Sales Tax Rates– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Feb. 27, 2022)
South Dakota first implemented a sales tax in 1935, at two percent. Four years later, the state instituted a two percent use tax. The sales and use tax increased to three percent in 1965, and to four percent in 1969. The sales tax rate remained at four percent until 2016, except for two temporary increases to five percent – one in 1980 to buy railroad property, and one in 1987 to establish the REDI fund. As one of eight states without an income tax, we rely on sales and use taxes as the primary source of revenue for ongoing state government expenses.
In 2016, legislators voted to raise the sales and use tax by half a penny to help improve teacher salaries and provide property tax relief. Part of that law included a provision that would trigger a lower tax rate if the additional tax collected from remote sellers (internet sales from out-of-state companies) reached $20 million more than the previous year.
That $20 million trigger has never been reached. However, HB 1327 was introduced this year to reduce the general sales tax rate from 4.5 percent to 4.25 percent starting July 1, and then 4 percent next July. The bill passed the House on a 39-31 vote but was subsequently deferred to the 41st Legislative Day by the Senate State Affairs committee. All three District 24 legislators voted against the bill.
We all agree that the State has unanticipated revenues this year, thanks in part to the infusion of one-time federal dollars. While general fund revenues are strong this year, there are storm clouds gathering on the proverbial horizon. Looking ahead to FY2023, anticipated revenues for the State are up three-tenths of one percent. Lowering the sales tax rate by half a percent would equate to an estimated $150 million ongoing cut to the general fund. The proponents of HB 1327 explained how we could afford the $75M ongoing this year but had no plan for the $75M next year.
I believe it is imprudent to equate our current sales tax growth – spurred by one-time federal money – as an ongoing certainty. We are working this year to increase salaries for state employees, teachers, and community support providers. I believe we need to take a fiscally conservative approach to making sure we can meet that goal and not have to come back in a year or two and cut those salaries. Rather, when we have one-time money available, we need to make sure that it is used for one-time purposes. Over the final two weeks of Session, we will discuss ways to develop a fiscally responsible budget. Among suggestions for one-time uses are a one-year property tax break, putting additional money into other favored projects, or saving up for anticipated expenses relating to our prison system.
Setting the Revenue Target– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Feb. 20, 2022)
Legislative rules require the Joint Committee on Appropriations to select general fund revenue targets for the current and next fiscal years by February 15th for the purpose of setting appropriations.
Legislative Research Council (LRC) fiscal staff and staff from the Bureau of Finance and Management make separate presentations to the appropriations committee on their projections for ongoing and one-time revenues for the state. A revenue subcommittee considers these two projections and then makes a recommendation to the full appropriations committee.
More than half of the state’s general fund comes from the sales and use tax. The contractor’s excise tax, lottery receipts, insurance company tax, and tobacco taxes together contribute about twenty percent of all general fund receipts.
While South Dakota has seen record increases in general fund revenue over the past two years, we do not think that growth is sustainable. The average growth rate of sales and use tax collected in South Dakota was about 4.7% from 2011-2020. The general fund projection for FY22,which ends June 30, 2022, is to finish at 6.5% above the amount collected in FY21. However, the projection for FY23 is far more modest, with the revenue subcommittee recommending a growth of less than one percent
These numbers form the basis for ongoing spending, which is contained in the general appropriations bill. Our Constitution provides that the general appropriation bill contains the appropriations for ordinary expenses of the executive, legislative and judicial departments of the state, the current expenses of state institutions, interest on the public debt, and for common schools. The constitution also requires a balanced budget.
The general appropriation bill needs to pass by a simple majority vote in each chamber.
The Appropriations Committee is also sifting through requests for one-time spending ideas including infrastructure projects, investments in higher education institutions, and other ideas for one-time expenditures. While most bills must pass the house of origin by the 27th Legislative Day, the deadline for special appropriations bills to pass the house of origin is the 30th Legislative Day. Special appropriations bills need to pass with a two-thirds majority in each chamber.
