Legislature entering final week with some work to do
Follow the money as lawmakers debate tax cuts and how to spend what's left over.
PIERRE, S.D. — It’s nearly curtains on the 98th legislative session.
Borrowing from a Republican leadership press conference filled with baseball analogies — “we’re not calling balls and strikes here,” Senate Majority Leader Casey Crabtree, of Madison, said on dynamic tax conversations; it’s “not the ninth inning yet,” Sen. Michael Diedrich, of Rapid City, informed reporters moments later — lawmakers are rounding third.
They may have to run over a catcher on their way home.
Here are five things you may have missed during a hectic week in Pierre.
Tax decision looms as discussions reach fever pitch
Pick your favorite Groundhog Day-esque film. That’s where the South Dakota Legislature sits in its quest to relinquish some of its record surpluses to taxpayers.
For months, the vast majority of lawmakers have spoken in favor of giving residents a tax cut, leaving the specific details for a far-off future.
Now in that future, an agreement sans details remains. Take a deep breath, here is how things stand after a frenzied week in tax policy.
The original $100 million idea to drop the sales tax from 4.5% to 4.2%, House Bill 1137, moved through the Senate budget committee and is on its way to the floor, though it now carries an amendment that would sunset the policy after two years, though lawmakers could extend that deadline in the future.
Both Gov. Kristi Noem and a number of lawmakers are critical of this change.
“I think it would be a shame to have a sunset on this,” Rep. Chris Karr, of Sioux Falls, the main backer of the overall sales tax cut in the House, told Forum News Service. “I don't think that's fair to the people of South Dakota. I think that seems calculated. I think it's all the things that people don't like about politics.”
Then there are two “vehicle bills,” a moniker referring to general pieces of legislation designed to move through the many deadlines in the lawmaking process and then be amended as the final weeks pan out.
The Senate turned one of these vehicle bills, House Bill 1141, into a $425 property tax rebate for each owner-occupied, single-family home in the state, which would not-so-coincidentally also cost the state $100 million.
The House, in turn, amended Senate Bill 112, morphing it back into the “clean sales tax cut,” the same three-tenths reduction but without the sunset clause slated for 2025.
All three of these bills are on a collision course toward what’s called a “conference committee,” which is formed when the House and Senate pass different versions of the same bill and are unable to concur with changes.
During a Republican leadership press conference on Thursday, each chamber’s top lawmakers remained confident that they wouldn’t leave the session empty-handed.
“I would love to do a joint debriefing, if you will, from the [budget] workgroup [on taxation] to the members of the Senate or the House, maybe even an informational session one afternoon,” Karr told Forum News Service on Friday. “Let's talk through these proposals and answer questions. It's going to boil down to communication.”
No life raft thrown out for counties
It’s back to the drawing board after a poor legislative session for cash-strapped South Dakota counties, property-tax-reliant entities that often seem to run third in line to the state and municipalities, both of which can levy sales taxes in addition to other revenue streams.
Three major ideas for funding mechanisms to help with capital projects — a regional jail authority, a jail improvement fund furnished with state dollars and a gross receipts tax — are all now dead in the water following the failure of the proposed jail authority on Thursday.
“It’s a crisis situation in many parts of the state, and the Legislature again offers no options for our incarceration needs at the community level,” Sen. Helene Duhamel, of Rapid City, a major backer of the regional jail and jail improvement fund ideas, told Forum News Service.
For around three decades, counties, which are almost entirely funded by property taxes, have only been allowed to grow tax receipts in this area by 3% or inflation each year, whichever is less.
While that system worked well enough in the past, the hyperinflation of the pandemic has thrown several South Dakota counties toward budget crises, especially since some of the worst inflation has centered in construction and labor, major functions of counties tasked with fixing roads, building jails and staffing these and other duties.
“We are hearing from the counties a lot more regularly now about their budgetary needs,” House Majority Leader Will Mortenson, of Pierre, told reporters at a Thursday news conference.
With no help on the way in the short term, the next hope for county budgets appears to be a summer study focused on how the state might be able to help deliver county services such as public defense attorneys or involuntary commitments, taking those costs off their plate.
