PIERRE, S.D. — It may have been the accumulating snow threatening a lengthy stay in Pierre should lawmakers belabor a tax cut deal and final budget. Or the growing pressure of delivering on the promise that has dominated session.
But no matter the reason, Republican leadership in the South Dakota Legislature finally broke through on tax cut negotiations on Thursday, March 9, with the compromise cut down of the sales tax down to 4.2% passing both chambers in overwhelming margins that afternoon.
A 70-0 vote in the House garnered an extended cheer. In the Senate, the tax reduction moved forward 31-2.
Shortly after, the largest budget in state history — all told eclipsing $7.3 billion, though the bulk of that comes from federal sources — passed both chambers in near-unanimous votes, too.
In the general fund’s major categories of care providers, educators and state employees, spending increases came in at around 7%, among the highest on record.
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“What we've done is we've recognized our issues. If you've listened to me long enough, I believe workforce was the biggest issue of this session: how we can recruit and retain our people?” Sen. Jean Hunhoff, of Yankton, the top budgeter in Pierre, said Thursday afternoon. “And we have heard from the groups that this is what they needed to have.”
Despite the strong statement sent by lawmakers Thursday via lockstep votes on the budget, Gov. Kristi Noem on March 10 again criticized the South Dakota Legislature and not-so-vaguely threatened a veto.
“This year, some elected leaders in Pierre made different decisions,” she wrote. “They chose to spend more of the people’s money than I recommended, including on new programs. And they decided to deliver a temporary tax holiday to the people, rather than a permanent tax cut."
Overriding a nearly unprecedented veto on the general budget requires a two-thirds majority in each chamber.
At a Thursday press conference, legislative leadership appeared confident that their caucuses would hold the overwhelming, veto-proof margins that passed the general budget.
“We've been thinking and working on these tax cuts for a long time,” House Majority Leader Will Mortenson, of Pierre, said. “And one thing that you realize with a big broad tax cut like this is that you either want to make it a priority to cut taxes, or you want to make it a priority to cut taxes in exactly the way that you want to.”
In that spirit of compromise, lawmakers attached a sunset clause scheduled four years down the road, meaning the sales tax rate would increase back to the current number of 4.5% in July 2027 without future action.
“In the house, it's no secret we prefer a permanent tax cut,” Mortenson said. “But it takes two to tango. It takes two to cut taxes. So I'm proud of the process we've been through.”
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Rep. Chris Karr, a major backer of an overall sales tax cut for years, said he would continue working to prove that the state could afford a permanent version, though he understood that at times the legislative process requires compromise.
With the revenue side cleared early on Thursday, Republican leadership later that morning announced their targets for inflationary increases to core government priorities: 5% increases to Medicaid providers and 7% increases to state employees and education.
Dianna Miller, a public education lobbyist in the state, said she was "thrilled" with the result.
“We've been talking about this for a long time; we wouldn't be cutting taxes if it weren't prudent,” Mortenson said. “We came in and delivered a big tax cut, but that doesn't mean we're going to cut off our nose to spite our face,” referring to the promise to continue funding core obligations.
In addition to that baseline, those general increases will be buttressed in a few areas, including increasing state reimbursement rates to 100% for some Medicaid providers and further raising salaries in about 8,000 hard-to-fill and longer-tenured roles.
“I think it’s safe to say this is the best budget for Medicaid providers in the history of the state,” said Rep. Tony Venhuizen, the vice chair of the budget committee in the House.
Other bits and pieces in the proposed budget include another year of tuition freezes at state universities and technical colleges as well as increased funding in behavioral health and adult day services.
Taken together, the state is set to spend just under $200 million in state funds combined on these increases to the "Big Three," a budget term for education, state employees and health care providers.
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The budget also sets aside about $12 million in state funds to begin saving for the increased costs related to Medicaid expansion as heightened federal contributions subside over the next few years.
These spending changes take effect in July.
Outside of going a bit higher on the inflationary increases and targeted provider raises, the budget largely mirrors the December budget proposal from Gov. Kristi Noem.
While the overview of the South Dakota Legislature's taxing and spending priorities appeared to enjoy broad support in each chamber, not everyone shares the view of the spending increases as responsible.
"I don't doubt we can afford 7% in the coming year, but that becomes our baseline going forward," said Sen. John Wiik, of Big Stone City, a member of the budget committee who indicated he would rather 6% increases. "That's the only danger of pushing everything right to the edge of what we can afford."
While Wiik’s view matches Noem’s espoused in her press release Friday holding open the option of a veto, breaking the legislative phalanx behind the budget would require a miracle.
“This has been a special situation where the House and Senate have worked together, maybe like never before,” Senate Majority Leader Casey Crabtree, of Madison, said. “That remained true even during the most difficult negotiations at the last hour.”
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or jharward@forumcomm.com.
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