House of Representatives Journal 1/30/2009 12:30 PM

Thank you. Mr. President, Mr. Speaker, Ladies and Gentlemen of the House and Senate, fellow citizens of South Dakota. Today we come together at a time which we normally participate in the first week in December. This year we not only have presented to you a December budget, but with new numbers after an additional quarter, where economists have shared with us significant deterioration in national and in South Dakota's economic forecasts, it is necessary that I come before you with a revised budget for the remaining part of this fiscal year, the fiscal year 2009, as well as for this upcoming year, fiscal year 2010.

I will share with you that this budget theme, I believe appropriately, would be one that would be identified as a revised budget fraught with very tough choices. The changes I am proposing to you are in addition to those changes which I requested in December. The additional revenue that I requested in December are still included. The additional reductions that I requested in December are still included.

The fiscal year 2009 budget, which is where we have to begin, the bottom line is, that since December, and remember that we began working using economic information that was available to us in October and November versus that which was available to us after the end of December, shows a significant deterioration in economic activity. Because of that, the shortfall we had shared with you and we were concerned with, of $26.8 million in December, can be more accurately portrayed today just a few days later, but with additional information provided, of significantly more _ it will be $52.2 million _ not because of additional spending, but because of a lack of additional revenue that we all hoped last year and in December would come through.
The fiscal year 2010 budget, the one that will begin in July of this year, the projected revenue versus expenses showed a shortfall in December anticipated at $32.4 million even after the cuts we requested and the reductions in additional expenditure we offered in December. Because of the changes in the economic outlook, we believe the revised shortfall will change from $32.4 million to an actual $81.6 million.

Why is it that we could be off so far in literally just a couple of months? Let me share with you the differences between what our economists have told us with the information they had back in October and November versus what it looks like right now.

The charts, and I'm not going to go through in great detail with charts, but I will share with you all of the numbers in red on the charts in front of you for the United States Gross Domestic Product (GDP) _ all the red shows where it is worse than anticipated on a quarterly basis. In fact, the change in the fourth quarter of 2008 to our GDP on the national level was down an additional 3.3 percent. It means that our economy actually reduced a total of 4.8 percent rather than 1.5. Those are real numbers. In 2009, the projection now rather than only being down seven tenths of one percent, will actually be down 4.1 percent. That's an additional 3.4 percent. Those weren't there in October and November.

In 2009, the second quarter, the GDP nationally is expected to be down 1.9 percent. As you look on through this, you'll find U.S. Nonfarm Employment Growth in the United States also falling off more dramatically in this 9-month period of time _ these three quarters from the last quarter of '08 through the first and second quarters of '09. It also shows a very slow recovery.

U.S. Unemployment Rate, which is something that a lot of people follow, if you'll look at what's happening in the U.S. Unemployment Rate, it will actually be three tenths worse in the last quarter of '08 than what we had projected. It will be seven tenths worse, up to 7.5 percent across the nation in the first quarter of '09. In the second quarter, it will be worse once again. We had originally projected 7.2. Now we are projecting 8.1 percent nationally. That's nine tenths of one percent more. The same, once again, in the third quarter of '09. Again in the fourth quarter of '09. In fact, even in the year 2010, we expect unemployment rates in the United States to be at 8.3 percent, or greater, continuing on until the second quarter of 2010, 8.1 percent unemployment.

This recession at the national level is not only deepening more quickly, but it is also staying here perhaps for a longer period of time. How does it fit into the state's economic forecast? We don't see as severe a reduction as the rest of the country, but what we do see is that it hangs on here for a longer period of time. And, it hangs on here, and in many cases, if you look at what we use as our tax basis, sales tax. Primarily sales taxes are directly related to your employment numbers _ the number of people who are actually working.

And, if you look at our Nonfarm Employment Growth, well, in 2008 in the fourth quarter, it actually went down from what we expected the employment growth would be. We expected anyway that the employment growth would be 1.2 percent. In the fourth quarter of '08, it was actually 1.1. In '09, the first quarter, we hoped it would be 0.5 percent growth. It will be .1 percent growth. In the second quarter of this year, we hoped it would be 0.4 of 1 percent. This was in our December estimates. Today we are telling you that we will actually lose nonfarm employment in the second quarter of '09. It will be one-tenth less than what it was at this time a year ago. The third quarter, it will be 1.4 percent down. The fourth quarter of '09, it will be six-tenths of one percent additionally less than it was. As you can see, it will stay here for a longer period of time than what we had originally projected it would be.

