I’m running into this again, evidently because the Blue Ribbon panel is meeting on K-12 education across South Dakota. Contrary to the folklore spinning among many, South Dakota’s state law already dedicates nearly all of state government’s share of net machine income from video lottery to property tax reduction. In turn, the money in state government’s property tax reduction is dedicated to “property tax relief through state aid to education.” You can read the two laws here and here in the South Dakota Codified Laws. State government takes half of the money lost by players in the privately owned terminals.
Back in 1994-95, first under acting Gov. Walter Dale Miller and then under elected Gov. Bill Janklow, South Dakota used increases in state government’s share of net machine income to help fund state government and ultimately school-tax relief. Under Janklow, state government’s share of NMI became dedicated to property tax relief, specifically for K-12 education, after South Dakota voters came within a political eyelash of capping the property-tax system in the 1994 general election. The property-tax reduction fund became law in 1996 and the dedication to K-12 property-tax relief became law on Jan. 1, 1997.
You can raise all kinds of arguments about whether the steps taken during Janklow’s third term were the correct ones for property tax relief. But I conducted a simple study during that third term and found two key things: Property taxes collected for K-12 school districts were lower statewide as a result of the relief program; and the sample of individual taxpayers — I used the 105 legislators — showed their school taxes generally were lower too. The goal of the 1995 package was an immediate 20 percent reduction from the 1994 amounts of school taxes. That was essentially achieved. The longer-term goal was 30 percent, and Janklow with the Legislature achieved that goal in his fourth term.
Janklow, a Republican, was emulating the same 30 percent relief goal that the 1994 Democratic team, gubernatorial candidate Jim Beddow and running mate Jim Abbott, had announced first during that campaign. We are now 15 to 20 years after imposition of the caps on school taxes and local property taxes. School boards didn’t adopt tax opt-outs in the fashion that Janklow foresaw; instead, opt-outs seem to be seen as a last resort for them. County commissions likewise have struggled with using tax opt-outs. Voters vary throughout South Dakota but the general pattern seems to be the smaller the opt-out the more likely its passage in a local referendum.
Two big packages of road and bridge funding have come through the Legislature in the past few years to help counties and other local governments, one despite the veto by Gov. Dennis Daugaard and the current one, which had his now second-term support and puts a lot into the state Department of Transportation’s budget too. The Legislature’s Executive Board meanwhile recently selected county funding overall as an interim topic for this summer and fall. The governor’s Blue Ribbon Task Force is gathering opinions city by city and will deliver its report this fall. The Lottery Commission has tried mightily under Daugaard these past four-plus years to generate more revenue from video lottery, with some success, but net machine income remains below its level prior to voters adopting the statewide smoking ban in 2010.
One senses the Janklow-era caps have run their course for many people, but nobody has yet come up with the new funding sources for K-12 and counties. Just three years ago, in the 2012 general election, nearly 57 percent of South Dakota voters opposed an initiated measure that would have added 1 percent of sales tax, with the revenues to be split between Medicaid and K-12 education. There really doesn’t seem to be widespread interest in adding a state general income tax. The Legislature has focused on lower fruit, such as spending the unclaimed-property receipts that legally belong to others but must be remitted to the state treasury for supposed safe-keeping. But if one or two world-level banking corporations leave South Dakota, much of the unclaimed-property stream of revenue dries up when they go.
It will be important to see whether governor’s Blue Ribbon panel comes up with an analysis of how school districts are spending their funding now in comparison to 20-some years ago. Therein might be the telling data. Has the revenue been flowing increasingly into different purposes than pre-1994? And if so, what should be done? And if not, what is the appetite to ask taxpayers for more money?