South Dakota's county problem: Capped revenues, uncapped costs
"Counties have burdens with no real means of revenue," Davison County Auditor Susan Kiepke explained.
MITCHELL — The total property tax levy in Davison County increased by 6% from the last fiscal year to the current fiscal year.
Over that same period, the county gave employees an 8% raise, jail costs increased by 20% and road maintenance costs, though not entirely paid by the county general fund, increased by more than 50%.
In Davison County Auditor Susan Kiepke’s office, squaring the circle of limited revenue growth and rapidly increasing costs in core county obligations is a math problem without an easy solution.
“We're mandated to pay for all these things,” Kiepke said. “But we're not given any means to do so.”
Over the recently wrapped, 10-week legislative session in Pierre, the county problem was much discussed, and myriad solutions were proposed: regionalizing jail funding capacity, offering state dollars to help with jail construction and potentially giving counties a limited capacity for sales taxes.
But all three of these major proposals, and several other bits and pieces of other legislation in the same vein, were struck down, unpalatable options in a session focused on cutting taxes.
Despite promises of an interim study potentially looking at what items can be taken off the county’s plate, lawmakers invested in the issue know it’s not going away, especially with about $170 million in federal funds that counties could use for salaries and other needs throughout the pandemic drying up.
“The first time that I brought the idea [of a sales tax for funding certain construction projects] was a year ago,” said Rep. Ernie Otten, of Tea, one of two prime sponsors on Senate Bill 99, a county funding idea that went down by big margins in the Senate. “And is it totally the right mechanism? I can't tell you that it is. But at that time, there was one county that was in trouble. We've now got about 12 counties in trouble and counting.”
Limited growth in revenue, unlimited growth in costs
In tracing the reasons for the “county problem,” a problem of obligated costs outpacing revenue, it helps to begin with a Gov. Bill Janklow-era property tax law: SDCL 10-13-35.
That law, which took effect in 1997, limited the annual increase in county property tax collections to “inflation plus growth,” as Kiepke puts it.
More specifically, the law limits collection hikes to the “percentage increase of value resulting from any improvements or change in use of real property,” known in budget shorthand as “growth,” plus an index factor of 3% or inflation, whichever is lesser.
The only way around this limit is an “opt-out” approved by voters, which may not work as well for jails as it does for schools.
While that law functioned well enough for over two decades, the “lesser” anchor in inflation or 3% starts to become a problem when inflation enters a four-decade high, as it has over the past two years.
Exacerbating that problem is the specific character of the current inflation, which has hit construction, fuel and labor particularly hard, three major costs of counties.
While Kiepke made clear that Davison County would continue to balance its budget, she explained that meeting more expensive core priorities means doing away with new vehicle purchases or lowering the scope of pre-planned road repairs, decisions made in the budget process that push off inevitable costs.
Especially in an inflationary environment, there’s also a need to make room in the budget for unforeseen price hikes, from higher fuel costs spiking public safety and road maintenance budgets to a 35% single-year jump in jail food costs. The county does set aside $300,000 each year for departments in the red, though larger cost jumps may require supplemental budget reconsiderations during the year.
“There's a lot of uncertainty in county budgets. This year, we cut it back as much as we possibly can just to make ends meet,” Davison County Sheriff Steve Harr said. “I didn't even ask to buy a new patrol car. We're just going to make the ones that we have stretch through the year.”
Other bits and pieces in the county budget include myriad costs in the social safety net: $258,000 in emergency assistance for poor residents and $600,000 for public defense, for example.
“No other entity has to do those things either,” Kiepke said. “And I'm not complaining. I'm just saying that counties have burdens with no real means of revenue.”
Legislative fix could mean taking bits off county plate
It’s not unheard of for the state to throw a life raft to counties every now and then.
For years, former Sen. Mike Vehle, of Mitchell, worked to give counties better funding mechanisms for fixing roads and bridges, culminating in a 2015 law allowing a special property tax set aside as well as an increase to the wheel tax, both specifically for helping with road and bridge maintenance.
“It was like pulling teeth,” he said. “It is not easy to raise revenue in a conservative state, and I'm a conservative, but there are certain things you have to do.”
The major discussions over county have-to’s this past legislative session involved county jails, where Davison County is no exception: administration costs of the aging, overcrowded facility increased by 20% this year, and contracts with eight other counties and the Flandreau Santee Sioux Tribe to house prisoners don’t even begin to keep up with costs.
But no matter how much an increase in taxes was dressed up in rhetoric like “local control” this past session, it had little chance of survival: even an increase to the occupancy tax in municipalities, which got further than any county funding idea and made its way to Gov. Kristi Noem’s desk, was swiftly vetoed.
In the county jail category, proposals to regionalize jail costs by allowing counties to create a regional jail authority and administer bonds, as well as a $50 million set aside for state grants and loans to counties needing a headstart on new jail construction.
Sen. Helene Duhamel, of Rapid City, a major proponent of the regional jail authority proposal, was not happy with the idea’s failure in the House of Representatives.
“It’s a crisis situation in many parts of the state,” she said. “And the Legislature again offered no options for our incarceration needs at the community level.”
Rather than increasing the burden on property owners, lawmakers near the end of the session discussed the possibility of taking items off the county’s plate.
House Majority Leader Will Mortenson, of Pierre, mentioned the state helping fund court-appointed attorneys, one of Davison County’s largest costs at about $600,000 this year, as one potential item that could come off county plates, since a task force on the subject is already planned.
“We're looking for some areas where we can change the delivery model or take some aspects of the service off the county’s plate,” Mortenson said. “Areas where we can deliver better services for less money, but the money will be coming from the states instead of the counties.”
But with only so much capacity from the state to take over county functions — and those needs in places like Lincoln County strained by population influx — new funding mechanisms will continue to be discussed in future sessions.
“We cannot keep going down this endless road [of raising property taxes],” Otten said.
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.