Committee on Appropriations A/V — 2018

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Mr. Jeff Mehlhaff, Fiscal Analyst, Legislative Research Council, presented FY19 Revenue Estimate to the Joint Committee on Appropriations.00:01:42
LRC Revenue Estimate Model Explanation - Holt-Winters Model - Level, Trend, and Observed - Year 2000 to Year 2017 - Page 100:02:06
The Holt-Winters Model uses recent data more heavily. For example, statistics from Year 2017 are weighed more than Year 1999.00:02:55
The random element is the last component in the Holt-Winters Model.00:04:06
Auto-Regressive Integrated Moving Average (ARIMA) Model - Jeff Mehlhaff indicated he was using this new method along with the Holt-Winters Method to help make a more accurate economic forecast. - Page 200:04:25
Holt-Winters and Auto-Regressive Integrated Moving Average are two different models that use the same historical data. The p represents auto-regressive terms, the d represents the differences of the data, q the moving average components. The large P, D, and Q represent the seasonal aspect of the data. Random events can also play a role on the moving average. - Page 200:05:25
The Auto-Regressive Integrated Moving Average Model (ARIMA) runs thousands of computations and picks the best one. - Page 200:06:59
ARIMA Model Fitted to Sales & Use Tax - Graph - Year 2000 to July 2017 - Actual and Fitted Model - Page 300:07:17
ARIMA Model Fitted to Sales & Use Tax with FY19 Forecast - July 2000 to Estimated July 2019 - Page 400:08:03
Representative Karr - question - what does blue line represent the actual 00:08:45
Senator Partridge - question - please explain terms - P, D, and Q represent and what does 0, 1, 2 represent00:09:00
FY2018 General Fund Revenues - Legislative Research Council Estimate - Table - Subtotal On-going Receipts Change from Legislature Adopted FY18 ($3,281,159) and One-Time Receipts increased $8,391,855 for a Grand Total $5,110,696 which is a .32% increase - Page 100:11:30
LRC Revised FY18 for Sales & Use Tax uses the ARIMA model00:11:41
Senator Cronin - question - what was the Holt-Winters Model for Sales & Use Tax and what was the difference 00:13:12
Senator Tidemann - question - is a one-time payment from Unclaimed Property included in these estimates00:15:15
Representative Peterson - question - what is the cause for the $2,962,615 increase in licenses, permits, and fees00:15:44
Senator Tidemann - question - is there a long-term trend for a decrease in revenue from tobacco taxes00:16:33
Representative Karr - question - why are you using different models for different categories and how do you choose which one to use00:17:11
Representative Karr- question - is there a revenue stream that fits one method versus another one00:18:05
Senator Tidemann - question - did you do a comparison from method used by previous LRC staff member used from Year 2000 forward00:18:55
Representative Lake - question - do you have information for every category from two different models and is that information available00:19:40
FY2019 General Fund Revenues - Legislative Research Council - FY19 Estimate - Table - Change from Legislature Adopted FY18 - $52,992,798 and is a 3.3% change from Legislature Adopted FY18 - Page 200:20:40
Senator Partridge - question - would you explain changes in the Bank Franchise Tax that will change from this year to the next00:23:00
Mr. Jim Terwilliger, Bureau of Finance and Management, presented South Dakota and United States Economic Outlook to the Joint Committee on Appropriations. - Page 100:24:51
Mr. Jim Terwilliger uses the Econometric Model and reviews monthly forecast reports from IHS Markit Forecast.00:25:03
IHS Markit's Forecast for United States Economy - January 2018 Monthly Report - Year 2015 to Forecast Year 2019 - Page 200:26:29
Mr. Terwilliger said he receives a South Dakota economic forecast report quarterly which will be covered. The risks of a recession are discussed and there is a 20% chance of a recession in the next 12 to 18 months.00:27:31
Monthly Nonfarm Employment Levels - Year 2001 to Year 2018 - U.S. is on the red line and State of South Dakota is on the blue line - Page 300:29:38
Nonfarm Employment Growth - Monthly Year to Year Percent Change - U.S. Economy versus South Dakota Economy -Year 2001 to Year 2018 - Page 500:30:53
Growth Rates of Nonfarm Income - U.S. Economy versus South Dakota Economy - Quarterly Year to Year Percent Change - Page 600:31:30
Unemployment Rates - Year 2001 to Year 2018 - U.S. Economy versus South Dakota Economy - Graph - Page 600:32:33
State of South Dakota has had an unemployment increase and it is not known why this uptick has occurred. It may be due a workforce shortage.00:33:00
Senator White - question - historically if there is less than 4% unemployment rate means there is a workforce shortage00:33:45
South Dakota Farm Income & Estimated Tax on Farm Equipment - Chart - Year 1987 to Year 2017 - Page 700:35:05
