This interview originally aired on "In the Moment" on SDPB Radio.
South Dakota Gov. Larry Rhoden launched his "Homeowners Tax Relief Program" and his new Project Prison Reset kicks off this week.
Our Dakota Political Junkies are two experienced former state legislators. They offer insights into the property tax proposal and prison project, as well as a history lesson and their projections for what lies ahead.
Linda Duba is a Democrat and former state representative. Jean Hunhoff is a Republican and former state senator.
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The following transcript was auto-generated and edited for clarity.
Lori Walsh:
Jean Hunhoff, let's start at the beginning. For people are buying a home in South Dakota. They have to pay property taxes. What are they being taxed on and where is that money going?
Jean Hunhoff:
Well, the property tax goes to the counties and, by state statute, so much is collected for education based on a formula. The other is for county expenses. So those dollars reside at the county, and what that arrangement is depends on what the budget is of the county and what the budget is for the school districts in that county.
But I think we should look a little historical perspective here. Education has always sort of been in the forefront for the costs that are there that people seem to have the greatest angst in, but let's go back to when Janklow was in office.
He was facing a property tax revolt. People were upset. So what did he do?
He developed the video lottery and the thought was those revenues that were generated would go to support education and then there would be a decrease in property taxes because those dollars, rather than coming directly out of the pockets of each of the property owners, would be lessened.
Well, that worked for a period of time. However, we all know that, again, education costs continue to escalate, and then there wasn't really that money in the video lottery. Everybody thought, "Well, that supported it."
Well, the costs exceeded or the needs exceeded what was being generated. So ultimately, in the Daugaard administration, that video lottery went away. We had budget reserves and then we had a general revenue replacement fund that would, really excesses that were coming in at the end of the year, the state would go to those two funds, but no longer would there be this video lottery fund.
Well, then after that, they started looking at, again, there was a concern in the early 2000s, mid-2000s, and it was really with ag property. And our current governor was, at that time, in the House in leadership and he and a senator from Custer County were working together to find a resolution how you could assess ag property. And I believe in the House, you had who's there now, Representative Novstrup, and I believe Deb Peters, and I'm not sure if she was a representative.
They were two different groups, and they really went to battle. There were some really hard discussions and some fighting words said trying to come with this formula.
So then finally, ag got settled in, going from an assessment to a productivity model, and that took years to develop what that productivity model so you could base it on the soils and what you could produce. So that helped to then adjust what ag was doing, that it was based on what they could produce rather than what it was based on land sales.
Well, then they developed an ag land task force that was a continuation to go back and to look at those productivities and to make sure that there was equity there and things were moving.
Well, now we fast-forward where we're at right now, and it's the sales of the property. And it was interesting, I was reading, I believe, I think it's Dakota Scout, I won't say, but they said it's mainly in six counties in South Dakota, West River, and of course Minnehaha, Lincoln, and those counties over here, where there's the most sense of unfairness in property taxes because of the property sales. There's been an escalation.
People have come to South Dakota, we've increased, and they come with a lot of money and what they can buy for a small amount, which is a lot of money to me, is much different than where they were. So what that has done then is escalated those housing rates, those sales, which then raises property tax.
So now we're at the point that they're trying to figure out, well, how can those of us that have lived here, and now because the market value is rising around my piece of property, my home that I have owned for 50 years, nothing is going in the sense that my house is improving like those that are being purchased around me, and I'm the one that now can't afford my taxes? And so I think that's part of how you look at this whole picture, how we have evolved to.
And I will tell you, Representative Duba, I don't remember, were you on the property tax summer study last year?
Linda Duba:
I was not.
Jean Hunhoff:
I was. And so it was interesting, and of course the merit of that study was to look more how the decisions were made on assessments, if there was consistency in the process among all the counties and how they were assessing property.
But at the same time, what happened is that those landowners that came were from the ag sector, primarily West River, that were concerned about what was happening, that were expressing some concerns, and those people from the East River that were also expressing concerns in those counties, that they're rising.
And we didn't hear from other counties about what was happening, their assessments. So now we're trying to look at, and some of the opposition that I've been looking at, is who's going to fare best in this and is this really the true end? And at the same time, if you're going to take dollars, less away, or you're going to allow counties and you're going to direct where they put those dollars, is that going to give any relief for the ag sector and the commercial sector?
Lori Walsh:
Because what would you add to that, Linda, first of all?
Linda Duba:
I couldn't add anything to it.
Lori Walsh:
Yeah, that's pretty comprehensive. Yeah.
Linda Duba:
That's very comprehensive. I will say this. I remember when the video lottery was on the ballot and it was sold as, "We're doing this for education," and that's why I voted for it.
