PIERRE, S.D. (KELO) — Want a peek at some of what might be debated at the South Dakota Capitol a few years from now? Look at what wasn’t — that’s right, wasn’t — recommended last week by the Legislature’s Study Committee on County Funding and Services.
Right at the top could be expanding or even raising South Dakota’s sales tax. While state government depends on a sales tax and state lawmakers let municipal governments have the option of charging one, county governments along with school districts and township governments are locked out.
Republican Senator Jim Mehlhaff brought one of those sales-tax ideas to the study panel. Citing South Dakota Department of Revenue data, he said the state sales tax applied to roughly $32.7 billion of commerce during the 2023 fiscal year that ended June 30. (That was up from $29.7 billion for 2022.) He suggested that counties could generate roughly $143 million if they were allowed to charge the same 2% sales tax as many municipalities do.
“What you want to do with that is a big question,” Mehlhaff said about the potential revenue. Earmarking $90 million could reduce property taxes by 20%, he estimated, leaving about $50 million for counties to use for other needs. Mehlhaff acknowledged that the idea probably didn’t have the wheels to make it out but would be worth considering in the future.
Republican Rep. John Mills said he sees delivery drivers “making laps” delivering products around the rural area where he lives. “I think there’s some merit to contemplating that,” he said about allowing county governments to charge the sales tax, too, and putting the revenue toward property-tax relief. “I know we are all really hesitant, because it would be a tax increase, but it’s tax fairness as well.”
Republican Rep. Tim Reisch thought much the same and noted that, because of inflation, municipalities that charge the local sales tax enjoy rising revenue. But he didn’t sense there would be enough widespread support in the current Legislature. “County sales tax, I think it’s dead on arrival,” Reisch said.
Mehlhaff said one possibility would be raising the statewide rate to 6.2% from the current 4.2%, and at the same time eliminating the municipal option of the additional 2%, with the additional revenue then distributed among local governments. “It’s something to think about long term,” Mehlhaff said.
The overall concept had support from Republican Sen. Helene Duhamel. “In tourism counties, this would be huge,” she said, because right now, property owners are paying for county services that visitors use.
“This is a way to have our tourists have some skin in the game when they come to visit,” she said, adding “As long as this is tied to property tax relief, this would be very popular in some parts of the state.”
Republican Sen. David Johnson, who opposes any tax or fee increase, said expanding or increasing the sales tax would need to directly tie to property-tax relief. One of the study panel’s co-chair, Republican Rep. Roger Chase, said it could be a proposal that would be brought forward in years ahead.
The committee had less appetite for digging into the additional costs that county governments face as the result of two public-safety laws passed during the Daugaard administration — SB70 for adults in 2013 and SB73 for juveniles in 2016 — that were intended to reduce the number of people in state correctional facilities. County officials complained many times during the panel’s meetings and during previous legislative sessions.
Republican Rep. Kirk Chaffee said the topic seemed to be “a multi-year lift” and there might need to be a study devoted just to those laws. Said Republican Sen. Randy Deibert, the panel’s other co-chair who still serves on the Lawrence County Commission, “I agree this is a pretty tough nut to crack in a short period of time.”
Another topic that didn’t find enough support from the panel to become a recommendation was giving counties some of state government’s annual surpluses. Reisch, who was the head of several departments under several administrations, said his experience was that the governor — he didn’t name any names — sent guidance throughout the year to spend, for fear that the Legislature would cut the budget the following year. “Realistically, I don’t think it would amount to a whole lot,” Reisch said.
The amounts vary by year. For the 2023 fiscal year that ended June 30, it was $96.8 million. The year before, it was $115.5 million. In 2021, it was $85.9 million. But those were fueled by federal COVID-19 aid flowing in from Congress. Prior to the pandemic relief, the surpluses were $19.1 million for 2020, $19.4 million in 2019 and $16.9 million for 2018.
Chase said the amounts aren’t predictable and county governments would have difficulty budgeting. Mills however said requiring state surpluses to be shared with county governments would assure that citizens receive some benefit from a surplus and give officials an incentive to be frugal. In turn the money would enable counties to do “some nice things” that they currently can’t, Mills said.
Republican Rep. Lance Koth took a different angle, saying the surplus historically had been much smaller than the past few years and there always were “many hands out there, many needs for that money.” He also warned there was a possibility that the budget shortfall that state government was already experiencing in 2011 when Dennis Daugaard took office as governor would come again.
Republican Sen. Jim Bolin agreed, saying that county governments couldn’t use their share of the surplus for ongoing salaries and benefits because the amounts would be unpredictable.
Earlier in the day, the panel heard from Mark O’Connell, president of the Wisconsin Counties Association, who talked about a new $300 million fund that was created to help counties develop opportunities for young people.
Sen. Duhamel said the state surplus could provide revenue for such a fund in South Dakota. “A percentage maybe is the perfect funding tool for this grant (fund,)” she said.