South Dakota Gov. Kristi Noem (R) pushed back against recently issued federal guidance on COVID-19 relief funds, arguing that states should be able to use the funds to make up for sales tax revenue losses.
Guidance issued April 22 by the U.S. Treasury Department says states can only use their share of the $150 billion in relief funds appropriated by Congress under the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) to pay for "necessary expenditures" incurred because of the pandemic. "Funds may not be used to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify under the statute," according to the guidance.
However, during an April 23 press conference, Noem called for the federal government to allow states to use the revenue to replace lost sales tax revenue. "I'm anticipating substantial decreases to our sales tax revenue, which is how we fund state government," she said, adding that 80 percent of South Dakota's budget is education and healthcare spending.
Noem said that although South Dakota has received $1.25 billion in relief funds, the federal government has "tied our hands on how we can spend it" by not allowing it to be used to replace lost revenue.
"What they want me to do is go out and create a bunch of new government programs. I don’t want to blow more than a billion dollars growing government, creating massive new programs that aren’t really necessary, when all I want to do is make sure I don't have to slash teacher funding, to make sure that I don't have to cancel highway maintenance” and other essential funding, Noem said.
“It is not conservative to force a governor to spend money in areas that is not necessary and not allow me just to conduct business in a responsible manner that South Dakota always has,” Noem added. She noted that the state does not have an income or corporate tax and depends heavily on sales tax revenue.
Jared Walczak of the Tax Foundation told Tax Notes April 24 that although the federal relief is extremely generous for low-population states, it is likely that some states will not be able to spend all the funds in direct response to the pandemic.
“For a lot of states there is a frustration that they have this big pot of money that they can’t use all of, but at the same time they do have these other needs,” Walczak said.