Looming uncertainties and a recovering, but not recovered, economy provide some of the context behind Gov. Dennis Daugaard’s proposed budget for fiscal year 2014.

The $4.1 billion budget, proposed in front of legislators Tuesday, leaves nearly $10.2 million uncommitted.

Leaving unallocated funds is necessary, Daugaard said, because of some risks to South Dakota’s budget, including the pending financial cliff, continued drought conditions, an expansion of Medicaid funding and other economic factors that could reduce revenue.

A total of 10.3 percent of the state’s budget consists of federal grants subject to cuts if no solution to scheduled tax increases and spending cuts is reached by the U.S. Congress by the end of the year, the highest in the nation and well above the average of 6.6 percent, according to an analysis by the Pew Research Center.

Those losses would translate to $29 million in cuts for South Dakota if the worse happens, Daugaard said.

The state is also increasingly paying more Medicaid expenses every year. The Federal Medical Assistance Percentage determines how much in matching funds the federal government pays for certain Medicaid expenditures. The federal government paid 60 percent in 2012, but only a forecasted 54.2 percent in 2014 and 50 percent in 2016.

Daugaard said the state might face unexpected expenses if the

nationwide drought does not ease. More than 93 percent of the state is currently experiencing severe, extreme or exceptional drought conditions, he said.

The domestic economy is also still a concern. The United States gross domestic product has risen above 2008 levels in the last two years, but job numbers and new housing starts still remain well below where they were four years ago.

At the same time Europe and Japan are both in recession and China’s economy is slowing, all of which could have unforeseen consequences on the domestic economy, the governor said.

Daugaard also told reporters after his speech that leaving funds nominally unallocated also allows legislators to propose actions that don’t mean cuts to other areas or fighting against measured proposed by the governor.

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