“It has to be focused, and you have to have a third party willing to look for solutions, too,” Senate Majority Leader Casey Crabtree, of Madison, said regarding the makeup of successful summer work. “They face those issues day in and day out. They know the issues better than anybody in the House or the Senate does. So it's a great opportunity for us to learn about those issues, take their ideas and put those into bill form, hopefully getting some of it fixed.”
Tax increase earns first session veto
Gov. Kristi Noem on Thursday issued her first veto of the session, sending back to lawmakers a proposal to increase the cap on an occupancy tax imposed by business improvement districts.
In a statement accompanied by photos of Noem emblazoning her veto on House Bill 1109 with a custom branding iron, the governor reminded lawmakers that the state “should be working to cut taxes this legislative session, not increase them.”
Overriding a gubernatorial veto requires a two-thirds majority in each chamber.
The increase to the occupancy tax cap passed the South Dakota House of Representatives by a 45-23 vote early last month and edged out of the Senate 19-16 last week, neither representing two-thirds.
Municipalities in South Dakota create business improvement districts, mainly in areas zoned for commerce, as a way to collect extra tax revenue from local businesses and invest that money into certain collective benefits in the area, such as hosting events or beautifying the neighborhood.
“Bringing events to a community is expensive,” Sen. Tim Reed, a Republican from Brookings, a proponent of the bill, said during floor debate in the Senate. “During the pandemic, Brookings was able to host three livestock shows because we were open for business. We want those events back, but it will take more promotion dollars to achieve that goal.”
Business improvement districts are allowed several options as far as funding mechanisms: they can levy a special assessment property tax, an occupancy tax or a business license fee.
The occupancy tax is currently restrained at $2 per night. Under the proposal, that cap would have increased to $4 and added in an option for a percentage occupancy tax up to 4%.
While proponents argued that attracting visitors to towns in South Dakota would become more difficult were the $2 cap, first implemented in 2005, left in place, opponents such as Sen. Ryan Maher, a Republican from Isabel, argued that this tax burden would not just be felt by those outside the state, an argument paralleled by Noem in her veto statement.
“Those of us in rural areas are forced to go to our metropolitan areas for health care,” Maher said. “And so now that we’re looking at increasing this tax, folks seeking these treatments are going to have to pay more on these hotel room taxes without any choice.”
Reed told Forum News Service he's disappointed in the veto and plans to work toward an override.
Lawmakers go shopping
Outside of nearly $400 million set aside for upgrades to the state correctional system, lawmakers spent much of this past week deliberating over dozens of other proposals looking for part of record revenues in the form of “special appropriations,” which allow budgeters to take part of increased revenues from the current year and spend them right away.
There’s a $70 million upgrade to the state’s core financial systems; a $29 million livestock and equestrian complex at the State Fair; a $25 million modernization of the motor vehicle administration system; a $5 million pool for grants to volunteer fire departments in the state; a $2 million expansion of adult day services for South Dakotans with dementia; and much, much more.
But that’s not to say these proposals skirted scrutiny — the combined Senate and House budget committee spent hours over the past few weeks figuring out how much could go toward these projects, amending several proposals down in cost and showing many others the door.
In the case of a proposed grant for pediatric cancer research, Hunter Widvey, the current Miss South Dakota and a backer of the issue, noted that similar grants exist in Kentucky, Virginia and Nebraska.
“Are you aware that all of those states have a state income tax?” Sen. Jim Bolin, of Canton, asked Widvey.
The bill was tabled 15-3.
One major thread in about a dozen of these proposals involved federally funded construction projects returning to the state to ask for more dollars as they wait for approval.
In nearly all of these cases, lawmakers opted not to honor the full requests: in meeting increased costs for a new Lincoln Hall at Northern State University, for example, lawmakers fulfilled $1.5 million of the $5 million request, and specifically earmarked the funds for design and engineering services.
“We heard August for when we might hear from the Treasury Department on these, and that’s why we reduced the amounts,” Sen. Jean Hunhoff, the chair of the budget committee, said. “In many cases, we’re funding them for the design costs and then we can come back in January and see where their costs are.”
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or firstname.lastname@example.org.