If you look at the Unemployment Rate, because many people see that, and it is something they are comfortable in discussing, we believe the unemployment rate will go down and it will stay down for a longer period of time. We believe it will be 3.4 percent, and I think those numbers have already been identified in the fourth quarter of '08. We believe it will rise to 3.6 percent this quarter, 3.8 percent in the second quarter, 3.9 percent in the third quarter, 3.9 percent in the fourth quarter, and 3.9 percent in the first quarter of 2010, and 3.9 percent or two-tenths more than we had thought it would be earlier in December.

South Dakota will not have as deep a recessionary trend, but it will last longer than in the rest of the United States.

If you want to take a look at what this does to impact the numbers you have to spend, what you have right now is revenue coming in from existing revenue sources that legislators in the past have adopted and that you use right now for ongoing expenditures. If you look at our Sales and Use Tax, we expected that in '09. Well, from where we thought it would be, it's down another $17.7 million; the Property Tax Reduction Fund is down another $900,000; Contractor's Excise Tax is actually down $4.5 million more than what we thought; $2.1 million less in Insurance Company Taxes; and $2.2 million less in Bank Franchise Taxes. When you get all done with it, the total revenue reductions of $25.4 million added to the existing anticipated shortfall we shared with you in December of $26.8, points to a new deficit. Unless we do something about it, there will be a $52.2 million shortfall for the rest of this year.

If you look at fiscal year 2010, which is in the right column that's in front of you now, we expect that Sales and Use Tax will fall an additional $32.3 million over what we shared with you last month; $1.5 million less out of the Property Tax Reduction Fund; $10.6 million less in Contractor's Excise Taxes being collected; the Insurance Company Taxes of $1.9 million less; a half a million less in the Bank Franchise Tax; $2.1 million less in Interest Earnings; and $0.3 million in the other continuing funding sources. The total revenue reductions of $49.2 million more than what we had projected in December, which you have to add to the already severe $32.4 million that we had indicated we believed would occur, shows that, unless we do something, the difference between our ongoing revenue and the expenditures that you have, is $81.6 million.

Before we decide which changes to make, notice that if you add the deficits that accumulate for the rest of '09, the fiscal year we are currently in, you will have $59.2 million that you have to make up some place. It will increase next year with an additional, well, you're going to end up at $133 million total. In December, we said you'd have $59 million in deficits. Now this year, that's changed from $59 million to $133.8 million for these 2 years, the rest of this year and the next fiscal year. That is, before we make changes during this legislative session, changes that will have to include additional revenue sources on an ongoing basis, and it will also have to include additional reductions in services on an ongoing basis.

How did we get here? First of all, for the last number of years we have been using one-time funds, (money out of the Property Tax Reduction Fund) to create and pay for new ongoing expenditures. Rather than X amount in salary policy for employees, we would pay X amount plus 3 percent. For provider inflation, it may very well be X amount the previous year, plus 1½ percent more, or 2 percent, or 3 percent more. For K-12 education, it is the rate of inflation, or whichever is less. Three percent more than we had the year before. It is an addition to an ongoing base that you have to have a way to pay for. We have been using one-time revenue from the Property Tax Reduction Fund.

We have an under-performing economy relative to adopted revenue estimates. During this legislative session, for those of you who haven't been here before, you will hear that we have adopted revenue estimates. We do the best we can, both the legislative branch and the executive branch, to come up with what we believe to be the best estimates of what the revenue is. In the last couple of years, we have adopted and spent very optimistic revenue projections that have not proved to be accurate.

