A Courageous State Budget

Governor Daugaard will propose his State Budget this week to the Legislature.

During his State of the State Address last week he said that his budget will be “austere.”

There have been suggestions and reports in the last weeks that the Governor will propose 10 percent cuts to K-12 Schools and to Medicaid payments. Reports have also indicated that their will also be cuts in Government departments of 10 percent. In the spirit of sacrifice the Governor has taken a 15% cut in his own salary and his Cabinet officials have also taken symbolic and significant cuts in their pay.

If substantiated by fact these steps are bold and politically risky for the Governor. While risky if he is able to have his budget substantially enacted he has in the long run the opportunity to be a winner.

Such a budget takes on two pretty heavy political hitters, the local school districts, the docs, hospitals, and medical community. While these groups are able to weather such revenue cuts to varying degrees (more later) they will not just stand still. They will push back.

Under the previous Rounds administration, State Government has been deficit spending for 7 of the last 8 years. Structural deficit (a new political creation of Governor Rounds and in this case balancing the budget with reserves) is deficit spending. Deficit spending (by the Rosenthal definition) is spending more money than you take in.

This year is time to right the fiscal ship of state. The most important fact to understand is the money is not there.

Raising taxes is a political non starter; this Governor, this Legislature (Republicans and Democrats) and the people are in no mood.

Revenues projections are a mixed bag. The sales tax may have some modest growth, consumer spending has picked up a bit and ag commodity prices are high. Video lottery receipts are expected to be lower because of the Iowa Casino, the bank franchise tax may again be in the tank, thanks to the so called federal bank reforms, the contractor’s excise tax given the economy shouldn’t be at previously higher levels, and who has any idea what to expect from Deadwood revenues as their story changes if not weekly at least monthly to whatever calamity they only are expecting.

Candidate Daugaard has said he will not spend money he does not have and he will not raise taxes. The Governor is also said that State revenues will come back as the economy recovers. I never try to say never, but does anyone see robust economic growth in the near or medium term. I read recently that unemployment may not go below 6 percent until 2020! Expect modest economic growth at best.

Just a couple of factoids to throw into the mix: The DUSEL Laboratory does not appear going to receive the expected revenue that will pay to keep pumping water out of the Homestake Mine Laboratory. Will the State continue putting money down that hole? The Governor has expressed several times he would like to increase the REDI fund for economic development loans to perhaps the $90 million level. Where will that money come from (the budget) and when?

This is the year to get back on a paygo (pay as you go) basis (I am stealing that one from the Congressional Dems, though they don’t do it.) We will not see the numbers until the budget is unveiled this week and we won’t have firmer estimates (an oxymoron?) until later in the Session (perhaps late February) but for my part, this is the year to right the books and get pure.

No spending more than we take in.

What follows I understand is provocative. If the 10 percent cuts are not enough and because the Med and School Communities are being asked to take significant and austere hits; State employees at all levels including all Regent institutions should take a 5 percent pay cut.

For Background – K-12 last year received no increase and Stare employees for 2 years have not received any pay increase (while their medical insurance cost did rise.) Some school districts probably can weather a 10 percent cut by using reserves, though others may have to option out and ask school district voters for a real property tax increase. Schools in the growing districts tend to have fewer reserves and of course receive their state aid a year after the growth in the number of students has occurred.

Cutting State and University workers is a hard ask, though the Governor would be taking a shared sacrifice approach that might make the 10 percenters to the medics and schools more palatable. He just would not be cutting others but more than symbolically cutting his own fiefdom as well.

Sidebar – I expect the Board of Regents will scream even louder than the K-12 or Medicals are. They will tell us about the brain drain and losing staff to surrounding States and Colleges. While maybe true in former times, in today’s economy and environment that just ain’t so. Having a job is its own reward.

Repeating here but the more important point is that the State would be positioned to face the future whatever that is, on solid fiscal ground.

