PIERRE, S.D. — Whereas two previous meetings of the House Taxation committee saw the approval of competing consumption tax cut proposals, the Feb. 2 discussion in the small committee room overlooking the House chamber focused on property taxes, with a unanimous vote now passing the baton to the House Appropriations committee for the next stage of tax cut discussions.
“We are not going to be hasty in moving on these tax cuts. They have widespread impacts on our budget,” House Majority Leader Will Mortenson, of Pierre, said during the Republican leadership’s weekly press conference, held minutes after the property tax proposal moved through the tax committee successfully. “We would like whatever decisions we make to be permanent. We don't want to cut taxes this year, only to have to turn around and raise taxes in years to come.”
On the chopping block, in addition to the property tax conversation, is a full reduction to the grocery tax, valued at $100 million, and a reduction to the overall sales tax, which could cut up to $170 million were the legislature to jump from 4.5% down to 4%.
Property taxes in South Dakota fund three main categories of local government: schools, counties and townships. The property tax proposal, which emerged from an interim study this past summer on addressing growing property tax burdens, deducts the school portion of the first $100,000 in the valuation of owner-occupied, single-family homes in the state. It does not alter county or township collections.
Rather than allowing local school districts to take a hit of around $75 million per year statewide, the plan inherent to the proposal is that the state’s general aid to education would be increased to meet this financing gap. An exact fiscal note from the Legislative Research Council has been requested by the bill’s sponsors, though it has not yet materialized.
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In her testimony, the bill’s prime sponsor, Rep. Trish Ladner, of Hot Springs, centered the tax’s simplicity and fairness.
“It saves each homeowner approximately $350 per year on their property taxes,” Ladner said, “So how's this gonna work? K-12 education is already funded by property taxes and state general funds. This plan is paid for with $70-$80 million in general funds to replace the property taxes.”
Furthermore, she noted that the less-valuable homes would receive a propot=rtionally larger benefit, and that every tax dollar returned in this proposal would go to South Dakota residents; though left unsaid by Ladner, competing cuts to the grocery and sales tax would apply to non-residents visiting the state, too.
The main opposition to the bill came from Jessica Filler, a lobbyist with the Associated School Boards of South Dakota, who argued that there was no guarantee inscribed in the bill that the dollars lost for local schools would be filled in with state funding.
“South Dakota is struggling to keep up with the rest of the nation in teacher pay. Inflation is a huge problem. We really just can't afford to cut [up to] $90 million without harming our public education in this state,” Filler said, saying school districts might be forced to consider an “opt-out,” a mechanism that allows an increase in property tax collections that go toward schools.
According to Derek Johnson, the state economist with the Bureau of Finance and Management, meeting this potential gap would be an automatic response of the general fund to lower local school levies, not something that legislators have to individually approve.
Johnson, as he had done with the sales tax cut earlier this week, testified as an opponent to urge the committee to send the proposal to appropriators.
In addition to favorable testimony from economic interest groups in the state like the Chamber of Commerce and the state’s retailers, Erik Nelson, a lobbyist with AARP South Dakota, noted the burden that growing property taxes have put on seniors with fixed incomes.
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“I would venture to guess that you all have constituents who own a home and rely solely on Social Security for their monthly income,” Nelson said. “This type of tax cut is a good way of providing relief proportionately to low and moderate-income individuals.”
With the first hurdle past for each of the three tax cuts — worth a whopping $350 million in annual revenue combined — the next stage will be waiting in appropriations for revenue projections, which crystallize on Feb. 15. However, while appropriators do have some power, the position of these proposals at the heart of this year’s session means the decision will likely be made in the Republican caucus as a whole.
“It is a real priority of the House Republicans that our tax cuts be permanent and stable for South Dakota,” Mortenson said. “So we are working on moving into what I view as phase two of these tax cut proposals.”
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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