Governor Dennis Daugaard gives his budget address tomorrow (Tuesday) at 1 p.m. in the Capitol. Grandpa Cheap is telling us to brace for a lean year:
Since fiscal year 2017 began last July, revenue has been weak. The state’s receipts have fallen short each month: in July revenue fell $1.7 million below projections, in August another $3.8 million below, September was an additional $5.7 million short and October was worse yet with a shortfall of $8.7 million. That leaves us almost $20 million short for the current fiscal year [Governor Dennis Daugaard, press release, 2016.12.02]
If the monthly shortfall kept growing at an average rate of $2.3 million per month, our shortfall in June 2017 would be $27.4 million, and the total annual shortfall would be $173.5 million. If we go easy and assume the shortfall plateaus from October on, another $8.7 million short for each remaining month in FY2017 puts the total shortfall at $89.5 million.
Governor Daugaard blames falling sales tax revenues on sagging ag prices and online sales:
The inability of states to collect sales taxes on some internet purchases is another factor leading to weakened tax revenue. The Bureau of Finance and Management estimates that up to $35 million in these taxes goes uncollected each year [Daugaard, 2016.12.02].
Wait a minute: as the Governor acknowledges by citing the BFM estimates, taxes lost to online sales are not a new phenomenon. Retail e-commerce has steadily grown as a percentage of total quarterly sales from 3.5% in 2006 to 8.5% today:
There’s no surprise in this curve. Wouldn’t BFM and Joint Appropriations have factored that $35 million plus the decade-long growth rate of retail sales into the FY2017 budget projection? For online sales to account for any of the current revenue shortfall, online sales have to have grown faster than that blue curve suggested a year ago—i.e., South Dakotans would have to be abandoning their local stores and ordering from Amazon even faster than anticipated.
I am skeptical. Either Appropriations underestimated a long-standing trend of increased retail sales, or something else big is driving our revenue shortfall. Perhaps the Governor will elaborate more tomorrow.