South Dakota is in a state budget crisis.

Our state constitution requires a balanced budget.

And right now, we won’t have one.

In business and in our own personal economies, when times are tough, we look for things to cut.  Maybe we don’t need HBO.  Maybe we need to lay off some workers.  Maybe we cut out going to movies.  Maybe we defer salary increases.

But as good business people will tell you—real capitalists in the good sense of that term—you can’t cut your way to long-term profitability.  You also have to grow income.

For business or you and me, that means making more money.  For government, that means more revenue. 

South Dakota and the Income Tax

South Dakota’s mantra has been that if we grow the economy, we grow state revenues through sales tax and excise taxes, property taxes for local government, and whatnot.

True enough.

And we also tap revenue through the “sin” taxes of lotteries, cigarettes, and booze.  Essentially, the state depends upon addicts who pay a “voluntary” taxes the rest of us don’t pay.

But South Dakota is also missing a revenue source that 4/5th of the other states in the nation tap—an income tax.

According to the IRS, South Dakota is one of nine states without a state income tax.

And this fact is often touted by business and state government about South Dakota’s outstanding business climate.

But with this logic, you’d think that these nine states would bet the top states for business climate.

That’s only partially true.

Income Tax and Business Climate

Site Selection magazine’s November 2008 list of the top 25 states includes some of these states but not all of them—including South Dakota.  Forbes Magazine in 2007 also came to a similar result.

No South Dakota.

Here’s Site Selection’s Top 25:

There is certainly some overlap with states without income taxes and best states for business.  But not so much.  There is a little more overlap on the Forbes list.

The North Carolina Counter-Intuitive Experience

But what does Site Selection stress as the reason for North Carolina’s #1 ranking?  Education. Public education.

On a broader scale, more and more North Carolina employers are findingthe right kind of labor, as investments in education over the lastseveral years begin to bear fruit and as new education initiatives getunder way.

To meet a $2.5-billion budget shortfall in 2001, (Governor Mike) Easleyraised taxes, which made more funds available for community collegesand state universities. Early education, including pre-K programs, alsobenefited. The thinking was that investing substantially in educationat the time would result in the work force the state would need in fiveor 10 years and beyond.

North Carolina, a red state like South Dakota, raised taxes during tough times and invested it in public education.  What do you think of when you hear the University of North Carolina?  Great basketball?  It is also one of the top public universities in the nation.  And those crazy, liberal North Carolinians also invested in pre-Kindergarten.

Where does Gov. Mike Rounds want to cut?  Education.  Arts.  Arts education.  Helping kids with disabilities. 

Cut the Kids and the Arts?

Dr. David Newquist of the Northern Valley Beacon has written at great length about these cuts on the things that invest in our future and make our state attractive to ourselves and others.  It is thoughtful and worth your time to digest.

Rounds’ proposed cuts at one level seem logical.  Who cares if the Sioux Falls Jazzfest gets less money this year and next?  The show will probably go on.  And while the Jazzfest isn’t my cup of tea, it is for a lot of other people.  It is an event people here and around the region circle on their calendars.  It brings in money to Sioux Falls.  It is a point of pride and culture.  It makes living here a little bit better.

The arts are important because they make us more than brutes.  The arts are also good economic development.

What do we brag about to our out of state friends when they come here?  The Washington Pavilion for the Arts.  The great heritage of Native American artists and artisans.  Our beautiful, art-filled state captiol building.  The architecture of Sioux quartzite buildings in Dell Rapids, Flandreau, and Sioux Fals.  The Brookings Summer Arts Festival.  Harvey Dunn.  Oscar Howe.  Even Terry Redlin.  Actresses like January Jones.  Musicians like Indigenous. 

North Carolina did the counter-intuitive thing.  Raise taxes in hard times.  Invest in people, particularly young people.

I’m not ignoring the spending side.  I’ve run my own solo practice law firm.  I’m also now an owner in Galland Law Firm.  Everyday, I talk to my partners about not just revenue but expenses.  We look every day for things we can cut and live without.  We look at better ways of doing business to make our business more competitive, more streamlined, and more efficient.

My partners will tell you I’m no socialist when it comes to running our business.  Quite the contrary.

And as Steve Sibson of Sibby Online points out, the proposed Rounds budget is STILL higher than last year’s.

An Opportunity for Meaningful Change

This is also an opportunity for state government.  Back in the early 1970s, Gov. Dick Kneip drastically streamlined and re-organized state government.  And he was a Democrat.  He brought together some of the best minds in the state regardless of political affiliation—people like the late Dr. W.O. Farber.  That was nearlyl 40 years ago.  South Dakota is a very different place.  Government has grown.  Needs of changed. 

To ask for deaf kids, kids with speech problems, and a few struggling artists to bear the brunt of these cuts while large agencies like Tourism and Economic Development and the Executive Branch go unscathed is not just foolish it is cruel. 

The Governor wants those with the least to give up the most.  That is already essentially our state tax structure.  The wealthy—those who are in the professions like me and business owners—don’t pay their fair share.  We depend upon poor families paying sales tax on everything they purchase and video lottery addicts to pay our way.

It’s Time to Think Outside the Box

At the national level, President Obama has asked all of us to sacrifice and to think in different, less partisan ways to solve our many problems.  Gov. Rounds needs to show the same kind of leadership. 

Pat Powers’ little girl shouldn’t be the one who is made to go without.  That is not the sign of a just, let alone a reasonable society.

I’ve chided my conservative friends who think the state budget has been a morass of waste that this is their opportunity to feed their inner budget cutter.  But the South Dakota state budget is already lean and mean.  The legislators on the Appropriations Committee work hard and aren’t a bunch of spendthrifts.

This is a time in our state’s history for some creative thinking.  We can deepend the misery or we can use this opportunity to do some painful—but ultimately selfless and foresighted things—that will make our state and all its people prosper in the future.

*This is the Big Dog Mother of All Posts I threatened yesterday.