And, finally, a global recession which has softened key general fund revenue which funded ongoing programs and entitlements, which, honestly I can say, that no one in this room had expected to happen. We have not seen a downturn in the economy like this in recent history.
State reserves. Let me share with you where we are. If you take the Property Tax Reduction Fund plus the Budget Reserve Fund, in fiscal year '04 we had $158 million as the most we've had. It went from there to $134.3 million in '05 as we spent some of those reserves. In '06, it was $137.2 million. In '07, it remained at $132.5. In '08, it went down to $107 million as we used it to make up for shortfalls in revenue estimates. And, finally, in '09, with this non-rosy estimate for revenues coming in and because now of a dropping economy and dropping activity within the economy, we are seeing it reduced to $54.8 million, if we do nothing. And, finally, if we do nothing, it will end up in the negative with all of our Property Tax Reduction Fund being gone and the entire Budget Reserve Fund being gone, if that's the way we balance the budget with no other changes. We can't do that.

In forecasting state revenue, I want to share with you the challenge we have. And I also want to let you know, I know some of you who have been here for awhile will say, oh no, the governor's going to try to blame the legislature for being optimistic and taking the highest revenue estimates available. I will tell you, I share in that blame, because I could have put my foot down and said time out, we will not spend the money, and I will veto the general bill. And, in all honesty, I thought about doing that a couple of times, but I didn't know if my crystal ball was any better than your crystal ball, the first time or the second time it happened.

Today we have to be conservative, and we have to be very careful in how we make our revenue estimates, because in the past, the way we fixed it was, we simply allowed the money to flow out of the Property Tax Reduction Fund. This is not a Republican or a Democrat problem. This is all of us in it together, trying to provide the best services available with the money we've got. And, when you had money in the Property Tax Reduction Fund, it was pretty tough to go back home and not assure people you would do your best to share with them additional services, and additional assistance, and very good programs. Unfortunately, today we do not have that luxury anymore.

In 2003, we actually had to begin with, in terms of forecasting state revenues, if you look at '03, we had about a $13.2 million surplus. We brought in more revenues than what we projected. In '04, it hit $30.8 million in more revenue than what we had projected. In '05, that number went to $5.3 million. We were very close. In '06, we hit $11.4 million, more than what we projected. In '07, we over-projected. We used $8.5 million in reserves to balance that portion. In '08, $5.2 million less came in than what had been projected. Today, in '09, in the revised estimates, it would be $31.9 million unless we do something to fix it.

General fund spending we have proposed versus legislative approved spending. Well, in the fiscal year '04, you actually approved less money than what I asked for to the tune of $4 million. Beginning in '05, you spent $4 million more than I requested. In '06, you spent $2.3 million more than I requested. In '07, you spent $10 million more than I requested. In '08, you spent $11.7 million more than I requested. And, in '09, $12.4 million more than I requested. I take blame for that as well, because on any one of those occasions, I believe I could very well have put my foot down and vetoed the general bill and said, start over. But once again, we had money in the Property Tax Reduction Fund, and we all want to be able to go back home and provide additional services to the folks we serve. I believe it would have been very difficult for you to go back home with that kind of money in the Property Tax Reduction Fund and justify cutting services that are good services and in programs we all truly believe in.

The structural deficit, I think, is one of the biggest challenges we have to face this year. Structural deficit is when your ongoing revenue coming in doesn't meet the ongoing expenses you share with other people. If you have X amount of money coming in and you spend a million dollars more than that, you have, if it's an ongoing program, a million dollar structural deficit. And, that's okay if you've got lots of money in savings and as long as you plan to work your way out of it with a growing economy or an anticipated new revenue source. But let's take a look at what's happened. In '03, we had a structural operating deficit of about $18 million. In '04, we got it up to about a $2 million structural deficit. In '05, it went back down to about a $22 million structural deficit. In '06, we were on our way out and into the black; we were just about $1 million short of balancing our budget with ongoing money for ongoing expenses. We made it in '07; we actually received $7.1 more in revenue than what we spent. In '08, it went the other direction, and we actually ended up using one-time money. We ended up having a structural deficit, because we spent $18.7 million more in ongoing expenditures for programs than what we had in ongoing income. In '08, the $18.7 million really changed, because from '08 until '09, which is the budget year that you're currently in, with the changes in the economy this year, with the reductions in the revenue coming in this year that you could not foresee last year during the legislative session, your structural deficit would be at $62 million. And, if we do nothing, if we just fund the ongoing programs that we currently have, and we have only the revenue projected to come in, the structural deficit would be $83.9 million for this next fiscal year. We can't do that. We have to begin now to fix it, or we won't be able to fix it.

