PIERRE — Remember just weeks ago when Gov. Mike Rounds was traveling across South Dakota and warning that state government could be facing a deficit for the coming budget year of possibly $176 million?

A lot of legislators do. Naturally, they were puzzled Tuesday, when the governor delivered his budget recommendations to the Legislature. He’s now forecasting a much smaller deficit of $31.8 million for the 2011 budget year, which starts July 1, 2010.

Even the 2012 budget deficit at $107 million would be small in comparison to the $176 million figure.

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So what happened between those October speeches and this week’s speech.

It turns out that the $176 million included every dollar requested by every state government department and agency.

The $176 million also included a 1.2 percent inflationary increase in per-pupil funding for public schools; the standard 3 percent salary increase and other adjustments for state government employees; and a 3 percent increase for community providers of health and other assistance to the needy.

The governor is recommending no increases in per-pupil fund or salary policy. Aside from Medicaid increases, state government operations would be reduced by about $900,000.

Together, those “requested but not recommended” increases total $48.8 million.

Counting those toward the supposed shortfall of $176 million is much like the claims made last winter, when the governor said he made millions of dollars in “cuts” which actually were the same kinds of requests he chose to not recommend.

The governor’s October estimate of a $176 million also relied on three weak months of tax revenue. From July through September, the state’s largest sources of general revenue were down more than $30 million from the similar quarter in 2008.

Since October, the governor’s budget office has revised its economic outlook and now predicts revenues will be $25.4 million higher than thought just two months ago.

The third component of this shrinking deficit is federal stimulus aid. The $176 million deficit for the 2011 budget assumed there would be no federal stimulus aid left because the 2010 budget would require the final $70.4 million still available.

Between the rejected requests, the improved revenue forecast and the $70.4 million of federal stimulus assistance being available after all, the $176 million deficit decreases to $31.7 million.

The governor proposes covering the $31.7 million shortfall from a $107 million pool of state reserves.

Sen. Jim Hundstad came to the Capitol for the Tuesday budget address expecting much worse because of the governor’s earlier speeches. “The numbers didn’t look so bad,” Hundstad, D-Bath, said afterward. “It looks controllable.”

Therein may be the governor’s real problem: convincing the Legislature that serious budget adjustments are needed, even though he’s not proposing any significant cuts at this point beyond his no-increase policy.

With the stimulus aid completely spent, if revenue doesn’t pick up the deficit balloons back out to $107 million for 2012, according to the governor, with only $75 million left in state reserves. And that $107 million assumes no significant spending increases.

“Oh my,” said Sen. Mike Vehle, R-Mitchell.

He was one of several legislators who mentioned that a two-year approach might need to be taken during budget decisions in the 2009 legislative session that opens Jan. 12.

“This year isn’t the problem. I call it the stimulus cliff. In another year, it’s gone,” Vehle said.