Budget information details are available on the LRC website at sdleigslature.gov, under the “Budget” tab.
A Primer on Property Taxes– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Feb. 14, 2022)
South Dakotans paid nearly $1.5 billion in property taxes last year. At a time when property values are increasing, we hear concerns about high property tax bills. It is important to differentiate between assessed value, taxable value, and the amount of taxes due.
By March 1, the county mails an assessment notice to owners of real property, indicating the full and true value of the property on the legal assessment date of November 1 of the previous year. Each county is given an equalization factor to make sure that all property in the State is equalized at eighty-five percent of value for property tax purposes. This factor determines the taxable value indicated on the annual tax bill.
The State of South Dakota does not collect or spend property tax dollars. Rather, property taxes are used at the local level. Over half of all property taxes are used to support local schools; the rest pays for cities, counties, and special purpose districts such as those for water development, rural fire protection, and ambulance service. While the legislature sets the levy for K-12 public schools, the levy for other units of local government is based on the budgeted need. County budgets are allowed to increase from one year to the next by the lesser of three percent or the rate of inflation, plus new construction. The total budget is divided by the taxable value to determine the mill levy. One “mill” is one dollar of taxes per thousand dollars of assessed value. The mill levy multiplied by the taxable value determines the total tax bill. If taxable values increase and the budget stays the same, the tax levies decrease. If taxable values stay the same and budgets increase, then levies increase.
Owner-occupied homes, agricultural land, and commercial property are all treated equally when setting the levy for local governments. For the school general fund levy, however, these three classes of property are treated differently, with agricultural land taxed at about forty-five percent of what owner-occupied homes are taxed, and owner-occupied homes taxed at slightly less than half of commercial property.
Taxes are due and payable by January 1 of the year following assessment. Tax payments do not become delinquent if half of the bill is paid before May 1 and the remaining half is paid before November 1.
Anyone with questions about the property tax process should contact the South Dakota Department of Revenue at https://dor.sd.gov/.
Half Way There– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Feb. 6, 2022)
Next week we will pass the halfway point for the 2022 Session. With the bill introduction deadline last Thursday, legislators have introduced a total of 551 bills in the 2022 Session. This is an increase of 73 over last year, and the highest since 1998 when 572 bills were introduced. For further comparison, the lowest number of bills ever introduced was in 2017 when 394 bills were introduced, and the highest number was in 1957 when 929 bills were introduced.
Typically, about half the bills introduced will eventually become law. The highest percentage of bills ever enacted in a single session occurred in 1947 when 73 percent of that year’s bills were enacted. The lowest percentage of bills ever enacted in a single session occurred in 1897 when only 18.6 percent of the bills were enacted.
Every bill must pass at least five hurdles before it becomes law: committee hearing in the chamber of origin, floor vote, committee hearing in the opposite chamber, second floor vote, and governor’s signature. Most of the bills that do not pass never make it beyond their first committee hearing. Legislative rules allow the prime sponsor of a bill to withdraw a bill prior to the first committee hearing. Last year 18 bills were withdrawn; so far this year nine bills have been withdrawn.
Looking ahead at our work schedule, there are a few key dates which will govern our work. Next Tuesday, February 15, the Joint Committee on Appropriations must select the general fund revenue targets for the current and next fiscal years. Those targets will form the basis for building the state’s budget.
The following Wednesday, February 23, is called “crossover” day. It is the last day for bills to pass the house of origin and cross over to the other chamber. Monday, March 7, is the final day for a bill to pass both houses. The next three days are reserved for conference committees to meet and resolve any differences between the House and Senate versions of a bill. The Legislature will meet on Monday, March 28 to consider any bills vetoed by the Governor.
You can find the status of any bill by going to the Legislative Research Council website at sdlegislature.gov.