How do we solve it? And, it is solvable. We make prudent cuts to minimize unintended consequences for our citizens. We make these cuts as painless as we possibly can, recognizing that any time you have good programs that you reduce or eliminate, you truly impact citizens you have been helping with those programs. I truly don't believe we have bad programs within state government. So, when you go to cut them, you will be impacting people, because these are good ideas that the legislature has looked at and approved in many cases year after year after year.

Number two, we have to live within our means. We cannot spend what we don't have in ongoing resources. We cannot make promises of more funding in entitlements, in more raises, or inflationary increases than what we know we have coming in. And, if you do have the desire to spend more in the future, then you also have to have the responsibility to raise revenue that will pay for it, just like our forefathers did when they began our state in the first place.

The third area we have to continue to invest in is areas that speed up economic recovery and growth. I know some of you have truly discussed whether there are any other one-time dollars we can spend, or any other ongoing areas we can move money around in. I really believe in those areas, and I'm going to name a couple of them. We currently have a match program with our tourism industry. We put money in, they put money in. They advertise. We are the most successful that I'm aware of anyplace in the upper Midwest in bringing in more tourism dollars into our state. When that happens, we get the sales tax from those out-of-state folks coming in. If you decided to spend the money we currently use to bring in more revenue, and you spend it someplace else, that revenue will go away, and we'll have to account for that in revised revenue estimates downward from what we might otherwise receive.

It's kind of like a farmer who last year maybe got 200-bushel per acre in his farm on a per acre basis of corn, and this year he decided time was a little bit tough so he decided to reduce the seed corn from 24,000 to 18,000 plants per acre. He's not going to get the same yield. The same thing occurs in a number of these areas where I will ask you to resist in spending money, money used to build our economy, into programs we may feel are very, very important but do not create economic dollars, we can use for the funding for the rest of the operation of government.

Fiscal year 2010. The budget changes we are proposing, and remember and I just remind you, all of these changes we are proposing are in addition to the budget proposal we offered in December. The cuts, the changes we offered in December, must still remain a part of this new proposal.

We will also be asking for general-funded additional enhancements, and we've laid them out for you in the following context. First, there were a series of sales tax exemptions that we've asked for general in nature that would broaden the sales tax. They would bring in approximately $3 million.

We've also added some additional sales tax exemptions to the list of exemptions we would like to eliminate. We would like to broaden it to the existing rate so we can bring more dollars in to fund worthy programs and have more people collecting sales taxes as a general rule.

Furthermore, we are going to ask you to consider a change so we can pick up license fees in addition to those we already do for Deadwood gaming that would be receipted into the general fund in the amount of approximately $4 million. It would increase the license fees on a per machine basis in Deadwood from $2,000 to $3,000 (per year). We've shared some of that information with the folks who are actively involved in that business. While there may be some variations to it, and we will continue to work with them, we believe it would be appropriate to ask for the additional funding at this time.

Furthermore, we currently allow casino owners in Deadwood to have nickel slot machines. They have told us that if we would allow them to have penny slots in Deadwood that the state's take on that part of it would be an additional $500,000 per year, which we have included in this proposal. The total enhancements would be $9,554,000 in ongoing revenue beginning in the year 2010.

Where are the spending cuts going to be that I'm going to propose? I will have a little over three pages of them for you to review. They total $46,181,724 in ongoing spending cuts.

Three point four percent of the education budget will be cut. That is $20,848,816. It will impact K-12; it will impact higher education, technical schools, and the Department of Education. I would make note, we will still comply with the law and provide a 3 percent per student increase in the base education formula.

With regard to taking care of people, we will reduce the taking care of people; we will reduce the taking care of people budgets in the different agencies by $15,318,829. That is 3.7 percent of their existing budgets. It includes Medicaid; the state hospital; Temporary Assistance to Needy Families; the Department of Social Services, Department of Human Services, and the Department of Health.

We will cut the budget for protecting the public, which is the Department of Corrections, the courts, Public Safety, and the Attorney General by 3 percent. That amounts to $4,045,144.

