MERCER: Tax measures on the state’s ballot present big decisionsPIERRE — With early voting already under way for the past two weeks, the outcomes might be already be sealed for two ballot measures that, if approved by voters overall on Nov. 6, would drastically change the ways taxes are raised and spent by governments in South Dakota.
By: Bob Mercer, Republic Capitol Bureau
PIERRE — With early voting already under way for the past two weeks, the outcomes might be already be sealed for two ballot measures that, if approved by voters overall on Nov. 6, would drastically change the ways taxes are raised and spent by governments in South Dakota.
Initiated Measure 15 would increase the state sales tax to 5 percent from the current rate of 4 percent on most purchases. Approximately $180 million of revenue would be dedicated on a 50-50 split between Medicaid and public schools.
This is a novel approach in several ways.
The use of a coalition — in this instance the South Dakota Association of Healthcare Organizations, school boards and the South Dakota Education Association — if successful would send a signal to others: If you are stymied in the normal budgeting process, turn directly to the voters.
The second point is there could be a legal mess if someone later attempts to alter it or even overturn it at later time in the Legislature or through another public vote.
That is because of the language in our state constitution regarding the powers of initiative and referendum.
The constitution reserves to the people the right to propose any measure. This is the initiative being used for IM 15.
The constitution also reserves to the people the right to refer to a vote any measure passed by the Legislature.
The exceptions to referral, as stated in the constitution (in somewhat clumsy language), are “such laws as may be necessary for the immediate preservation of the public peace, health or safety, support of the state government and its existing public institutions.”
If the Legislature did change the language of the IM 15 at a later date, the constitution would appear to prohibit a referral of that act.
Likewise unclear is whether a tax measure voted into effect by the people can later be repealed through a vote of the people.
Under the power of initiative that would seem to be the case, but the answer isn’t specifically clear in the constitution.
At the same time South Dakotans are being asked to raise their taxes on a perpetual basis for Medicaid and public schools this fall, they also are being asked to decide whether they want to spend millions of dollars from another tax to pay for the governor’s big-business incentive program.
Gov. Dennis Daugaard seeks to divert on a permanent basis 22 percent of the contractor tax revenues that people pay on construction, repairs and similar types of work.
The money would be placed into a special account controlled by the state Board of Economic Development that was created in 1987 under the late Gov. George S. Mickelson.
The board’s members are appointed by the governor and serve at the governor’s pleasure. This would mean the governor would be in semi-direct control of $15 million or so of this money to spend on grants to business projects.
This program was passed for Gov. Dennis Daugaard by the Republican majorities in the Legislature in the 2011 session.
The law was placed on hold when it was subsequently referred to a statewide vote through a petition drive led by former state Sen. Ben Nesselhuf of Vermillion, in his role as the new chairman for the South Dakota Democratic Party.
The Legislature approved the Republican governor’s plan as a replacement for a previous program that was greatly expanded by the Legislature under the previous Republican governor, Mike Rounds.
The previous program provided refunds on construction taxes paid for business projects if they met certain criteria set in law. An application was required to qualify.
The costs of that refund program gradually came to the Legislature’s attention. While the growing expense was of concern to some legislators, they didn’t know for certain who was benefiting.
State law specifically prohibited releasing information about refunds to taxpayers. However, the names of the applicants eventually came into public view because of a successful legal challenge by this newspaper and four others under South Dakota’s public-records laws.
As that legal challenge was happening, the Legislature voted to make the previously confidential information open to public inspection.
After the Legislature saw the amounts of the refunds and the names of the projects receiving them, the Legislature voted to repeal the construction-tax refund program effective Dec. 31, 2012.
The Daugaard grants approach is the proposed substitute.
Through June 30, the close of the 2012 state fiscal year, the construction refund program had returned $91.3 million to applicants. Of the 44 recipients through that date, 26 received refunds of $1 million or more.
The largest amounts tended to go back to expensive energy projects:
The biggest was $8.9 million for the Buffalo Ridge II wind farm. Second-biggest was $6.9 million for the TransCanada Keystone pipeline. Third-largest was $5.7 million for the PrairieWinds SD 1 wind farm. Fourth was about $5.1 million for the Great Plains Ethanol company. Fifth was nearly $4.7 million for the Day County Wind project. The refund program’s expense to state government came at a cost to other recipients of government funding. In the 2012 fiscal year the program cost about $13.5 million. In 2011 the cost was about $7.8 million. In fact, from Dec. 31, 2009, through June 30 of this year, the program cost about $31.2 million. There are solid arguments on all sides pro and con regarding the proposed sales tax increase and the proposed business grant program.
Voters have a complicated set of choices. If they approve both they are raising taxes on themselves by $180 million, and giving away about $15 million of other taxes.
As one final note, the appearance of IM 15 on the ballot suggests something very significant. The 4 percent state sales tax depends on growth in the economy to produce more revenue each year for government use.
The push to raise the rate to 5 percent suggests that the cost of government is growing faster than the economy’s ability to support it.