2016: January 12 Capitol-ism

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South Dakota Chamber Of Commerce - Capitol-ism E-Newsletter
January 12, 2016
Issue 1

The Legislature is going to start.  Knowing this is a bit like hearing the forecast for the tornado season, you have a basic idea what the future may hold but have not a clue about details such as how many tornados there will be, how close will they get, and where your house might end up if we get hit.

With the impending legislative session, the list of unknowns is something like this -  how many bills will there be, will any of them threaten business, could a few help in any way, and how much could it cost if we take a direct hit?

There has been a great deal of publicity about the Blue Ribbon Task Force on Students and Schools; there is the question of Medicaid expansion; an interim committee considered the plight of county governments; and the South Dakota Supreme Court issued a decision that changes how benefits are calculated for Workers’ Compensation cases.

Put bluntly, that list amounts to:

  • Will there be a tax increase to increase teacher pay?
  • Will counties get to collect additional taxes?
  • Will Workers’ Compensation benefits for injured part-time workers cost a fortune?
  • Will the Federal Government really pay for the cost of healthcare for tribal members?

Here is a more detailed look at the most anticipated, high profile issues that will be addressed starting January 12, 2016 as the 91st Legislative Session begins its work.

Workers' Compensation – “The Wheeler Decision”

Aggregating wages from multiple jobs when a person is injured at one of them

The South Dakota Supreme Court issued a decision that changes how benefits are determined for Workers’ Compensation benefits involving “indemnity” payments, the payments employees receive for lost time wages resulting from being injured.  The impact of this decision is limited to situations where injured workers have multiple jobs and the injury prohibits them from working at those other jobs, in addition to the lost time impact from the business where the injury actually occurred. 

In the Wheeler vs. Cinna Bakers decision a unanimous court said that when calculating the amount used to determine the “average weekly wage” (AWW) for an employee working part time, the law requires including all wages a worker earns, including wages from other employers.  This is known as “aggregation” of wages.

The Chamber wrote a white paper on the Wheeler Decision which was sent to the membership on November 11, 2015.  That analysis reviewed the possible issues businesses may face as a consequence and provided some basic data to show that the risk of significantly increased costs may be less than initially feared.  That paper can be found on the Chamber’s website www.sdchamber.biz under the News button or by using this link – The Wheeler Decision.

Here is a list of issues that the legislative session should look at in the aftermath of the Wheeler Decision.

Retroactivity – The Wheeler decision will most certainly be applied to all Worker Compensation claims filed after the decision.  There is a fear that the decision might be retroactive and cases settled without aggregated wages might file for reconsideration. 

Employer’s Awareness of Potential Risk – Businesses that employ people on a part time basis will be at risk of higher premium costs because these employees are working elsewhere.  There may need to be some clarification regarding an employer’s right to ask employees about whether or not they are working for other businesses and about their wages from those other businesses.

Clarify Which Jobs/Wages are Included - For a part time job to be included in the wage computation, the employee must actually be employed in such job at the time of injury and must not be able to perform that job as a result of the injury.

Impact of Partial Employment on Wage Calculation - If Ms. Wheeler had been able to continue to work at either of her other jobs, would those wages be included in determining her indemnity payments? 

Abrogate – Because the ruling is based on interpretation of statutes and is not a constitutional ruling, the legislature can essentially overturn it through a process known as abrogation.  The Chamber Board of Directors has concluded that complete abrogation will put part time workers in a perilous situation of recovering only 2/3rds of 1/3rd of their income (depending on how many jobs they work).  The Chamber does not support a complete reversal of the Wheeler Decision but will work diligently to make sure all other issues stemming from the decision are addressed.


Schools – Blue Ribbons – Task Forces on Schools and Students

Many school districts are having trouble finding teachers to hire.

Many businesses are having trouble finding workers to hire.

Businesses have one advantage in dealing with a worker shortage, they are autonomous when it comes to setting pay levels.  School districts are not – they get a predetermined amount of tax money, much of which cannot be used to pay teachers.

