PIERRE, S.D. (KELO) — The sales-tax cut that a majority in the South Dakota House of Representatives has passed might find the political terrain more difficult in the Senate.
“I think that sales tax reduction, we’re going to have to put a lot of thought into that,” Senate Republican leader Gary Cammack said Thursday during the weekly Republican legislative leadership news conference.
HB 1327 from Representative Chris Karr, R-Sioux Falls, calls for a reduction over the span of two years, from 4.5% to 4.25% to 4%. The Legislature increased the rate to 4.5% in 2016 to provide property tax relief and raise teacher salaries. It had been 4% since 1969.
The cut would cost an estimated $70 million the first year and $140 million after that. The House vote was 39-31 for it Wednesday afternoon.
Cammack sounded cautious Thursday morning: “I’m not convinced this is the right time to reduce that sales tax. It’s going to be a significant change in revenue. And we need to be conservative, but we also need to be smart.”
He listed $600 million of upgrades that the state government will be forced to make in the prisons and the potential for “significant expenses” if South Dakota voters approve expanded Medicaid eligibility in November.
“And also I’m really concerned about the volatility of the economy,” Cammack continued. “Whenever you have that kind of reduction in revenues, most of the time there needs to be a backfill and you can have some unintended consequences by having to possibly lean on property tax or that sort of thing.” He also pointed to the Russia military invading Ukraine, saying “that’s going to lead to a lot of volatility when it comes to the markets and the economy as a whole. So we’ve got a lot of variability that’s facing us in the next short while.”
Senate Republican assistant leader Mike Diedrich of Rapid City said the bill’s Senate hearing will be “well-conducted.”
“But we’ve got to be guided by fiscal responsibility,” Diedrich said. “We have to maintain a balanced budget, not only now but every year in the future, as we have in the past. We have to focus on the sustainability of South Dakota, of the revenue projections — what are the factors that make those variables unpredictable?
“We also need to take into consideration federal policy, potential federal policy changes — what did that do to South Dakota?” Diedrich continued. “And most importantly, we just need to have in mind, what are the challenges, what do we see as the challenges that South Dakota will face in the future, and how will we be prepared to do that?
“So all of those are considerations into whether reducing sales tax or other revenue, whether it’s up or down, any kind of revenue projections and utilizations, they’ll have to be considered, so that we can make a responsible, responsible decision.”
House Republican leader Kent Peterson of Salem voted against the reduction.
“I think it was a very robust discussion on the (House) floor yesterday, and I kind of think there’s two camps,” Peterson said. “There’s the ‘now is the right time to do it’ based on the revenue and the things that are out there, not necessarily thinking that the reduction or potential headwinds are going to slow them down. And then there’s the other camp which says, let’s be cautious.”
Peterson referred to the large amount of COVID-19 aid that the federal government sent to South Dakota. He also recalled the deep budget cuts that Governor Dennis Daugaard had to make 11 years ago when the national economy struggled.
“We have just had eight billion dollars injected into our economy — what’s the future going to hold? Do we want to put South Dakota into a 2011-type of situation where we’re going to have make across the board cuts?” Peterson asked. “And so you saw that competing against each other on the floor yesterday. Ultimately there was a vote. It was a very close vote. It passed. It’ll head over to the Senate and we’ll see what they do.”