I come from an earlier generation, but I clearly remember when the government (Local, State, and particularly Federal) was not so BIG. Coming out of the 1930s government work always earned less than the private sector. Government workers received lower pay because they had desirable benefits including (most importantly then as well as now Job Security. They also had vacation, pensions, and later health care.

Just a word on the politics – If the State is whole in funding its expenditures after the first year as the economy stabilizes we will be in a position to then grow responsibly. If our budget is balanced as formerly stated the vast majority of South Dakotans will reward the Governor politically.

Whether the Daugaard plan with or without the Rosenthal suggest 5 percent pay cut option succeeds, short term or long term Schools and Medicals will be seeking their own legislative candidates in 2012 (read here recruiting Republicans as well as Democrats to oppose incumbents.)

The Governor was elected on his life lessons of hard work and frugality. Governor Daugaard this is your time and your place. Continue showing Courage.

Double D, Dusty & Chris

Front Bar – Another delay in posting on 2011 Redistricting; I have wanted to post on the Governor’s appointment of Dusty Johnson to Chief of Staff and announcement of his intent to appoint current Secretary of State Chris Nelson to take Johnson’s place on the Public Utilities Commission. Additionally I wanted to look at what the election means in terms of change in the leadership and management of South Dakota Government. Both subjects are combined in this what I expect will be a lengthy post.

From the outset, I have known Dennis Daugaard for 15 years, have worked with him on his political campaigns and learned from him. He is of the highest character. Dennis Daugaard is easy to like. Based on 14 years in public office we don’t know all that much about him. During his quest for out State’s highest office over the past 3 years I never had a sense of his vision and consequently expected little change from the passive Round’s administration. Much of his campaign was spent on his biography, compelling personal story and South Dakota work ethic.

In my experience, you have activist Governors or passive ones. Think Kneip (activist), Wollman (passive – served 6 months), Janklow (activist), Mickelson (both active and passive), Miller (passive – a little under 2 years) Janklow (activist), Rounds (passive to the point of caretaker though very high public approval ratings).

Sidebar – Ron Volesky when he was a candidate for Governor in 2006, in his stump speech asked his listeners to take out pen and paper and write down three accomplishments of Mike Rounds’ administration. A pretty good test I think for any Governor.

In retrospect based on events and support that Dennis Daugaard had, I expected more of the Rounds’ passivity. Daugaard had Mike Rounds’ endorsement, the support of the Pierre establishment, and Round’s inner circle and the extended regular GOP establishment. Compound that with a three year run up to the Primary. What insiders, high level State appointees, or contractors were going to go somewhere else three years out? The Daugaard campaign was well organized and executed. The fact that Jason Glodt, a former SD Party ED and Governor Rounds’ inside political guy was involved gave the Daugaard inside access to the party apparatus.

The Lt. Governor talked conservative, is against raising taxes, pro gun, and pro life – all requisite Republican primary voter positions. The DD campaign raised over a million dollars early on and basically both in the primary and general election ran as the front runner, saying little, avoiding controversy, really just a run out the clock campaign. Compound these advantages with a personality that is easy to like and a great work ethic, it was a winning combination.
Dennis Daugaard received over 50% of the vote in a five way primary and winning in a landslide in the general election.

Daugaard threaded the needle in his support of Rounds and stating his own positions. During the primary he denied there was a budget crisis or even a big problem that we could not grow out of. During the general election campaign he continued with this line of response offering little more specifics except to say that he would not spend money that he did not have. Only on election night did he say he was going to work on the budget problem.

Consequently after the election, I felt South Dakota was in competent hands but had little expectation of much change.

The reorganization of the Governor’s office staff, the dismissal of about one half of Governor Rounds’ cabinet, and the appointments of Dusty Johnson and Chris has altered my opinion.

Dennis Daugaard may be more of an Activist Governor.

Sidebar – for another look at gubernatorial management style see this recent article by Bob Mercer.

Dusty Johnson – I have been involved with South Dakota government and politics for just over thirty years, with the exception of Bill Janklow there has not been a more completed policy package than Dusty Johnson.