Lori Walsh:
Where's that money going now?
Linda Duba:
It goes right into the general fund and it supports all of our services. Yeah.
Lori Walsh:
Okay. Because it was replaced with something else?
Linda Duba:
Yeah.
Jean Hunhoff:
Right, those dollars that are left over that we're not utilizing that you have your projections, your sales tax has been greater than you had anticipated, we have a budget reserve fund, which is your rainy day fund. So that if that was established, if we had some kind of catastrophic activity occur in South Dakota that we needed access and we needed support, there it would be. But that is fixed. There's a certain amount of percentage that you can have in that.
Well, we've reached the cap in that and so we couldn't add anymore. So then in the Daugaard administration, they sort of transition the video lottery to the general revenue replacement fund. And so that was to take when the rainy day fund no longer you could contribute, but you had excess dollars that, again, you would use for revenue replacement as projects or things impacted the state that became priorities, then those excess dollars would flow to those, and there was also a cap on that revenue fund. And I do believe that, that's the general revenue replacement fund, those are the dollars that we're using in some of the projects over the course of time since that's been and not having to access the rainy day fund.
Linda Duba:
So true. And in fact, during the COVID years, those amounts in those funds, like Jean said, like Senator Hunhoff said, we capped that rainy day fund. And then that general replacement fund, at one point in time, we had almost 25% in there of our budget. It was pretty significant. In fact, we tapped it recently to support prison.
Lori Walsh:
So Governor Rhoden has sent his proposal out, which is a half-penny sales tax that the counties or local groups can— What's the right word?
Linda Duba:
They can assess.
Lori Walsh:
They can assess. Thank you. Voters could weigh in on that at the county if they wanted to. What do we think of the governor's proposal? Representative Duba, you go first on this one.
Linda Duba:
You know, I took a quick look at it yesterday and today and I know that the counties have wanted to do this. So I think from a county perspective, you're going to see, from county commissioners, you're going to see some positivity. I'm not sure how the voters are going to feel about it. Again, and Senator Hunhoff and I have talked about this, you take from one pocket, you got to replace it. So this half penny is similar to, "All right, well, I'm going to lower your property taxes, but now I'm going to raise this over here. I'm going to assess this in the county," and then that affects everyone. You know? That affects everyone.
Lori Walsh:
And this is part of what I don't understand about if I'm a homeowner, my taxes go up on things that I buy, but my taxes go down on my house. Do I come out ahead as a homeowner?
Linda Duba:
That's the question of the day. I haven't seen any data that someone has come out with and said, "Well, if County A, if they want to invoke this, but my property taxes, is it a wash? Am I paying more?" I haven't seen an analysis yet.
Lori Walsh:
Plus, if I have an apartment, I'm not getting a benefit.
Linda Duba:
No, you're not. You won't get a benefit from that. So your taxes are truly going up and that's why I'm saying it's assessed on everyone. So this is going to be an interesting sell. I'm not sure.
Lori Walsh:
Yeah. Senator Hunhoff, who does it benefit?
Jean Hunhoff:
Well, I'm going to do a history again. I believe within the last seven to 10 years, there have been at least four bills that have come to the legislature from the county asking for the ability to tax up to 3%.
Linda Duba:
100% true.
Jean Hunhoff:
And so every time it's come up, it gets defeated, and the answer for the defeat is that legislators get feedback from their citizens that they don't want to allow the county to do that because they'll go wild with their spending.
So if this is specific, and I think you asked the question before, how's that going to impact you, if you do allow this, it will be directed to that property tax relief. But again, you go back to say that's just the property tax for the schools. I don't believe this includes property tax for the county.
I mean, if I pay $8,000, I don't think it's equally split. I'm not sure because I haven't read what his proposal, and you'll probably get it if you visit with him. Does that mean is it only going to education, and so then that way, that's going to supplant that, but your costs or your budget for your county needs won't get any additional dollars?
I don't know that, and maybe Representative Duba, you have an answer on that.
Linda Duba:
I don't. And I think the big pushback from the counties has been this. They'll come to us and say, "We want to increase because we have these mandates that we can't support. Our costs are rising, or jails and services, mental health, police and fire." Their costs are rising, but if this is specific only to property tax, I don't know if that will give them relief on the others? I don't know. I mean, this is a tough nut.
This is why I say we're looking at this through a property tax lens when we really should understand what are, and I've had this discussion in Appropriations with folks, what are all of our revenue sources at the state level, at the county level, at the city level?
And we haven't even talked about how federal dollars are probably going to go down. So what does this mean going forward?
Lori Walsh:
Or if the Department of Education closes.
