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Federal Coronavirus Relief Saved South Dakota from Recession and $77M Deficit?

I keep thinking about that $85,875,130 surplus left over from South Dakota’s FY2021 budget. $23,863,600 of that was appropriated money that the state didn’t spend, so that actual cash that showed up in our state coffers that we didn’t expect is $62,011,540.

We know that federal coronavirus relief was one of the two primary drivers of our increased tax revenues (the other was wind farm construction). I keep wondering just how much that federal assistance contributed to that surplus and just how bad off we might be if the country hadn’t nominally pulled together amidst this pandemic to prop up every state’s economy with wealth redistribution, deficit spending, and socialism. So let’s do some really casual economics (with my invitation to readers to fill all the holes in this analysis and offer their own numbers!).

Consider that, according to the Bureau of Finance and Management, the state spent $1.047 billion in federal coronavirus relief funds in FY2021. Every stimulus dollar may generate $1.30 to $1.50 in new spending, so those coronavirus relief dollars should have resulted in at least $1.361 billion in new spending. Apply the state’s 4.5% sales tax to that new spending, and you get $61.2 million in new tax revenue… 99% of the unexpected cash in our surplus.

Now that’s just an accounting of the CARES Act and American Rescue Plan Act money that went through the state’s checkbook. Let’s widen our view: BFM has told us that Uncle Sam has sent $11.08 billion in coronavirus relief to South Dakota’s state and local governments, school districts, businesses, and individuals. South Dakota taxpayers received direct payments (you know, those stimulus checks and direct deposits) of $1.829 billion. Small businesses in South Dakota received $1.683 billion in Paycheck Protection Program funds, at least 60% of which—in this instance, just a hair more than an even billion—were supposed to go to paychecks. We actually did a pretty good job of putting some of our pay in the bank over the past year—nationwide, the personal savings rate spent most of the last twelve months above 15%, whereas for the decade pre-pandemic our savings rate was usually less than 8%. So let’s say that only 80% of our direct payments and the support workers got from their bosses’ PPP loans got spent at Hy-Vee, Menards, and elsewhere. 80% of ($1.829B + $1.001) = $2.264 billion. Multiply that figure by the 4.5% state sales tax rate, and you get another $102 million in sales tax revenue.

Now I’m looking at only 41% of the federal government’s total coronavirus relief spending in South Dakota. We can adjust that percentage up to account for the amounts we spent in FY2020 and have yet to spend in FY2022, and we still won’t be accounting for big chunk of the free money pumped into our state economy to keep us from sliding into a pandemic recession. My casual economic speculation here also doesn’t try to count how much of that extra tourism spending we enjoyed last year came from out-of-staters not just eager to break quarantine but also willing to burn their coronavirus relief checks on vacations they wouldn’t have taken without that federal handout.

But just this portion of coronavirus relief spending—CARES and ARP payments to South Dakota state government, relief checks to individual South Dakotans, and PPP loans (all forgiven, we hope!) to businesses—could have accounted for $163 million in sales tax revenue in FY2021, over $100 million above the revenue the Legislature expected for the year and $77 million more than the surplus we are touting.

If we hadn’t received that $4.559 billion from Uncle Sam, if that money hadn’t coursed through South Dakota’s economic veins to generate $163 million in sales tax, our state budget could have ended up $77 million in the hole. That, one could argue, would have been the fiscal impact of an unmitigated pandemic recession.

So should we really be crowing about South Dakota’s astute fiscal management during this pandemic, or should we be breathing a sigh of relief that we didn’t take our professed anti-government talking points seriously amidst an emergency capitalism wasn’t built to address and instead accepted billions in socialist assistance from Uncle Sam that saved our bacon?


  1. Richard Schriever 2021-07-21 20:58

    In the individual disbursements, you missed the $300/week additional unemployment benefits the feds chucked in.

  2. John Dale 2021-07-21 22:09

    You manage with what you have, not with what you could have had, or what you don’t have.

    I think that’s the flawed premise in this type of analysis.

    When “Get governor Noem” is the impetus, I think the conclusions become less reliable.

    So, there is a surplus.

    It’s because of the management of the monies that came into the state, not the monies that did not come into the state, or monies that could have come into the state.

    Either we’re happy with the expenditures (writ large) or we aren’t.

    I’d like to see a huge investment in the SD technology economy .. there are so many pieces that need to be arranged and/or put into place and I fee like we’re losing time.

  3. Cory Allen Heidelberger Post author | 2021-07-23 06:48

    Not flawed, John. We need to understand where the extra tax revenue came from so we can make informed budgeting decisions for next year. If sales tax revenues are growing because of inherent and stained economic growth, we can budget for more spending on key priorities (like health care premiums and higher wages for state employees, increases in teacher pay, investments in county roads). But if that revenue growth is the result of transitory external assistance and our “natural” economic activity weakened, we need to plan to tighten our belts and/or stimulate our economy. If the dip in “natural” economic activity was transitory and the federal stimulus saved us, we need to work harder to avoid another pandemic that could do similar economic damage (translation: get your shots!) and acknowledge that vital role of robust federal government action in protecting society when capitalism cannot.

    And when we are asked to elect a Governor next year and a President in 2024, we must not fall for the blinkered view you and Kristi Noem offer that she gets any credit for this surplus when she fueled and extended the pandemic that caused the economic downturn while the government she criticizes was responsible for saving our bacon.

  4. M 2021-07-29 05:39

    Thanks Cory for the excellent analysis!

  5. Nancy Rosenbrahn 2021-07-29 06:27

    I think there will be a large boost in tax revenues from the booming tourist traffic in South Dakota. They are having one of their best years.

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