And, finally, for all of the rest of state government, which are the eight departments, the four bureaus, the legislature, the Governor's Office, the five constitutional offices, and all of our economic development activity by $5,968,935, or 9.2 percent of our current budget.

Here is the litany of the cuts which we are proposing. I will go through them rapidly. You will have the opportunity to look at them in depth. You will also be receiving an electronic file with all the information, and the Legislative Research Council will be receiving a revised budget electronically and in printed form, both revising it from the 2008 budget to the 2009 to the 2010 as adopted and also changes from the December proposal for the 2009 and 2010 budgets.

State employee compensation. It was at 1.5 percent in December, we've eliminated that along with the movement to job worth and some health insurance benefit payments. That is $6,728,980.

Discretionary provider inflation for those individuals who participate in Medicaid and so forth, we did propose 1.5 percent, we're eliminating it. That's a little over $5.5 million.

The Teachers Compensation Assistance Program, which I asked you to approve, I am asking you now to repeal. It is $4 million per year.

The Bureau of Administration, the base maintenance and repair funding, which is $2,451,444 will be eliminated.

The Sales Tax on Food Refund Program, $2.35 million, will be eliminated.

The education service agencies will be repealed--$2.2 million.

The Birth to Three program will be repealed at $2.1 million.

Restructuring the South Dakota School for the Deaf. We will still provide the services, we will still provide a school, but we will close the institution, which currently exists, and it will save us $2 million per year.

The Board of Regents' base maintenance and repair funding will be eliminated with $1.6 million being cut.

The Special Education formula increase will go to 0 percent, which will save $1,632,256.

Career and Technical Education funding will be eliminated, $1,500,000.

Adult Medicaid Dental Services, I would emphasize, this is adult Medicaid dental services, not for children, $1,485,987.

The Coop Extension Service will be reduced by $1 million in general funds.

Catastrophic Correctional Health Care _ we have $800,000 in it for that purpose; it will be eliminated.

Human Services will have base cuts of $800,000.

We will ask you to eliminate the general funding for the State Fair, $774,643.

The SCHIP shortfall _ we believe with the reauthorization of SCHIP at the federal level, there's a very strong possibility we will have additional federal funding that will replace our existing general funds to the tune of $752,959. We will be pulling those general funds back in.

We will cut the Division of Arts, $668,509.

The Adult Medicaid Primary Care Case Management, $647,360, will be eliminated.

The Board of Regents' institutional reductions. The Board of Regents have agreed that they will disburse $500,000 in additional cuts over all of their institutions.

Alternative Education Programs will be cut to the tune of $450,000.

Nursing Home Client Cost Share will be reduced by $429,678.

Rehab Services for Independent Living Services will be reduced by $378,130.

State Aid to Technology increase will be eliminated, $309,226.

Archeological Research Center Program will be eliminated. That is $308,782 in general funds.

And, the Mosquito Control Program that we have instituted to share with local units of government of $300,000 will be eliminated. The subtotal for that page is $7,119,287.

In addition to the December proposal of those other cuts, we will also eliminate the HPV Vaccination Program, $276,995.

The South Dakota Public Broadcasting Tower Maintenance, $230,000.

The Department of Environment and Natural Resources will make a swap with the Environmental Protection Agency for using federal funds and eliminate an additional $230,000 in general funds that they've needed in the past.

The Department of Social Services' Independent Living Services will be reduced by $222,000.

The Board of Regents' new accounting staff, which we had asked for to bring some additional accounting assistance in to get us good answers, that will be eliminated, $213,141 in savings.

The Department of Corrections' Adult Education Program for $210,789 will be reduced.

The Department of Corrections' Community Transition Fee. We will charge a fee in that case, and that will be $200,750. We will charge a $10 fee per person who is outside the penitentiary working and coming back in to pay for the ability to work while they are outside the penitentiary and then be housed back inside.

The FTE for the REED Data Center, that is the people who would operate the REED Data Center, we will eliminate that, $155,359.

If you take all the remaining education cuts that are too numerous to list out in the next page, it will amount to $341,343.

