Cash-starved South Dakota counties help push sales tax proposal through Senate committee
“As inflation continues, it’s causing more and more cuts at the local level," Sen. Al Novstrup, a Republican from Aberdeen, said.
PIERRE, S.D. — As counties continue to hurt for funds, one mechanism giving them a “tool in the toolbox” for costly projects like courthouses and jails has emerged from the Senate Taxation Committee, where the bill succeeded in a 4-2 vote on Feb. 1, though past versions of the same bill have failed to get much further.
The proposal would allow counties to fund bond issues for the construction of buildings containing county functions such as courthouses, jails or drug treatment centers, using a half-cent sales tax hike rather than an increase to the property tax.
According to Tiffani Landeen, a Lincoln County commissioner and one of several county officials who testified in front of the committee, it would be hypocritical for the state government to confer “unfunded mandates” such as maintaining jails onto the counties while at the same time continuing to hamstring the ability to raise funds to meet those mandates.
“It's a very measured reasonable local control solution to a problem,” said Sen. Al Novstrup, of Aberdeen, the prime sponsor backing Senate Bill 99. “As inflation continues, it’s causing more and more cuts at the local level.”
This inflation, according to Novstrup, has hit the counties particularly hard, as their main functions are in construction and personnel, markets where cost increases have outpaced the allowable increases to property tax collections.
That story of counties with rising costs and few ways to meet them was a major focus of the two-dozen Mitchell residents who listened to their lawmakers speak at the Chamber of Commerce last Friday.
Mitchell Sen. Josh Klumb, who sits on the tax committee, recounted his experience at that hearing — where he said “half the conversation was about the county problem” — as one reason for his favorable vote to continue discussion in front of the full Senate.
“I understand the purview of the state is collecting the sales tax, and the muddy waters it creates if we allow counties to do it,” Klumb said. “But right now, the state has a lot of money. And we’ve all got a lot of bills flying around here about what to do with it.”
Opponents, including Alison Jares from the Department of Revenue, called the proposal a “$150 million tax increase.”
“The potential for the tax to become permanent and grow is all but guaranteed,” she said. “There's always a need for revenue, and once this mechanism is implemented, it will be easier to make it a permanent tax.”
However, Novstrup and Rep. Ernie Otten, of Tea, the proposal’s sponsor in the House, reminded the committee that the bill would only be a tax increase were a county’s voters to approve the bond proposal by a 60% vote.
Otten also noted that counties may use this tool to fund just one project at a time, and, rather than going right back to dip into the taxpayers again, the proposal would mandate a five-year cool down period.
In addition, counties could still decide to use a property tax funding source if that would be more beneficial — in practice, the sales tax funding of these projects would likely only make sense for counties with high rates of renters or strong tourism economies.
“In regard to fairness, property tax places the burden squarely upon property owners, while sales tax shares the burden with a greater cross-section of a county’s population as well as visitors who shop in a county,” Lee Gabel, a commissioner in Codington County, said in favor of the legislation.
Sen. Jim Stalzer, of Sioux Falls, the chair of the committee and one of two unfavorable votes, expressed concern that allowing counties to tax sales would step on the toes of the state, where “suddenly we've got the county tax getting in the way of the state perhaps doing something.”
However, he did express concern over county expenses and floated potentially equalizing property tax rates to help counties lagging behind.
It’s not the first time Novstrup has brought iterations of the proposal. Last year, the proposal died unceremoniously on the Senate floor by a margin of 30-4. In addition, an identical proposal from the two sponsors on the House side failed in committee just two weeks ago by a one-vote margin.
However, Novstrup said he plans to continue talking about and fighting for the bill as counties inch closer to financial insolvency, a warning echoed in Davison and around the state.
“It’s been a problem that’s developed over several years,” Novstrup told Forum News Service. “We have 35 new legislators; at some point, you got to tell them there's a problem.”
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or firstname.lastname@example.org.