Protecting Grain Producers– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Jan. 30, 2022)
In 1882, the Territorial Legislature created an ad hoc committee to deal with rail issues, based on complaints from residents of Dakota Territory. Three years later, the Legislature established the Board of Railroad Commissioners. A few months after South Dakota gained statehood, the Legislature of 1890 assigned regulation of grain warehouses to the Board of Railroad Commissioners since most grain facilities were adjacent to railroads. Additional responsibilities were added to the Board of Railroad Commissioners over time, and in 1939 the Legislature changed its name to the Public Utilities Commission (PUC).
Today the PUC still regulates public grain warehouses and grain buyers (among other responsibilities), to make sure that these businesses are financially able to meet their obligations to grain farmers. In an effort to be vigilant in protecting the integrity of grain trade for producers, leaders in the industry met with the PUC this past summer to analyze current laws regarding grain buyers – those who buy grain to resell, and public grain warehouses – businesses who store grain on behalf of producers. There was also discussion about the role of grain brokers who negotiate transactions between producers and grain buyers but do not take title to the grain. There was no desire to expand the size of government or add new regulations; however, there was a desire to ensure our laws provide adequate protections for transactions that can run into hundreds-of-thousands of dollars
The Senate has given unanimous approval to three bills introduced at the request of the PUC. SB35 would increase the maximum penalties for buying grain or operating a public grain warehouse without a license. Current penalties are capped at $20,000, which for some is not an adequate deterrent. This bill proposes to increase the maximum fine to $50,000, although the PUC would have the ability to set a lower fine. For comparison, the State of Nebraska is considering a fine of $870,000 for similar violations. SB38 makes it a Class 5 felony for a grain broker to negotiate a transaction with an unlicensed buyer. SB39 helps farmers get paid faster when a claim is made on a grain buyer bond. Currently the law allows six months for claims to be filed, which means the PUC cannot distribute bond proceeds until that time has passed. This bill would allow grain producers to get paid after ninety days.
A fourth bill, HB 1037, was brought in by the Attorney General’s Office to revise the penalty for willful violations by grain buyers and grain warehouse operators. If passed, the amount of penalty would be tied to the value of the theft.
I appreciate the work of the PUC and the Attorney General’s Office to listen to the concerns of industry and develop these proposals to enhance grain regulation and enforcement.
Lobbyists– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Jan. 17, 2022).
That word evokes a variety of reactions among those who participate in our political process. For some, the word is a pejorative. I don’t agree with that assessment.
This past week, our state and community were stunned by the death of a well-respected lobbyist – Greg Dean. Not only was Greg a friend to many, he was also the epitome of a great lobbyist. He was an example of the important work that lobbyists provide in the legislative arena.
As legislators work to represent their districts and develop good policy for our state, we quickly realize that we simply do not have the time to become experts on all the issues that come before us. We may be knowledgeable about some of the topics that confront us, but there is simply not the luxury of time to be good at all the issues.
That is where lobbyists play an important part. Because they focus on specific topics, lobbyists have the time to understand the nuances of different policy approaches and are invaluable in helping navigate the questions of how to craft good legislation. They are a valuable resource for legislators with limited time. They help fill the gap for those of us who have no research staff.
As contentious issues come up, I look to lobbyists on each side of an issue to help me better understand the pros and cons of what I am voting on. Lobbyists help identify the good and bad of various pieces of legislation and are important in developing a more informed vote. Legislators soon learn that not all lobbyists are created equal. We know which ones we can trust implicitly, and which ones we “trust but verify.”
Greg Dean was one of those we could trust to tell us the good, the bad, and all that is in between. Our hearts go out to Greg’s wife, Jill, and their three boys. We grieve with his family and with all who had the privilege of counting Greg as a friend. We grieve for the state of South Dakota who lost a good man who loved his state, who gave generously to his community, and who showed kindness to all.
Improving the Capitol Workspace– 2022 South Dakota Legislative Session update by District 24 Senator Mary Duvall (Jan. 17, 2022).
