document 2)
The average annual increase between FY1998 and FY2004 was 7.66%.
Collections from this account for approximately 6% of ongoing general fund revenues. Year-to-date
collections are 58.65% of the estimate.
Inheritance and Estate Tax (page 14, document 2)
Included in this category is the state's share of the inheritance tax and estate tax. Amendment C
passed by the voters in November 2000 repealed the inheritance tax effective July 1, 2001. This tax
was imposed upon the inheritance of an heir and the rate varied according to the amount inherited
and the relationship between the deceased and the heir. Collections now account for less than 1%
of ongoing general fund revenues. Year-to-date collections are 66.08% of the estimate.
Licenses, Permits, and fees (page 15, document 2)
Revenues included in this category are receipts received from the sales of a broad variety of licenses,
permits, and filing fees that are assessed to defray administrative costs. Collections in this category
account for approximately 3% of ongoing general fund revenues. Through the first seven months of
FY2005, $12.8 million has been collected in this category, an increase of 6.75% from the first seven
months of last year. Year-to-date collections are 40.10% of the estimate.
Investment Income and Interest (page 16, document 2)
Revenues included in this category are from interest and the investment earning of the general fund
and nonparticipating funds in the cash flow fund. Receipts in this category account for approximately
1% of ongoing general fund revenues.
Charges for goods and services (page 17, document 2)
Receipts included in this category are from charges made by institutions under the Department of
Human Services; audit charges made by the Auditor General to state and local governments; child
support collections paid back to the state received by the Department of Social Services; funds
received from unclaimed property; 35% of fines, penalties, and forfeitures collected by or through
the use of a circuit or magistrate court, clerk, or other court offeicer for violations of a county,
township, municipal or chartered governmental unit's ordinance, charter, or bylaw; and other
miscellaneous charges. Receipts included in this category account for approximately 1% of ongoing
general fund revenues. Through the first seven months of FY05, $7.7 million has been collected in
this category, a decrease of 5.76% from the first seven months of last year.
Net Transfers In (page 18, document 2)
Receipts included in this category are general fund reimbursements by the Highway f=Fund; receipts
from the Department of Game, Fish, and Parks; the Motor Vehicle Fund; the Soil and Water
Conservation Fund; the stte's share of the Deadwood gaming revenues; interest earnings from the
Health Care and Education Enhancement Trust Funds; and other miscellaneous receipts. Receipts
included in this category account for approximately 3% of ongoing gneral fund revenues. Total
collection estimated for FY05 was $24,382,648 and $26,025,447 for '06.
Dakota Cement Trust (page 19, document 2)
Severance Taxes (page 20, document 2)
A severance tax is imposed at the rate of $4 per ounce of gold severed in South Dakota. In addition,
there is a tax of 10% of the net profits from the sale of precious metals severed. Gold production
continued to decrease whereas oil production increased in '04. There is an increase of 24.82% from
the first seven months of last year in collections.
Lottery (page 21, document 2)
Receipts included in this category are the general fund's share of revenues from the sale of instant
and on-line lottery tickets. Through January 31st, instant ticket sales were up 4.55% compared to the
same time period last year. On-line sales were down 18.35% from last year.
Property Tax Reduction Fund (page 22, document 2)
Through the first 35 week of FY2005, video lottery net machine income was up 2.07% compared
to the same time period last year. Through the first seven months of FY2005, the state's share of the
receipts from the telecommunications tax was $2.8 million.
Adopted Fy2005 VS. February FY2005
Right on track.
Estimate for December FY05 is $1,530,192 less than what was in the Governor's budget.
December estimate for FY06 is $2,228,371 less than the Governor's budget.
Legislative Research Analyst Chief, Reed Holwegner presented Revenue Estimates.
Document 3 distributed.
Current fiscal year available to spend is $970,834,271.
LRC Estimate for FY2006 is $1,005,444,748 for an overall change of 4.4%.
Page 3 in Document 3. Insurance company tax is below estimated for a negative change of
$2,018,557. Property Tax Reduction Fund exceeds estimated by $2,802,764.
Page 4 in Document 3. Mineral Extraction Tax has an estimated decrease of $146,748 from 2004v
actual. Investment Income and Interest has an estimated increase of $2,503,392.
Document 4 distributed, which compares LRC and BFM Revenue Estimates.
Jason Dilges, Bureau of Finance and Management commented on LRC and BFM Revenue Estimates.
MOTION:
TO APPROVE THE MINUTES OF FEBRUARY 1, 2005
Moved by: Dennert
Second by: Sutton (Duane)
Action: Prevailed by voice vote.
MOTION:
TO APPROVE THE MINUTES OF FEBRUARY 2, 2005
Moved by: Smidt
Second by: Napoli
Action: Prevailed by voice vote.
MOTION:
TO APPROVE THE MINUTES OF JANUARY 18,2005
Moved by: Peters
Second by: Sutton (Duane)
Action: Prevailed by voice vote.
The Committee recessed until Monday at 10:00 A.M. February 28, 2005.
Wendy Weinert