Disclaimer – I have known Dusty for over 15 years since he was Chairman of the South Dakota Teen Age Republican organization. I was one of the people who encouraged him to seek the Public Utilities Commission seat in 2004, and have advised and worked with him on both his Statewide campaigns.

Dusty is extremely smart and bright but is no egghead. He plain just gets it! He is balanced and fair, analyzes and does not jump to conclusions. Dennis Daugaard made a great selection in Dusty. There has been discussion and speculation that Johnson might be sidetracking his career in elected office, but this was not an overriding consideration in his accepting the Governor’s request. Dusty is not in this for personal fame or gain. He wants to make a difference! He understands managing policy for 10 activist agencies and divisions (including Economic Development, Game Fish & Parks, Environment and Natural Resources, Commerce, and Agriculture among others) for the Governor is a far broader portfolio than the Utilities Commission. Dennis Daugaard could not have made a better pick.

Chris Nelson – I have know and worked (to varying degrees) with Chris Nelson also for about 16 years. He was Director of Elections in the Secretary of State’s office when I served as Party Chairman as well as an outstanding candidate for Statewide office in 2002. I have not always agreed with Chris but he is always consistent. He has two outstanding traits; he is always faithful to the law and he is focused. While I agree that there is appearance of the GOP playing musical chairs on the Second Floor of the Capitol, in this case the Governor elect could not have made a better choice. Chris Nelson will be an outstanding Commissioner (fair and balanced one) and a good candidate for his Party.

Note – there has been a lot of carping that someone qualified was not named. Horse puckey – since when is qualifications an issue. Was Laska Schoenfelder, the Davison County Register of Deeds qualified? Or Jim Burg a farmer, Pam Nelson a former legislator and self described consumer activist qualified? Ken Stofferahn? Get over it. With the possible exception of Bob Sahr who is an accomplished Attorney, few are qualified the first day on the job. Chris Nelson will be outstanding.

I note the Secretary of State’s remark upon his appointment that he recognizes the important balance between the consumer and consistently reliable service that can only be provided by vibrant utilities.

With these two appointments, Dennis Daugaard shows thought and action and I applaud him.

I am a little more circumspect about his office reorganization but because of the actions noted above give him more than a big Straight Talk Benefit of the Doubt.

It is now well known that the Governor elect has decided to become hands on CEO Governor. He has formed what is essentially a governing council. The Chairman of his Transition Committee is Jeff Erickson, who it appears suggested the Governor elect adopt a management organization more similar that is found in the private sector. In effect there will now be five or six persons doing what previously one or two were doing. How this provides for better government I am unsure, maybe even doubtful, but Governor Daugaard was elected and is entitled to shape his administration to his liking and as said previously deserves the benefit of doubt. (I certainly don’t see the efficiency and any cost savings.) The proof is in the government.

It will be interesting to see how it works out with the Lieutenant Governor Matt Michaels also now going full time.

There has been criticism of Tony Venhuizen, Daugaard’s son in law serving on the management committee. Tony provides pluses and minuses. The minuses are the political; the Governor elect has noted that there would be criticism. On the plus side Tony is extremely bright and energetic, and experienced. He served on the Board of Regents for five years and did a clerkship in a rural Judicial Circuit with Judge Tim Bjorkman in Salem and Mitchell. Tony also managed the Daugaard campaign. No one seriously believes Tony is not capable of managing his portfolio.

Overall Dennis Daugaard is off to a decisive, speedy and first class start.

Endbar – Governor Rounds will give his Budget address this coming week. News reports are that it will be an austere budget. The Governor elect has indicated that he plans to offer his own budget. What similarities there are will be interesting. Several months ago Governor Rounds asked his Cabinet Secretaries to look for cuts. Times being tough and revenues not meeting projections have been the case for the past couple of budget cycles. Thus it is interesting (and perhaps cynical of me) that Governor Rounds is now looking for cuts when he will not be governing with reduced expenditures. Throughout the Rounds’ Administration we have been operating with what Governor Rounds has termed a structural deficit (an interesting phrase).