House plans to vote Wednesday on governor's tax increase

PIERRE--South Dakotans could learn Wednesday whether Gov. Dennis Daugaard has the support necessary in the state House of Representatives to pass his proposal to increase the state sales and use tax by one-half of 1 percent.

PIERRE-South Dakotans could learn Wednesday whether Gov. Dennis Daugaard has the support necessary in the state House of Representatives to pass his proposal to increase the state sales and use tax by one-half of 1 percent.

The measure requires a two-thirds majority of 47 ayes from the 70-member chamber. That means House Republican leader Brian Gosch, of Rapid City, needs at least 24 nays to block its passage.

Gosch and some other House Republicans have been working on alternate funding plans that wouldn't require tax increases, but would require escalating cuts in state government's budgets for the next three years.

The Republicans opposed to the tax increase didn't introduce official legislation before the deadline last week, however.

Under Daugaard's plan, the tax rate would climb to 4.5 percent on most purchases of many goods and services. The current rate is 4 percent. Daugaard, a Republican, wants the tax increase to pay for raising teacher salaries in K-12 public schools, adding some new programs for K-12 schools and providing property tax relief.


The average pay for South Dakota teachers last year was just over $40,000, the lowest in the nation. Daugaard wants the average pay to be $48,500.

The House Appropriations Committee held a hearing Monday afternoon on Daugaard's legislation, HB 1182. No one testified against it. The committee voted 9-0 to send it unchanged to the full House for a vote.

The tax increase would raise an estimated $107 million in the first year. Daugaard wants $40 million to be used to reduce the general-education tax levies on property throughout South Dakota and he wants $62 million sent to school districts. He would require the districts spend 90 percent of the new funding on teacher salaries.

The remaining $5 million would be earmarked for teacher mentoring, expanding Northern State University's offerings of digitally delivered courses, offering incentives to encourage consolidation of some services between school districts and restoring bonuses to teachers who receive national certification.

Rep. Lee Schoenbeck, R-Watertown, said Tuesday he would try to amend the legislation so that $3.8 million would be earmarked as well for higher salaries for teachers at the four public technical institutes at Watertown, Mitchell, Rapid City and Sioux Falls. They are operated by the local school districts.

Political maneuvering intensified from several sides in recent days.

Joy Smolnisky, who tracks the Legislature's appropriations work for a non-profit organization called the South Dakota Budget and Policy Institute, issued an analysis showing the amounts South Dakotans could expect to pay in increased sales taxes.

The top 1 percent of household incomes-those with $200,000 or more-would pay an estimated $969 more annually if the sales tax rate went to 4.5 percent.


The lowest 20 percent of household incomes-those below $24,000 annually-would pay an estimated $72 more annually.

The amounts in between ranged from $154 more to $390 more.

She also made similar estimates if the tax rate was 5 percent and food was exempt. That would generate an estimated $128 million, or about $21 million more than the governor's proposal.

Using the 5 percent tax rate, the top 1 percent of households would pay an estimated $1,458 more annually, while the bottom 20 percent would pay an estimated $46 more annually.

The amounts in between ranged from $155 more to $420 more-approximately the same as at 4.5 percent.

The food exemption was one reason for the similarities. The 5 percent rate also would raise much more revenue from purchases made in South Dakota by people from outside South Dakota when they are visiting or buying goods exported from South Dakota.

Those additional amounts of tax revenue from non-residents would be $24.5 million at one-half of 1 percent of added tax and $46 million at a full 1 percent of added tax.

The Legislature's minority of Democrats proposed an additional 1 percent of sales and use tax in SB 151, whose prime sponsor is Senate Democratic leader Billie Sutton of Burke.


The Democrats' plan would give the food exemption. All of the revenue would be sent to school districts using the current state funding formula.

The per-student allocation currently is $4,876.76 from local general-education tax levies on property and state aid. That would increase to $5,503.46 under the governor's proposal and $5,813.32 under the Democrats' proposal.

Democratic lawmakers issued a chart Tuesday evening showing the consequences from 2010, when schools received zero increase in the per-student allocation for the 2010-2011 school year, and from 2011, when the per-student allocation was cut 8.6 percent for the 2011-2012 school year.

The chart illustrates where the PSA should have been each year since then if it had been adjusted according to state law, which limits the increase to the rate of inflation but no more than 3 percent.

Rather than $4,876.76 this school year, for example, the PSA would be $5,346.76, or within about $160 of the governor's $5,503.46 target for the coming 2016-2017 school year, according to the Democrats' calculations.

If the House approves the tax increase legislation Wednesday, the bill goes to the Senate for consideration next. The Senate has three other pieces of the governor's package that will receive their first committee hearings in the next two weeks.

The Republican governor likely will need a combination of support from both parties to reach 47 ayes in the House, where there are 58 Republicans and 12 Democrats.

The Senate, where 24 ayes are needed for a two-thirds majority, has 27 Republicans and eight Democrats.

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