It should be noted that the teacher shortage isn’t strictly caused by wage levels.  There are many challenges for new teachers that can cause people to flee from teaching during first five years of their experience.

Here are a set of facts that the Blue Ribbon Task Force has presented in their report:

  • Average teacher pay in South Dakota is $40,023 – which ranks 51st in the nation (list includes Washington, DC)
  • Administration costs in South Dakota, as a percent of budget, are similar to states in the region, which tend to be a bit higher than the average across the US.
  • The number of administrators per student in South Dakota is the lowest in the region, which makes it equal to the national average.
  • Reserve balances on average are larger than the national average   
  • There are fewer people taking the coursework to become a teacher than there are teachers who will retire over the next five years.

Returning to the issue of teacher pay, the Task Force adopted a goal of increasing the average teacher pay to $48,000 – an increase of $8,000.  If this goal were to be attained in one year it would cost $75 million dollars.

Assuming it’s the right idea, how would the state raise $75 million dollars?  The most stable source of ongoing revenue is the sales and use tax.  The state assesses a 4% tax statewide on most things that get sold and many services that are performed such as plumbers, lawn services and even attorney fees.  Cities are also allowed to charge up to 2% for a local tax and there are several taxes added to things like entertainment, hotel rooms, attractions that appeal to tourists (regardless where they came from).

The total revenue collected by the state from its 4% tax is $826 million dollars.  This means that an increase in the sales tax would produce additional revenue of:

™ Quarter penny ($50+ million)

™ Half a penny ($100+ million)

™ Full penny ($200+ million)

Use of current revenue is a possibility.  Governor Daugaard has used some “one time” funds to pay down state debt.  The funds needed to make debt payments can now be used for other expenses as long as the debt doesn’t return, which is a dead certainty with this Governor.

There will be a debate about a property tax levy known as the “capital outlay” levy.  This levy can be no more than 3 mils (or $3 per thousand dollars of taxable value) on each property.  The capital outlay levy is applied the same on all classes of property so the $3 is equally taxed for farms as it is for commercial property.  School general fund levies are taxed at different rates for each class of property (business paying just under $9/thousand dollars of taxable value; homeowners at about $4 and agriculture just below $2).

The capital outlay levy has not been subject to the limitation placed on other property taxes that limit the revenue from those taxes to 3% or inflation, whichever is less.  This has allowed the levy to be applied to all of the increased assessed values in areas of new construction and increased property values.  Capital outlay revenues have increased an average of 9% per year from 2003 to 2015.  The amount of money that is available to schools for their general fund has increased an average of 2% over the same period of time.  This results in South Dakota spending about $405/student on capital expenditures above the national average.

There may be money available from the general fund as a result of an increased commitment from the federal government regarding Medicaid and Indian Health Services.  The topic of expanding Medicaid eligibility is extremely complicated and highly emotional, much like the family dinner readers just survived over the holidays.

This preview will not wander into the mine field that is Medicaid expansion beyond the observation that money for teacher pay increases may be phased in over several years and the first part of the commitment does not automatically require additional taxes.

The Board of Directors of the South Dakota Chamber of Commerce and Industry is sympathetic with the problem of hiring teachers and has discussed various options to help schools address that difficulty.  There is a strong feeling among the board that money alone is not a sufficient answer and that some reforms in the education system should accompany increases in funding, particularly if those increased funds are derived from increased taxes.

The business community knows one of the most effective ways to address a worker shortage is to pay the affected positions a higher wage than other positions that are not experiencing hiring problems.  This concept has never been embraced by education which has been locked into a series of “steps and lanes” and treats all teachers with the same level of education and number of years of service the same.  The Chamber looks forward to sharing solutions that work in the private sector and reviewing all of the solutions proposed by lawmakers.

This is just the first of many issues that will be addressed by the South Dakota Chamber of Commerce and Industry thanks to your support.  Grab a seat, order some snacks, the show is about to begin.

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