State economist suggests reasons for unexpected growth in S.D. tax revenues

Capitol News Bureau

PIERRE, S.D. (KELO) — Since July, South Dakota’s economy has rained millions of dollars more into state government’s treasury than legislators and other officials had expected. In October alone, ongoing revenues ran $21 million more than the Legislature had forecast last winter.

Mark Quasney is state economist for the governor’s Bureau of Finance and Management. He said construction of wind-electricity facilities — those big three-bladed towers and their transmission networks — tops the list of reasons.

“First, there are currently six large wind farms under construction in South Dakota with an additional project already completed in September. The total investment in these projects is estimated to be approximately $2 billion,” Quasney said.

“This amount of wind farm activity in the state is unprecedented and accounts for roughly half of the additional sales and use tax collections. While much of that revenue is categorized as ongoing for our reports, the conditions that have contributed to this level of wind farm construction will not continue and much of this revenue is one-time in nature,” he cautioned.

The six projects currently under construction are Triple H, Deuel Harvest North, Tatanka Ridge, Crowned Ridge II, Dakota Range I and II, and Dakota Range III.

“We continue to monitor other (renewable) projects working through the process such as the Wild Springs Solar project and others. Those projects represent a return to more normal activity for the sector in terms of dollars invested and ultimately tax revenues,” he said.

Second, according to Quasney, has been the COVID-19 pandemic and Governor Kristi Noem’s decision that business owners can decide whether to stay open and for how long. He said taxable sales in the retail sector have grown by nearly 11% for the months of July through October in comparison to the similar period in 2019. State government starts its budget year July 1.

“This is the largest category of taxable sales, representing over 50% of the tax base” Quasney said about retail activity. “This can be attributed to federal stimulus and the business climate in South Dakota. The federal government has distributed over $3.8 billion in stimulus dollars directly to businesses and individuals in South Dakota since the beginning of the pandemic.

“In addition, the state has received more than $1.3 billion to state and local governments as well as higher education institutions in the state,” he continued, referring to coronavirus relief provided from Congress and the federal government. “These dollars amount to approximately 9% of the state’s 2019 Gross Domestic Product (GDP).

“South Dakota has also taken a different approach to COVID-19. By encouraging businesses to innovate in how they conduct business and not mandating any shutdowns, economic activity has remained stronger in South Dakota than in many other states,” he said.

Quasney noted several other areas.

“Contractor’s excise tax is being supported by the same wind farm activity that is impacting sales and use tax. We are seeing growth in both single family and multi family home construction but reductions in commercial construction activity,” he said.

COVID-19 has directly affected state government’s receipts from unclaimed-property. They are higher because of lower-than-usual claims from property holders. “This is most largely related to large foreign account holders not being able to travel to the United States to open new accounts and claim money that has been remitted to the state due to the pandemic,” Quasney said.

There’s also been a boom in gold prices that are up approximately 60% from 2019. Quasney said this affects collections of state severance tax. The Wharf mine near Lead and Deadwood in the northern Black Hills has seen high production.

The Legislature’s Appropriations Committee meets Wednesday, followed by the governor’s budget-recommendations speech in December. The Legislature opens its 2021 session January 12.

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