The unexpected news today that the national economy shrunk last quarter is bad for everyone — the possibility that we could be headed back into recession doesn’t need any explanation.
But it’s also specifically bad news for South Dakota’s budget, which will be adopted five weeks from now. South Dakota bases its future budgets on projections about what revenue will be. That’s based primarily on economic forecasts — if the economy grows more, tax revenue grows more, too. If it shrinks, tax revenue grows less.
Unlike last year, when everyone knew the economy was growing and the debate was simply over how much it would grow, last quarter’s bad economic news raises the distinct possibility that the economy WON’T grow next year.
That means any lawmakers who were counting on an extra windfall of ongoing revenue to materialize at the end of the session for spending on schools or other priorities may be out of luck.
UPDATE: Business Insider argues that the economic news wasn’t nearly as bad as it looks. If accurate, that’s good for everyone, but may not help South Dakota’s revenue projection.