PIERRE, S.D. (KELO) — South Dakota’s citizens will soon find out how much state government has collected from taxpayers and whether a broad tax cut can be possible in a time of higher inflation.

Republican Governor Kristi Noem wants to exempt most grocery items from the state 4.5% sales tax. She will lay out her plan in a 1 p.m. CT speech Tuesday to a joint assembly of the Legislature.

But some Republican lawmakers are considering a reduction in property taxes instead. The Legislature’s Study Committee on Property Tax Structure and Tax Burden recommended a concept from Rep. Mike Derby, R-Rapid City.

Derby wants to make the first $100,000 of taxable value of an owner-occupied residence exempt from the statewide school levy and replace the revenue with state aid. He said property-tax relief was “the number one, top of mind issue” he found while campaigning in western South Dakota.

Noem estimates the cost of her grocery-tax cut to be $100 million. Derby, who will chair the House Appropriations Committee, estimated the property-tax cut would cost $70 million to $90 million but could be adjusted annually when the Legislature sets the school levies and the amount of state aid to K-12 schools.

Near the end of the 2022 legislative session, the House of Representatives voted 47-22 on March 7 to repeal the grocery tax. But the Senate refused to accept the repeal.

There remains disagreement about when Noem supported the grocery-tax repeal. She opposed repealing the grocery tax when she was a legislator more than a decade earlier. She officially announced her support for the repeal in late September while campaigning for re-election.

Democrat lawmakers had previously sponsored legislation seeking the grocery-tax repeal but found little support.

State government has put record amounts of surplus into reserve the past two fiscal years — $85.9 million in July 2021 and $115.5 million in July 2022 — and has received $76.5 million more in taxes and fees than the Legislature’s estimate through the first four months of the current fiscal year, largely as a result of billions of dollars the federal government sent to South Dakota during the COVID-19 pandemic the past three years.

Noem’s budget speech comes a month before the January 10 start of the 2023 legislative session. Senator Lee Schoenbeck, R-Watertown, who recently was chosen again as the 35-seat body’s top member, said it’s too early to know how the final appropriations will end up.

“The appropriators need to scrutinize all the financial challenges like keeping our nursing homes open — several have closed — and all of the inflation costs driving expenses for education at all levels. The place where inflation is hitting the hardest is wage inflation, which is the largest category of expenses in funding education, state employees and Medicaid,” Schoenbeck told KELOLAND News.

The governor’s office and the state Bureau of Finance and Management have been considering the annual budget requests from various state departments, bureaus and offices, as well as the state Board of Regents that oversees South Dakota’s six public universities. The regents alone were asking for $40 million, plus $7.2 million to $10 million to cover raises of 5% to 7% so that tuition wouldn’t rise for students.

During the weekend, the Senate Democrat leader, Reynold Nesiba of Sioux Falls, said on Twitter that the Legislature can afford to repeal the tax on food.

Nesiba, who’s served on the appropriations panel in the past, noted, “This is a matter of political priorities. We need a minimum of a 10% across the board cost of living adjustment (cola) for schools, state employees, and providers. We also need targeted increases in the daily reimbursement rate for nursing homes.”

A citizens group led by Rick Weiland of Sioux Falls is also pushing for a grocery-tax repeal through a potential 2024 ballot measure.

Weiland, a past Democrat candidate for Congress and a long-time aide to former U.S. Senator Tom Daschle, recently announced the group would be re-filing the proposal because of differences between interim Attorney General Mark Vargo and the Legislative Research Council on whether the repeal would affect municipal sales taxes. Weiland doesn’t want the repeal to apply to municipal sales taxes.