South Dakota budget ends in surplus as Medicaid slows

South Dakota finished its third straight budget year with a surplus driven largely by savings in the Medicaid program.

At the end of the state's fiscal year on June 30, the state had $2.6 million more revenue than legislators had predicted in March. Expenses fell by $7.2 million -- most of which was $6.3 million in savings on Medicaid and the Children's Health Insurance Program, or CHIP.

The net result is almost $10 million extra into the state's reserves.

"Since the economy and the business cycle is starting to expand more and be healthier, you're seeing some of these entitlement programs start to level off," said Jason Dilges, South Dakota's budget chief. "We've had months where we've seen pretty good declines in Medicaid and CHIP."

South Dakota had multi-million dollar budget surpluses in 2012 and 2013 as well. But the amount of extra money has declined each year, from $37.8 million in 2012 to $24.2 million in 2013 and now $9.8 million.

That reflects increasing confidence in the economy by Gov. Dennis Daugaard and especially legislators. Coming after budget deficits during the recession, Daugaard insisted on cautious budgets with low revenue estimates and higher estimated costs -- budgets less likely to lead to deficits if the economy dropped off again.

But with each passing year, lawmakers are willing to be more aggressive.

"Over the last couple-three years, the interactions we've had with the Legislature would seem to indicate they are probably seeing that conservative budgeting nature and wanting to push the needle a little bit, and I think that they have. This last session the legislature adopted kind of a practice that was a little bit more aggressive in terms of projecting higher general fund receipts. Thankfully we were able to meet that and beat that particular estimate by just a little bit," said Dilges, who resisted those calls by legislators to predict more money.

Susan Wismer, the Democratic nominee for governor and a member of the budget-setting Appropriations Committee, said the revenue surplus was "great news" and a "pretty close estimate."

"We really did a pretty amazing job, actually, on revenue projections considering that fluctuation that's inherent there," Wismer said.

But Wismer said the Medicaid savings showed the Legislature could have made better predictions -- predictions that could have freed up money for other priorities.

"It just makes you wonder, okay, what little number did we miss or not have access to or not ask questions about that we could have had so we could have come up with closer estimates and we could have gotten more dollars to education and nursing homes?" Wismer said.

Dilges said lawmakers did a pretty good job with "so much uncertainty out there" to get the Medicaid estimate as close as it is. From 2013, when the budget was originally passed, lawmakers cut more than $20 million in projected Medicaid expenses as fewer people than expected signed up for the program.

"Given the circumstances, I think we did a heck of a job at being able to project that," he said.

The final 2014 budget is about $120 million larger than lawmakers expected in 2013 when they originally passed it. The Legislature followed Daugaard's lead this spring and spent most of that extra money.

The third candidate for governor, independent Mike Myers, had no comment about the budget surplus.