If you take all the remaining taking care of people department cuts, it's $991,297 in additional cuts.

The remaining protecting the public cuts will amount to $548,140.

And, the remaining cut which goes into all the rest of state government areas will amount to $616,977. The subtotal of this page is $4,436,791.

The grand total of all three pages of ongoing cuts in order to balance this budget is $46,181,724.

The total funds represented in the additional cuts for fiscal year 2010 break down in the following terms. The need for General Funds will be reduced by $46,181,724. The Federal Funds, and I will tell you we have done our best to make program reductions that do not impact federal funds, but with as many as we match with federal funds, in order to come up with the necessary amount to balance the General Fund budget, we will reduce the use of $18,825,972. Other funds will be reduced by $9,394,564. A total reduction in the total funding for the state of South Dakota will be $74,402,260 in order to reduce by $46,181,724 the general fund. This does include the elimination of 76.5 FTE and, as I've told you before, an FTE is not necessarily a person but in this particular case, in most cases, it represents real people who will lose their jobs.

In solving the problem, and we have to do this together, it will take everyone working side by side. I want to share with you how we've done this. The fiscal year '09 budget, if you read from the top of the column to the bottom of the column for the first column, we started out with a projection in December of a $26.8 million shortfall. The January revisions add an additional $25.4 million of the shortfall _ a total shortfall of $52.2 million.

Because of the reductions in capital expenditures, because of the reductions in travel that have been directed, because we have not been hiring new individuals unless they are absolutely necessary, and we've asked other state employees to simply pick up and do the best they can in the mean time, we will have reversions in one-time cash of $13.6 to apply against that $52.2 million anticipated revenue shortfall.

We will have ongoing cuts as part of what I've just shared with you, that will start this year rather than next year, $3.3 million in additional cuts for this year. That will leave us a remaining shortfall this year of $35.3 million. We will, unless you have other revenues that can be utilized or other cuts that can be made between now and the end of the year, we will use the Property Tax Reduction Fund reserves in the amount of $35.3 million to get us through until the end of June.

In fiscal year 2010, starting at the top column on the right hand side, we started out in December with a shortfall projected at $32.4 million. The January revisions will add an additional $49.2 million in expected revenue losses, for a total shortfall of $81.6 million. We are asking you to approve $9.5 million in new revenue. If you take that from the $81.6 million shortfall, and you add to that the reduction in programming to the tune of $43.8, and if you notice, if you add the $3.3 to the $43.8, you come up with the numbers we talked about as the total amount of the cuts. If you subtract your $43.8 from your $81.6, you come up with a shortfall remaining still of $28.3 million. We would propose to use the remaining portion of the Property Tax Reduction Fund, $28.3 million. We would not be using any of the Budget Reserve Fund. We would hold that for possible emergencies that may occur in the next 18 months. The shortfall would be eliminated for this year and the remaining part of next year. We will not touch the Budget Reserve Fund. I believe it very important that we protect the Budget Reserve Fund for other emergencies we may not foresee at this time.

If you take a look at the next slide, this is the General Fund Ongoing Revenue vs. the Ongoing Expenses. I cannot emphasize enough the need for all of us to work back and protect the concept of a structurally balanced budget.

In fiscal year 2003, if you compare the revenue to the expenses, we spent $16.2 million more in ongoing expenses than what we had coming in, in ongoing revenue. In '04, it was down to $3.6 million more in expenses than in ongoing revenue. In '05, it was $23.9 million more in expenditures for good programs versus ongoing revenue that came in. In '06, we were close to balancing it, and we were only $2.3 million short in actually balancing structurally our budget. But, in '08, our expenditures exceeded our revenue on an ongoing basis by $18,712,487. In January 2009, the first budget that we had proposed to you for the remaining balance, we could see a structural deficit of $61.9 million. With the new proposal that we are laying out for you now for the rest of this year, we'll change that January '09 proposal if you accept our recommendations from $61.9 down to $58.7 to finish out this year. That's ongoing revenue compared to ongoing expenditures. For January, the fiscal year 2010 before our changes that we're proposing today, we are projecting that we would have over $83.8 million in a structural deficit. Once again, ongoing revenue coming in versus ongoing expenditures going out. If you accept our proposals with the increases in revenue as proposed and with the decreases in spending with these additional cuts we are adding in, you will reduce that this year to $30,575,576 in terms of the structural deficit that you will carry forward to next year.

