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Local legislators concerned over lost revenue from proposed grocery tax cut, Medicaid expansion

“I fear – and I’ll fight it as long as I can – personal income tax and corporate tax like many of our other states have. You start cutting your primary sources of revenue, you have to replace it,” Dist. 20 Rep. Lance Koth said during a meeting held in Mitchell.

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A group of Mitchell leaders and state legislators discuss pressing issues facing the state, city and county on Tuesday at the Chamber of Commerce.
Sam Fosness / Republic
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MITCHELL — With key ballot measures facing South Dakota voters in November and Gov. Kristi Noem’s proposed sales tax repeal on groceries, Mitchell area legislators spoke Tuesday about the challenges that could result from the handful of major measures, if approved.

While Noem proposed a grocery tax cut in September as a historic move to bring relief to South Dakotans amid a sluggish economy, Dist. 20 Representative Lance Koth offered a different view during a meeting among Mitchell leaders at the Chamber of Commerce.

Koth pointed to the existing sales tax on food and groceries as a “stable source” of revenue. And repealing it paired with expanding Medicaid, he fears, could put South Dakota out of its AAA bond rating and lead to talks of a state income tax — something many of the state’s top-elected officials have vowed to keep out of South Dakota.

The proposed tax repeal would cut the 4.5% sales tax on groceries in the state. A similar bill failed to make it out of the Senate prior to Noem announcing her goal to repeal the grocery tax.

“Tax on food and groceries you can pretty much depend on. You take that away, there are some unintended consequences. What is the cost of losing the AAA bond rating?” Koth questioned, noting that needs to be looked into before making a decision. “I want to protect our state’s AAA bond rating, which has a huge effect on a lot of folks in our state because we can get the best rate possible.”

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Koth, Sen. Josh Klumb and newly elected Dist. 20 Rep. Ben Krohmer indicated they share concerns about the Medicaid expansion measure that voters will decide in November.

Koth claimed the Medicaid expansion measure would cost the state “upwards of $100 million” per year, if approved.

Considering a major source of revenue for the state government is derived from sales tax, Koth said the loss of grocery sales tax and cost of implementing Medicaid expansion would pose major challenges for state legislators looking to make up for the lost revenue.

“I fear — and I’ll fight it as long as I can — personal income tax and corporate tax like many of our other states have. You start cutting your primary sources of revenue, you have to replace it,” Koth said.

With the state’s budget in mind, Klumb struck a similar tone to Koth on how the cost of expanding Medicaid could impact the budget. Although Klumb was among the senators who voted against the similar grocery tax cut bill, he indicated that he is “willing to discuss” tax cuts but stopped short of supporting the proposed tax repeal.

“If Medicaid expansion passes, that’s going to have a major impact on our budget,” Klumb said during Tuesday’s meeting. “I voted against that last session, and I’m more than willing to discuss tax cuts. But whatever we do, I want to do it in a responsible manner.”

Krohmer echoed concerns of the proposed Medicaid expansion measure and said a lot of states that have implemented it made “serious cuts across the board and serious tax hikes.”

Another key decision voters will once again make at the ballot box this November is whether to legalize recreational marijuana. After the state Supreme Court ruled the 2020 recreational marijuana measure was placed on the ballot unconstitutionally, Initiated Measure 27 made it back on the ballot. Only this time, it stands alone and not with a medical marijuana measure like it did in 2020.

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Klumb dubbed the recreational marijuana measure as a move that would make “serious challenges” for the state. Klumb said legalizing cannabis would negatively impact the state’s youth and lead to more problems.

“When Colorado passed their initiative, local governments could opt out. The one on our ballot does not allow that. I think we’re going to have a serious problem on our hands and everything that goes with increased drug use,” Klumb said.

Rep. Paul Miskimins, who did not seek re-election, reflected on his time serving in the state House of Representatives alongside Koth.

“I went there, not with an agenda, but to serve the people of South Dakota and try to build a better future. While it was challenging some days and you’re on the floor at 4:30 a.m., it shows that decisions and leadership do make a real difference,” Miskimins said.

In closing, Miskimins provided a different perspective on the state’s history of keeping taxes lower, which he said will always create challenges for addressing aging prisons, shortages of state workers and criminal justice issues.

“There always will be challenges to a state that tries to hold taxes down in times when your costs inflate. I was very honored to be a part of the process,” Miskimins said.

Sam Fosness joined the Mitchell Republic in May 2018. He was raised in Mitchell, S.D., and graduated from Mitchell High School. He continued his education at the University of South Dakota in Vermillion, where he graduated in 2020 with a bachelor’s degree in journalism and a minor in English. During his time in college, Fosness worked as a news and sports reporter for The Volante newspaper.
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