Two years ago, the Legislature asked the Bureau of Administration to develop a long-range plan for state-owned buildings in the Pierre/ Ft. Pierre area. This included the Capitol, buildings on the Capitol complex, and leased spaces. The Bureau was to assess the amount of workspace in state-owned buildings and leased buildings, analyze future needs, and find ways to improve efficiency.
I believe the plan is timely, particularly in light of two fairly recent factors.
One is the nationwide trend toward remote work. What started as a COVID-19 precaution with many employees doing their jobs from home, is expected to continue. More than half of companies around the world (56%) are hybrid or fully remote companies. According to Future Workforce Report, the number of remote workers is expected to nearly double the pre-pandemic level in the next five years.
Another is the opportunity to expand the State Health Lab, which will allow all of the Department of Health staff to be in one location. Currently, the Department has staff in the Hays Building next to the Capitol, as well as in the State Health Lab near the north end of Hilger’s Gulch.
The plan is designed to enhance efficiency and improve public service by maximizing the Pierre Campus building space and consolidating leased space where appropriate. The Bureau of Administration Nicollet Building will be vacated and demolished, and the Paul Kinsman Building will be expanded to accommodate all of Buildings and Grounds in one efficient operation.
The proposal includes consolidating all of the Secretary of State’s staff and the Unified Judicial System staff in the Capitol, having all of the Department of Social Services in the Kneip Building, and putting the Bureau of Human Resources and Bureau of Administration (with the exception of Buildings and Grounds) in the Dolly-Reed Plaza. The Governor’s Office of Economic Development and the Department of Tourism will move to the Hays Building and Capitol Lake Visitor Center.
As the State of South Dakota works to make the best use of tax dollars, serve the public, and be an employer of choice, having attractive and efficient workspaces is important.
Infrastructure funding– 2022 South Dakota Legislative Session preview by District 24 Senator Mary Duvall (Jan. 5, 2022).
Among key topics of the 2022 Legislative Session, which gets underway next week, will be the opportunity to determine how to allocate millions of dollars of one-time funds. Like last year, South Dakota has a large infusion of federal dollars and strong sales tax revenue, creating an opportunity to invest in new infrastructure, pay for maintenance and repair of existing infrastructure, and prepare our state for future economic downturns.
Among the uses of one-time money will be large investments in water and sewer infrastructure. Fortunately, we already have a system in place through the State’s Board of Water and Natural Resources (BWNR) to help direct water, wastewater, and sewer development projects. The BWNR is a seven-member board of citizens, appointed by the Governor, to promote water development projects, advise the Governor and legislature regarding the state policy and priorities for water resource development, and develop and implement the state water plan.
The BWNR oversees two revolving loan funds which provide low-interest loans and grants to ensure that South Dakotans have access to clean water. The Drinking Water State Revolving Fund helps nonprofit corporations and governmental entities construct drinking water facilities. The Clean Water State Revolving Fund helps governmental entities construct wastewater facilities, storm sewers, and nonpoint source pollution control projects.
This year, in addition to the Omnibus Water Funding Bill which the Legislature votes on annually to provide spending authority for projects on the state water plan, the Legislature will have the opportunity to vote to approve $600 million proposed by Governor Noem from the American Recovery and Reinvestment Act funds for water and sewer infrastructure investment.
The Legislature will also consider proposals to increase availability of workforce housing, based on work done this summer by an interim study committee on the topic. Recommendations from the committee include developing infrastructure, promoting technical education, and maximizing existing programs such as tax increment financing districts and the discretionary assessment formula.
As we think about one-time projects and increases in ongoing expenses, I believe we need to keep an eye on the state and national economic outlook. While our economy is strong, according to the Council of Economic Advisors there are areas of concern as we look ahead.
Throughout the 2022 Legislative Session, I encourage District 24 residents to reach out to your legislators: Senator Mary Duvall, and Representatives Will Mortenson Mike Weisgram. We can be contacted through the Legislative Research Council website at sdlegislature.gov and would appreciate hearing from you.