February 27, 2015
Highway Funding Focuses on SB 1
User based fees plus property taxes
Could double state funding of roads, bridges, and highways
It’s the Governor’s language and the Interim Committee’s bill number and it is the bill that will increase taxes to raise money to improve highways, bridges and roads. There was some general twitching and a bit of angst when the House State Affairs Committee killed the Governor’s highway bill (HB 1131) on Monday of this week. What was less remembered was the fact that the bill introduced by the special study committee at the start of the session had already been amended and had the language from Governor’s bill put in place of the original language. Bills can become like unruly children in a very expensive store – one is all you really ever need.
Work will focus on SB 1 which passed the Senate and is already in the House of Representatives, but has the language of Governor’s bill (HB 1131). The House will put SB 1 in the form they find most acceptable and send it back to the Senate. The Senate will have the choices of accepting changes made by the House or rejecting those changes and appointing people to meet with several House members in a conference committee. And people inside this process wonder why the vast majority of the population thinks this process is confusing . . . if not icky . . . or even dangerous.
Here is a look at the major fee increases in SB 1 at this point
Gas Tax (currently 22-cents/gallon) - Is set to increase by 2-cents a year for eight years. In eight years, it will be 38-cents (plus a 2-cent tank fee for a total of 40-cents). Each one-cent increase raises $6.6 million so the annual increase of 2-cents raises a total of $13 million new money each year. After eight years, there will be more than $100 million in increased revenue than is collected at today’s level of 22-cents. New revenue = Starts at $13 million this year; ends at $100+ million in 2022.
Ethanol (currently 8-cents/gallon) - Will increase 2-cents each year starting this year when it will go up from the current level of 8-cents to 10-cents. Just like the gas tax increase, the ethanol tax will go up 2-cents per year until the last increase on July 1st 2022 when it levels off at 24-cents for a total increase of 16-cents. Each two-cent increase is worth $750,000 so the annual amount of revenue at the end of the increases will be $6 million. New revenue = $750,000 this year and grows to $6 million in 2022.
Excise Tax on Vehicle Purchase (currently 3%) - If you look in a government thesaurus, it will tell you another word for excise tax is sales tax. Every version of every bill to increase funding for roads has contained an increase in the sales tax on cars from 3 to 4 cents. Even with an additional penny tax, there are very few things that are more splendiferous than that new car smell. New revenue = $26 million each year.
License Plates (currently varies by vehicle weight) - Will increase by 10%. The fee increase will raise the registration fee for a vehicle weighing 2,001 pounds to 4,000 pounds from $60 to $66 and vehicles weighing 4,001 pounds to 6,000 pounds from $90 to $99 dollars. The challenge of actually collecting the higher fee increases proportionally with the weight of the vehicle as well. New revenue = $8.7 million.
Non-commercial agricultural large trucks (exceeding 20,000 pounds - currently paying 60% of fee paid by commercial trucks) – This fee will increase to 70% of the commercial rate in 2015 and to 75% in 2016. New revenue = $2 million dollars this year and $3 million in 2016 and beyond.
New Revenue at introduction and after eight years. The Governor had proposed allowing the fee increases to run over time as a way of keeping up with inflation until a future governor or legislature decides the total of the fees is sufficient and stops the increases. The legislature has decided for now that fees should continue for eight years. Here is a look at the additional revenue that is created by fee increases this year and at the end of the eight year run.
Year Gas Ethanol Excise/Sales Annual Tags Ag Trucks Total
2015 $13m $750K $26 million $8.7 million $2 million $50.5 million
2023 $100 $6 m $26 million $8.7 million $3 million $144 million
If inflation runs at 2% for all eight years, it would reduce the purchasing power of the $50.0 million by approximately $9 million.
Plus - Property Tax Gets a Leading “Roll”
When the Governor rolled out his plan to increase the state’s investment in transportation infrastructure, it contained something that had not been discussed; using property taxes as part of the plan. The Governor’s team found a county tax levy that was already on the books but virtually never used. Then his team created a new levy for townships.
Counties have had the authority to charge a property tax mil levy of 1.2 mils (or $1.20/per $1,000 of taxable value) as a way to match federal highway funds sent from Uncle Sam. The levy has not been used because federal highway money is a mixed blessing. You get money for roads but you have to build them to federal standards which assume that more is better. The Governor proposed taking the requirement of matching federal funds and building to federal standards off of that levy and allowing counties to use it as a way to increase funding for local roads and bridges.
As a way of helping townships, the Governor’s proposal creates a half-mil (50-cents per $1,000 taxable value) to be used to fund roads and bridges.
Now What? This move surprised a number of advocates because it was unexpected. Capitol-ism suddenly felt like it was the understudy to Mayberry Sheriff’s Deputy Barney Fife. The first reaction was to grab our weapon, only to be stifled by the extreme likelihood of shooting ourselves in the foot.
