Sunday, April 23, 2017

South Dakota's Fiscal Policy Is Based On Finger-Crossing

     It looks like there's no relief in sight for South Dakota's chronic fiscal problem, a shortfall in sales tax revenues.  As RCJ correspondent Bob Mercer put it in his report on a legislative board
SD Makes Projections On This?
Give Me A Break
meeting discussing the issue a few days ago, "the news is getting worse."  Mercer notes that Sioux Falls GOP Representative Mark Mickelson called the downturn in state revenues "the No. 1 issue" facing state government, adding that his concern is "the erosion of our ability to keep pace."  Rising expenses and falling revenues are a persistent reality for South Dakota government, which is headed for a second straight year of declining sales tax revenues, even as our state's population has increased by a bit over a percentage point since 2015.  Little wonder that Mickelson is concerned about our ability to keep pace.  

     Even more wondrous to me is that nobody in Pierre acknowledges the obvious, which is that our fiscal policy is based on finger-crossing.  South Dakota's agriculturally-dependent economy has suffered a three billion dollar hit in the past few years, seriously cutting down the flow of cash that streams through the state and surfaces as taxable sales.  For the government to base its cash-flow projections on any assumptions about commodity prices is folly, as we've seen the past couple of years. Our state's rigid dependence on sales and, more locally, property taxes for the lion's share of operating revenues is the stuff of gambling and hoping that lady luck will be with our commodity markets every crop year.
     A comprehensive review with an eye toward tax reform should be on Governor Daugaard's order of business for the remaining months of his term.  Our regressive sales tax-based system (4th most regressive in the nation) plants its burdensome feet most heavily on our lower-income residents, and our high property taxes (16th highest in the country at 1.4% of valuation--mine being closer to 2%) could stand some downward adjustment.  Taking those taxes down significantly and replacing the revenues with corporate and possibly individual income taxes
An Impractical Set-Up
That's Also Unfair
would smooth out the state's revenue stream and give property owners some long-needed relief.  It would also inject some equity into our state's financial structure.  It might even give our area ag producers some relief from the pain of paying the same property taxes every year whether they've made money or not.  The impracticality of the status quo is self-evident.  Fixing it would also be a way of having the word "fairness" applied more judiciously to South Dakota's tax system, which is profoundly indifferent to the equitable distribution of its burden.  

Tuesday, April 18, 2017

Commodity Trading Is No Way To Run An Economy

         South Dakota Governor Dennis Daugaard once told me that as a law student in Chicago he worked for a while as a clerk/runner on the floor of the Chicago Mercantile Exchange.  It might have been about the same time that I was there, getting a grip on the livestock markets as I prepared for my brokerage operation here in South Dakota.  The decades I spent trading stock options and ag futures, both in the Windy City and right here in the Black Hills, taught me a lesson that apparently was lost on Daugaard--don't bank on the commodity markets as the basis for making your financial decisions. 
     That truism is common knowledge in the culture of the trading world, but when it comes to South Dakota's financial governance and planning it's an axiom that has no relevance.  Just a
Trading Floor Madness
Or Budget-Planning In South Dakota?
few day ago, RCJ ran a story titled "State revenues come up short," which reported that various state tax revenues for the first two months of this year have missed their cumulative targets by about $10 million.  Some sales tax loss to e-commerce might be part of the issue, but I'd be amazed if planners haven't accounted for the relatively steady growth of internet sales when they made their budget projections.  If they haven't, they need to be fired.  In reality, State Economist Jim Terwilliger's explanation for the shortfall goes right to the heart of the problem inherent to commodity-based budgeting.  Noting that our state's farm income fell from $3.8 billion in 2011 to $800 million in 2016, Terwilleger fatalistically said, "you're seeing some adjustments going on in the ag economy.  It takes time to adjust to those lower prices."  

     A $3 billion hit, ratcheting steadily downward in 5 years to an economy the size of South Dakota's calls for an awful tough "adjustment."  But the fact is, swings in commodity prices have been the norm since the days when ancient Greek merchants haggled with Phoenecian traders over future prices for grapes and olives.  Modern day state officials held captive to those swings need to examine the concepts of risk management in order to avoid the pain of these endless and inevitable price cycles.  Ratcheting up their dedication to spreading out the state's economic base, mainly via
Yup.  That's What We Need
In South Dakota
manufacturing is probably first on the to-do list, but we've been hearing that for years with not much to show for it. A more practical and realistic approach is comprehensive tax reform, weaning the state away from from its dependence on the vagaries of sales taxes and spreading the tax burden out more equitably. By "comprehensive" I mean that everything--as that great Republican dealmaker Donald Trump likes to say--"is on the table." Space constraints intervene for now, so I'll explore the tantalizing concepts of "comprehensive, everything, and on the table" when it comes to tax reform next week.  