The reason this is so important, if you take a look at the next slide, here's what you are challenged with, and it's the same legislative body that will be back again next year. We know this recession will be longer than originally expected. We know we will begin the 2011 year, which you will be back here for in December to hear about, it's not that far away, we will start out with a structural deficit of $30.6 million, just in the operations of the existing programs and entitlements we already have with no increases, and if we actually receive all the revenue we are counting on right now. The Property Tax Reduction Fund will be at zero. The Budget Reserve balance is a one-time amount of $43.4 million, and I think we should save that for unforeseen emergencies that come up without warning. That means that next year, you as a legislative body coming back in, will still have to wrestle with the fact that even with ongoing revenue and ongoing expenditures being significantly changed this year, next year you will still have a $30 million structural deficit which we will have to deal with. So, let's hope we begin the process of coming out of the recession, and we begin to build. But even if you receive $50 million in new money, the first $30 million has to apply against the structural deficit, because you have no place else to go to get it filled. If you had $50 million in new revenue in 2011 and you take out the $30 million structural deficit, it means you would only have $20 million for all those desirable good programs you would like to either reinstate or add to in the future. This would include no new salary policy, no inflation, and no additional for K-12 or other education funding.

The new revenue today is unknown. The new ongoing expenditure requests that you will see will be numerous. This is not going to be an easy session to be a legislator.

If you take a look at where the state funding priorities are, at the end of this if you look at what's happened since 1995. In the red on each of these columns broken out into those now traditional ways of state aid to local public schools, back in '95, it was $165.9 million. It's up 130 percent. It's up to $381 million now. But that includes property tax relief.

Medicaid up from $98.7 million in '95, up 172 percent to $268 million today, if you accept the budget as we propose.

The public universities and technical institutes, they're going to be up from $112.8 million to $200 million, a 78 percent increase.

Health, human, and social services will have climbed from $65.8 million back in '95 to $131 million today, or a 99 percent increase in services being provided.

Protecting the public, the cost of the courts, prosecution, and the correctional system, and the rehabilitation of those individuals, was $52 million back in '95. Today, it is $128.9 million, that's a 148 percent increase.

All the rest of state government, all of the eight departments of government, the four bureaus, all the constitutional officers, the operation of the legislature, the operation of the Governor's Office, and all our economic development efforts _ their general fund expenditures in 1995 were $93.1 million. If you accept this budget, they will be $80,060,230, and that includes all salary policy, or down 14 percent since 1995.

I think, when you go back, and you share with your hometown folks, I think it's important you point out, you do your work up here, and you do your best to provide services with the dollars they provide to you. But in cases in which revenue come down, and it's necessary to tighten the belt, it's also necessary to look at all areas in which services are provided, and these truly are good services we would like to see continue on, but the tough choices that have to be made become your responsibility.

I've said it before, and I truly believe that it has as much, if not more, merit now than it ever did before. Working together, we can get through this recession. Working together side by side, we can make this budget work. Working together, we can prepare our state to come through the challenges of the next year and a half. We can build an economy that will be stronger than what it has been in the past.

Ladies and gentlemen, I want to thank you for your patience in allowing us to prepare these budget numbers for you. I recognize the challenge it proposes for your Appropriations Committee members. They have a huge amount of work to do. I wish we could have provided this to you earlier, but we're still in the midst of and trying to do our best to get as much data as possible to give you the most up-to-date information we possibly can.

I look forward to working with you. My door is open. We can make it through. Tough challenges, tough choices, but that's the reason the citizens of South Dakota have entrusted their tax dollars with you to make those very tough choices during the time in which you are here in Pierre.

At the end of this legislative session, as I have shared in the past, I have to present to you a balanced budget when we bring in the budget to begin with. It has to be balanced before you go home. In the past, we could do it with one-time money. This time some of those one-time dollars have been restricted, because we've used them already. Now we've got a couple of tough choices. I look forward to working with you and I think we can get the job done.

Thank you for the opportunity to present to you today.