The property tax angle is difficult to evaluate because it doesn’t fit the discussions of the entire summer. On the one hand, it doesn’t in any way fit the guidelines and philosophy expressed by many groups of having the increased funding for transportation be structured as a user fee, a moderate increase that results in the total fee remaining moderate as well. On the other hand, the county levy that is proposed in SB 1 is NOT a new tax, simply one that for the most part has not been used. Adopting that unused tax could trigger a vote of the people, if it were to be referred or have a mandated vote as part of the new law. The township levy is very modest and it could face a referral or automatic vote as well.
Potentially huge revenue but in the end it’s impossible to know. There is as much potential revenue in the property tax levies as there is in the increased user fees after eight years. Statewide, there is taxable assessed value of approximately $69 billion dollars. If every county adopted the entire $1.20 mil levy (if you’re tempted to take that bet, Capitol-ism recommends spending your entire budget on lottery tickets – you’ll do better) it would raise over $80 million dollars!
There are over 900 townships in South Dakota, which is mind boggling in and of itself. One is prompted to wonder how many of those 900 townships have 900 people residing in them but that must be reserved for another day. The total taxable assessed value for all those townships is $26 billion (and no, we can’t explain that either) so if all the townships adopted the entire half-mil, it would raise $13 million dollars.
By adding the property tax levies in SB 1 together there is a potential for over $90 million dollars in revenue for roads, bridges and the odd dog walking path. That will not happen – period. Even if all the possible funds were collected via property tax raising $90 million dollars; and the gas taxes increased for eight years raising over $100 million a year in new revenue; together they would just about double today’s investment in state/city-owned roads and bridges. This is not a bad goal given the condition of those roads and bridges.
How High is Too High? The most difficult question to answer is a values-based question about whether the property taxes proposed in SB 1 are too high. Here are some facts (or as near facts as a lobbying organization can risk) to consider.
Revenue Raised by Levy. The chart below shows how much money a tax of 1.2 mils and .5 mils would cost the owners of a $200 thousand dollar property (home); $500 thousand dollar property (large home/small business); and $1.8 million dollar property (industrial/mansion).
Tax Levy $200K $500K $1.8 Million
$1.20/$1,000 $240/yr $600/yr $2,160/yr
$0.50/$1,000 $100/yr $250/yr $900/yr
To point out the obvious (something that is not always easy during the legislative session), it is a value judgment as to whether adding $20/month for a family or $50/month for a small business is a burden or a reasonable step.
Here is another (and the final) way to approach this question. How much do the levies in SB1 increase the total property taxes collected from the average taxpayer? First, everyone should pray for that average taxpayer because that dude/dudette is expected to pay for all of us and that is a heavy, heavy burden.
More seriously, here is what an “average” taxpayer looks like for this question. Capitol-ism used 20 mils as an average for the total mils collected from a homeowner in “Homesville”. That is most likely too high for larger cities (Pierre and Sioux Falls homeowners pay a total of 16) and a bit lower for smaller town.
Here are the levies paid by citizens of Homeville:
· Homeowners = 20 mils
· Business/Industry = 25 mils - pay about 5 mils more than homeowners for school general fund
· Agriculture = 17.5 mils – pay 2.5 mils less than homeowners for school general fund
Increasing those total mils by 1.2 mils results in the following percent increase:
· Homeowners = 6%
· Business/Industry = 5%
· Agriculture = 7%
The South Dakota Chamber of Commerce and Industry’s Board of Directors reviewed these facts and concluded that was a rather significant increase but couldn’t decide if the increase was too much given the fact that there are so many local roads in need of repair and improved maintenance. The Chamber offers this review of the facts as the next step in evaluating the final details of SB 1.
CALL TO ACTION: HB 1103 – Comparative Negligence
The trial lawyers are working hard, and so far successfully, to change the laws about when someone can sue other people in South Dakota. And they are not trying to make it more difficult.
At issue is the concept of when someone has a right to collect money from other people for damage or harm that has been done to them. South Dakota has used the phrase “more than slightly” to describe the point at which a person loses the right to seek damages from others. The word “slight” has no expressed definition in law but has over 100 years of practical use and no one, except the trial lawyers, finds it unworkable.
The word “slight” is akin to the instructions that drop out of any toy a parent buys for a 2-year-old. Kinda gibberish until you begin working on it – then everything gets figured out (especially after the 2 year old comes back with most important the pieces).
What is most aggravating to Capitol-ism is the trial lawyers pointing to cases that seem to be examples of tragic miscarriages of justice and letting legislators assume the injustice springs exclusively from the word “slight”. It doesn’t. And worse, if the session adopts the majority clause the trial attorneys are asking them to adopt . . . it won’t stop cases from looking like great miscarriages of justice in the future.
· The advocates of HB 1103 are suggesting there will be fewer lawsuits with their language because there will be more insurance pay-outs at policy maximum.
· They claim the difference between “slight” and “majority” will not be an increased incentive to file lawsuits.
The Chamber dislikes the first notion and disagrees with the second.
Seek out legislators over the weekend or use your Chamber Legislative Handbook to send your Senator an email asking them to please vote NO in HB 1103.