Monday, April 10, 2017

The Cat Came Back The Very Next Day

     We'll see if the rejection of Initiated Measure 22 by a combo of legislative and executive fiat during the just-ended legislative session will be a watershed event in South Dakota political
Blowback From I-22
Will They Quickly Forget?
(photo from Capital Journal)
IM 22 was a voter-approved (by 52%) package of campaign and governing reforms that put severe limits on campaign finance and lobbying efforts.  Unsurprisingly, it ran into unified resistance in Pierre during this Winter's legislative session, where it was trashed by Governor Daugaard as "unconstitutional," who went on to chastise voters by telling them they were "deceived" and "misled" into voting for the reforms. Our Republican-dominated legislature went along with Daugaard's de facto defense of our status quo:  A state government that gets an "F" grade from The Center For Public Integrity.  IM-22 was effectively repealed, posthaste.  Its replacement was a basket of bills that addressed some of the issues raised by IM-22, but lack the severity and scope of the defunct initiative, at least as far as I and many of its proponents understand it.

    So determined are those proponents that they have produced not one, but two, reform measures that they hope to get to the voters in 2018.  Represent South Dakota just sent the "Voter Protection And Anti-Corruption Amendment" to the state's Legislative Research Council for stylistic and substantive review.  Almost simultaneously, South Dakota Voter Protection sent the LRC 3 drafts of its Voter Initiative Protection Amendment.  Cory Heidelberger in his excellent Dakota Free Press blog provides the complete text and analysis of both efforts.  Complicated and comprehensive as they are, these initiatives represent the yearnings of a substantial (make that a majority, going by how IM-22 did at the polls last year) number of South Dakotans who are fed up with a government that they
The Very Next Day
And It Kept Coming Back
believe is hobbled by its inertia, its one-party domination, and its susceptibility to special interest influence.  

     A lot of South Dakotans were angered by the cavalier rejection of their will by Governor Daugaard and a huge Republican majority in the legislature.  People tell me that the voters will forget and that we'll go back to business-as-usual soon enough.  I'm not so sure. Government reassurances that watered down replacement bills have satisfied the will of the voters are probably not compelling enough to put this matter to rest. The reform movement showed its political muscle at the polls last year and there's no reason to think that voter attitudes have changed enough to forget about the reasons they voted for IM-22 in the first place.  Like the cat in that great old camp song, they came back the very next day.  

Monday, April 3, 2017

Keep It Clean, Commenters

I won't post comments that contain commonly known expletives.  I was once a Sergeant in the Marine Corps and can out-cuss anybody, but it won't happen here on the Constant Commoner.

Sunday, April 2, 2017

Mike Rounds And The Mastery Of Nothingness

     Our Senator Mike Rounds' typically platitudinous observations about the ag sector of South Dakota's economy in last Sunday's Rapid City Journal was unsurprisingly long on
Senator Rounds
Not Much Substance
rhetoric and short on specifics.  
I think the Senator may have finally realized that his political paramour President Donald Trump stands to be a real problem for our state's largest industry.  In his RCJ piece, Rounds laments the painful drop in ag commodity prices in recent years but provides no hint of how to improve on the situation.  He offers some meek hope that with the new administration "burdensome and unnecessary rules don't hamper production capabilities," which is his usual canard about how he'll be the champion of agricultural interests in this state.  As to the substantial stuff, better markets for our farmers and ranchers, Rounds has no ideas and can only say "in the long term, only a return to stronger commodity prices will actually provide real relief," a conclusion that merits a "duh."

      Having spent more than a decade in close contact with South Dakota's grain and livestock producers as a broker and cattle feeder, I'd say the burden of regulations is meaningful enough, but not really the issue.  EPA and USDA regulations can often be a pain, but those regulations didn't cause the halving of corn and feeder cattle prices during the past few years.  Rounds somewhat helplessly acknowledges that  producers "may continue to see low commodity prices in 2017," a likelihood borne out by prices in the futures markets. That's a reflection of the lack of enthusiasm for the Trump administration and its political handmaidens, our Congressional trio of Rounds, Thune and Noem included.  They're mired in mixed signals about the future of corn-based ethanol, which uses about a third of our corn production.  As to the outlook for
Noem, Rounds, Thune
Say, What's Up With COOL?
exports, considering that Trump's general approach to the growth of free trade has been negative, even brutal, American ag producers--who export about 20% of our total crop production--have good reason to be concerned.  

      Mike Rounds bypassed those compelling issues but singled out "economic growth" and "consumer demand" as the basis for better prices.  Actually, we've had excellent consumer demand and a steadily growing economy during the past few years and the ag markets did nothing but go down.  Domestic issues aren't the drivers of commodity prices that they once were, mainly because trade expansion has been the name of the game for the ag industry, which has to compete in a take-no-prisoners global environment.  Markets are skittish about the big policy picture, particularly trade, which Rounds and his fellow SD congressional reps continue to ignore.

