Monday, October 30, 2017

South Dakota Keeps Betting On Commodities . . . And Keeps Coming Up Short

     South Dakota continues to hinge its economic well-being on the vagaries of the commodity markets.  In a piece published last week in the Pierre Capitol-Journal, Bob Mercer reports that
Time For A Revised Edition
South Dakota Is Going Backwards
South Dakota's adjusted sales tax revenues for the fiscal year that ended last June 30 were nearly 2% lower than those of the preceding year, which is really 4% accounting for inflation.  State economist Jim Terwilleger, addressing South Dakota's Council of Economic Advisors, says in the piece that the shortfall is tied  "directly to weakness in the agricultural economy."  

     Terwilliger went on to call FY '17 a "trough" in ag spending in South Dakota.  He added that it was the third consecutive year of "slumping crop prices."  There's no question that crop and livestock prices have been in a prolonged slump, but I do wonder how Terwilliger concludes that we're in a "trough," which in econo-speak means a low turning point, suggesting that prices will soon be trending up.  After reviewing price charts for corn and feeder cattle to be delivered a year from now, I see nothing particularly cyclical showing up in the futures markets  that would make prices now look like they're in a trough and about to swing higher.  It'll take a major natural or political cataclysm to make that happen.  Otherwise, sentiment across the board is saying that 2018 is likely to be the same-oh, same-oh.  
     And that's where South Dakota's collective finger-crossing in hopes of strong commodity prices continues to come across as a poor alternative to more conventional forecasting and state financing methods.  Noting that our state's 2018 budget is built on an assumption of 4% growth, Terwilleger says that "I don't know if we're going to get there."  Nobody knows, but there's good reason to be pessimistic. More to the point, there's good reason to be fed up--South Dakota continues to be commodity-price dependent because so much of our state's revenues are gathered up by sales taxes, which account for about 83% of the funds that Pierre collects every year, more than twice the amount collected nationally.  Facing facts that consumption taxes in our state are directly dependent on crop prices, Terwilleger notes that sales tax revenues from the sale of agricultural equipment were down $10 million in 2016, to levels that were about the same as they were 20 years ago.  More broadly, lower crop prices, to the tune of about $3 billion annually from 2011 to 2016 reduce the flow of spendable, sales taxable, cash.
     Betting on strong commodity prices year after year is a dumb and irresponsible way for South Dakota to do its budgetary planning.  We need to reform taxes in a manner that will wean us away from agricultural market dependence, and that includes reviewing sales tax exemptions (about $1.1 billion--with a "b"--in 2015) and putting some progressive corporate and individual income taxes into consideration.  As it is, we've been going nowhere fast of late.  During the 5 years that ended in 2016, South Dakota's per capita GDP growth was a feeble .2% compared to a national number that exceeded 6%.  We're stuck in reverse.  It's time to shake up the status quo.  

1 comment:

  1. I hope readers don't make the same mistake that I did at first thinking that the national GDP is 3 times bigger than that of our state. That is a decimal point in front of the 2% which means the national is 30 times greater than that of SD.

    I wonder if legislators and merchants realize that when they keep adding on 6-1/2 to 8% on purchases, in the form of sales tax, they are in fact reducing purchasing power by that same amount which in turn reduces sales by that much particularly with the people living paycheck to paycheck or social security, since they spend their entire paycheck every week or month.