Mr. Terwilliger said the red line is estimated income from sales of farm equipment and year 2017 is 3/4 of a year.00:35:23
Mr. Terwilliger indicated farm commodity prices remain low and with drought conditions Year 2017 Farm Income is expected to remain low.00:36:24
Income over the past year in farm equipment sales has increased 6% to 7% over the past seven months and thinks the trend will be marginally better.00:37:25
Senator Tidemann - question - why is there an increase in sales of farm equipment over the past year00:38:22
Representative Anderson - comment - the economic advisor group said there was an uptick in farm equipment sales due to the federal tax cut00:39:53
Representative Lake - question - are sales tax collected upfront from leases or collected when lease payments are made00:40:24
Most Recent South Dakota Economic Forecast - January 2018 - Year 2015 to Forecast 2019 - Table - Page 800:41:09
Mr. Terwilliger reviews South Dakota Real GDP Growth, South Dakota Nonfarm Employment, South Dakota Nonfarm Income, South Dakota Housing Starts, and South Dakota Unemployment Rate when reviewing the South Dakota Economic Forecast.00:41:15
South Dakota Real GDP has been adjusted for inflation00:42:20
Representative Lake - question - is the South Dakota Economic Forecast based on the calendar year rather than fiscal year00:43:50
Senator Cronin - question - did you revise previous South Dakota Real GDP information from the last council meeting and was there a decline for calendar Year 201700:44:06
Bureau of Finance & Management - Revenue Forecasts - Presented to the Joint Committee on Appropriations - Bureau of Finance and Management - Page 100:45:17
FY2018 -$1,607,524,030 and FY2019 General Fund Revenues - $1,636,223,677 - Pie Chart - Page 300:45:42
Taxable Sales are broken into 5 different categories - Page 300:46:15
Sales and Use Tax - There are five different categories using the econometric system which are used for sales and use tax. These Equations are Consumer Spending on Durables and Services, Business Related Purchases and Consumer Spending on Nondurables, Construction Related Purchases, Recreation Related Purchases, and Utilities. These equations are listed on Pages 4 and 5.00:46:42
Equation 1 - Taxable Sales on Consumer Durable Goods (STCDS) - 99.4% of the variation is a good measurement of the data 00:47:24
Estimated for FY2018 - Net Sales Tax Estimate $992,138,257 which is a 4.3% growth rate and Estimated for FY2019 Net Sale Tax Estimate is $1,030,386,402 and is a 3.86% growth rate. This is for sales tax which is about 62% of our total ongoing revenue - Page 600:49:09
Lottery - Estimated FY18 Growth is 3.99% growth and FY19 is 2.72% Growth - Page 700:51:00
Contractor's Excise Tax - Had a large change in September 2017 and said it was a one-time change from a large project. - Estimate FY2019 is $111,415,004 and is a 5.88% percent change - Page 8 and Page 9 00:51:50
Senate Bill 81 will have an impact on the contractor's excise tax and now an estimated $3,000,000 will no longer be earmarked for Building South Dakota Program and will be used in general funds00:53:05
Bank Franchise Taxes received in spring 2018 are from what is owed from calendar year 2017. There have been revised downward due changes in federal laws regarding deferred assets and since payday lending went away in FY18. In FY19 federal taxes are reduced and federal taxes are a state deduction and will result in an uptick at the state level. - Page 1700:54:11
Governor's Revised FY2018 versus February Revised FY2018 - Ongoing Receipts Subtotal - $1,584,415,157 which is a .93% change. This excludes one-time receipts. This is very close to the Legislative Research Council estimate.00:56:10
Governor's Recommended FY2019 versus February Revised Estimates - BFM - Subtotal Ongoing Receipts - $1,636,223,677 is the revised estimate which is 0.85% increase. - Page 2500:56:43
Representative Howard - question - do BFM have historical models do those models match historical trends and requested additional information00:58:10
Senator Nesiba - question - would you provide a historical model for past five years and requested additional information01:00:00
Senator Partridge - question - what is the $1,500,000 net transfers in discrepancy01:00:41
Senator Partridge - question - will alcohol and beverage tax be affected by bills in current legislative session 01:03:00
Representative Anderson - comment two methods are used to decide revenue projections and both are needed01:04:47
Senator Cronin - question - would the licensing fees change from the current alcohol and sales tax bills01:04:48
Representative Anderson - comment - revenue projection process01:05:30
Announcement - Revenue Subcommittee will meet at 4PM 01:06:42
Senate Revenue Subcommittee - Wiik, Partridge, Cronin, and Nesiba01:07:28
House Revenue Subcommittee - Hunhoff, Bartels, Ahlers, and Anderson01:07:55
Adjourn Bartels/Wiik01:08:20

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