ADDENDUM.  And from today's New York Times:  Mexico is about to play the corn card in trade talks.

Monday, March 27, 2017

Okay, Back To Medicaid Expansion In South Dakota

Making The Case
Let's Get 'Er Done
     Now that President Trump's campaign promises to end the Affordable Care Act couldn't get past his own Republican party's tumultuous rejection of them, it's time for South Dakota to move ahead on one major aspect of the law.  That would be expanding Medicaid coverage in our state, a plan that our Governor Daugaard did a pretty admirable job of crafting a year ago before everything went on political hold.  The postponement, of course, was a by-product of the presidential campaign and subsequent election of Trump, whose fervent promises of doing away with ACA (also known as "Obamacare") seemed achievable, considering his party had Republican majorities in both houses of Congress.  But calling the program "toast" was way premature, and Trump's failure to push its repeal and replacement through Congress leaves everything intact.  As a chagrined House Speaker Paul Ryan put it in his concession speech last week, "ACA remains the law of the land."
     As tough as that fact is for many Republicans to swallow, it does give South Dakotans a shot at using ACA as a vehicle for advancing healthcare opportunities and giving our state a much-needed economic boost.  First off, recent history demonstrates that the in-state political fallout isn't as potentially ominous as first meets the eye. Consider that 16 Republican governors have already expanded Medicaid in their states.  That they were probably part of the reason that a fair number of GOP reps in Congress couldn't get behind Trump's rush to destroy ACA is one thing.  That Vice-President Pence, when he was Governor of Indiana, expanded Medicaid for his state is another. Indiana's decision should make it pretty clear to recalcitrant Republicans here in South Dakota that expansion has some tangible benefits.  
     Those benefits are twofold.  The general consensus is that about 50,000 South Dakotans will become eligible for Medicaid benefits under Daugaard's expansion plan, which in the governor's words last year had the support of "80 hospitals and clinics, as well as 50 other organizations in South Dakota." There's no organized opposition that I can find coming from the healthcare industry
A Great Deal For SD
Too Good To Pass Up
in the state. On the second front, political opposition seems to be focused on ideological and partisan issues, which on a broader scale turned out to be hopeless when the entire ACA came under consideration in Congress. The same was true when Medicaid expansion specifically was adopted by so many GOP governors, Pence of Indiana included, around the country. Rejecting literally billions of dollars of federal Medicaid disbursements that will support this plan over the next few years makes no sense to me, especially as our Governor Daugaard's proposal makes it revenue-neutral for state budgeting purposes.    

Thursday, March 16, 2017

Thune Figures It Out: Older South Dakotans Will Get Creamed By Trump/Ryan/Whoever-Care. Do Noem and Rounds Have A Clue?

Senior Senator
Senator For Seniors
     Our senior U.S. Senator, Republican John Thune, begged off on supporting the Obamacare replacement bill oozing out of the political entrails of a befuddled House of Representatives today. Thune told The Rapid City Journal that he and the rest of the Senate could work on a plan that would be "more helpful to people on the lower end."  Good idea, since it's the lower end where many oldsters in South Dakota will be feeling the most acute financial pain if this over-hyped and under-considered fiasco of a replacement bill ever becomes law.
     Disheartening as it is, our all-Republican congressional delegation has spent years dissing the Affordable Care Act and voting countless times in a wasted political show of disdain to end it--and all that time these reflexive partisan yes-people haven't had a clue as to what a replacement would look like.  Now that the House of Representatives--in a show of fealty to President Trump and his reckless promise to repeal and replace ACA immediately upon taking office--has hurriedly trotted out a poorly conceived and politically poisonous replacement, our elected reps are forced to pay attention to the details of healthcare policy.  
     Not much has been heard from Senator Rounds or Congresswoman Noem, who've long been part of the GOP chorus determined to undo ACA with nary an afterthought about what would occur next.  No surprise there, as neither has been much of a distinguishing force in Congress. Thanks to seniority, Thune has advanced far enough in party leadership to grab some attention now and then, though his lock-step voting behavior has been predictably partisan.  That he has some public reservations about the bill says much for the growing GOP hostility toward a replacement of its own party's creation.  An overhaul is likely now that enough recalcitrant Pubs in both houses may
Rounds, Noem
Opinion, Please?
be likely to sink this ship before it's even christened.  

     That should be welcome news to aging South Dakotans.  A study of the replacement bill by the Kaiser Family Foundation shows that it would raise health insurance costs for lower- and middle-income 60-year-olds on average by $3,000/year. Considering the rapid growth of the aging population of our state (South Dakota State University calls it a "dramatic increase"), our nearly 200,000 residents aged between mid-40s and mid-60s stand to get financially hammered as the years go by if the GOP plan goes into effect.  That's the aging group that probably most needs health insurance, just at a time when they're most likely to develop penny-watching retirement plans and budgets.