PIERRE – Near the end of his budget speech Tuesday to the Legislature, Gov. Dennis Daugaard got down to the hardest facts.

The $120 billion at stake in the fiscal-cliff showdown in Congress is “a tiny sliver of what we need to face,” he said. He likened the federal government’s situation to a worker earning $24,000 a year but having $35,000 in annual living expenses and credit card debt of $163,000. 

He told legislators to prepare for federal cuts that must come unless taxes are raised substantially.

“I don’t want to be an alarmist,” Daugaard said. “We really have to worry about this. If this was your personal budget, you’d be very alarmed.”

The Republican governor described two scenarios.

If federal taxes are raised, recession is expected, and state tax revenues that depend on economic activity likely will again suffer.

If sequestration is invoked by Congress, federal spending will be reduced, and state government would need to decide whether to accept the cuts or replace the money.

Daugaard said he wasn’t advocating either answer at this point.

But he also purposely left unspent $16 million in his revised budget for 2013 and $10 million in his recommended budget for 2014.

Those cushions are atop about $135 million in state reserves already on hand.

That is a relatively small safety net, when state government’s spending would reach $4.1 billion in 2014 from federal, state and other sources.

South Dakota’s share of the sequestration cuts would be about $29 million. The reserves would be exhausted in four to five years.

Rep. Roger Solum comprehended the message. “All bets are off if we go over the fiscal cliff,” Solum, R-Watertown, said.

However many focused on matters closest to home.

Legislators were heard to suggest Medicaid providers and public schools should get more than the 3 percent increases in state funding that Daugaard recommended.

Some also questioned whether state government employees and state universities might be getting too much in the 3 percent-plus raises he proposed for them.

Democrats, who struggle as a near-perpetual minority in the Legislature, issued a statement accusing Daugaard of hoarding lifeboats while communities are sinking from reductions in school aid and Medicaid that were passed in 2011 in response to the recession.

The Democrats’ two leaders, Sen. Jason Frerichs of Wilmot and Rep. Bernie Hunhoff of Yankton, called again for the Legislature to accept the opportunity available under Obamacare to expand Medicaid eligibility to cover another 48,000-plus South Dakotans.

They argued it is short-sighted to refuse $200 million of federal aid at an additional state cost they put at $20 million.

Daugaard said he opposes the expansion, at least until more is known about the scope and the expense. “These are able-bodied adults,” he said.

The latest analysis shows the state’s annual cost will reach $43 million by 2020 for the expansion, according to Daugaard.

The governor said the world economy is rattled, nearly all of South Dakota is in severe drought or worse, and bank-tax revenues can’t be accurately estimated.

“In South Dakota we know we can’t borrow and spend our way to prosperity,” he said.

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