Linda Duba:
Well, supposedly we're going to get some block grants, but we don't know how much. We don't know what that means. There is no plan yet. So I applaud the governor for coming through with this. I want to see, I'm going to be dead honest, I want to see more than a summer study. We need a comprehensive look at this over time and you got to take it a chunk at a time.
Lori Walsh:
What's more than a summer study?
Linda Duba:
Well, it's an ongoing task force of some kind and you'll have legislators, but then you need experts on there. You need people who are working at the county and the city level and in education and coming through from different lenses so that we have stakeholders involved and we need people from government to talk to us about that equation side of, "Here are our expenses, here are our revenues." We did it with education before and then we only did it once and we stopped and look where we are right now.
Lori Walsh:
Right. Yeah, so getting back to the work on the table needs to be these meaty topics that are looked at comprehensively ongoing-wise. That's the work of government is what I'm hearing you say.
Linda Duba:
That's what I'm saying.
Lori Walsh:
Because a lot of voters are saying when there's a bill that they think is flippant and a waste of time, they say, "This is the kind of thing we want you to be working on solving all the time."
Linda Duba:
Yes. And that is government. That's what good government does and the legislature needs to be involved in that. It can't just come from the executive branch.
Senator Hunhoff, what are your thoughts on that statement?
Jean Hunhoff:
Well, and I'm going to go back to that ag land task force. After we went to that productivity model, they established that ag land task force and it continues on and each year they meet and they relook at that. I think your concept is correct, we find a starting point, but I think the other point is then you need to have something continuing so you're constantly evaluating so you don't go every 10 years. And then you have people that are very upset and then they want, right now, they want change and they want this put into place, "Because my property taxes." I think there needs to be planning and vision and then sustainability with oversight continuing.
Linda Duba:
That's exactly what I'm saying. I agree with you 100%. We can't just keep doing these four-meeting summer studies and call it good and walk away and say, "Oh, well, we brought a bill." No, it's got to be ongoing.
Lori Walsh:
Senator Hunhoff, you mentioned people coming from out of state and what happened to all our people who owned houses, modest houses especially, all of a sudden the value doubled, tripled, but you weren't planning on moving. You're just living here and now you can't afford to fix your house, and you also, the houses around you that are selling, now you can't afford your taxes.
Nobody wants to talk about an income tax. It's really unpopular. But this would be one of the reasons to say, "People who came in with really big incomes did things in my neighborhood that have affected me when I have a fraction of their income and now I might not be able to live in my neighborhood anymore." So there is a reality to that, even though the solution is not a politically— I'm not saying it's a solution. I am not saying property taxes or income tax is a solution. What I am saying is income matters in the conversation and that's why it sometimes comes up.
How do we get through this disparity of people in neighborhoods that have been there a long time who now can't afford their neighborhood any more because of people who came from out of state?
Linda Duba:
And it's especially true for the elderly more than because they're on fixed income. Again, no simple solution. I don't have a magic bullet for that right now. I mean, what we saw, what happened occurred as a result of the pandemic and rising costs. And so people were able to, they said, "I don't want to live here. I'm going to go to South Dakota where I can be free and I'm going to come in with a half a million dollars and I can buy twice the house that I had in California."
Lori Walsh:
Yeah. Senator Hunhoff, help me. You hear what I'm asking there, I hope.
Jean Hunhoff:
I do, and I'll agree with Representative Duba. It is not easy.
Now, the other thing we don't talk about is free market. So I live in a neighborhood and somebody across the street is somebody that's been there, I've been here, but now I've got somebody that's willing to come in and pay three times of what my house is valued at.
So I'm supposed to think, "Oh, I don't want to sell because that person across the street can't afford the taxes"? That's the other side of the coin that we never talk about is that those people took the opportunity and they decided to sell their house for that money and whatever they did with that or wherever they're going to go, in a sense that your sale has penalized you now because Hunhoff sold and I'm still sitting here, but isn't that my right for a free market to do it?
And so now we're looking for a solution. How do you make my free right and also a free right for you whose your taxes are going up? That's why I don't think it's simple.
You've got to get to the basis and can you find some equity there that that homeowner, if you keep their property taxes down, what about that person that bought this house? And I know in some of the legislation, there was some freezing and then there was some going back and it would not impact, but what do you do with these people that keep paying these big dollars for these houses unless something stops and they no longer come to South Dakota? So I'm sorry, I don't have an answer.
Lori Walsh:
Yeah, but that's a really smart point because you do forget somebody, my neighbor, made a lot of money on that and good for them.
You could sell. If that's what you wanted, then sell your house. Yeah.
Linda Duba:
If the opportunity presented itself and I wanted to. Where I live right now, just two blocks away from here, every day, every week I get a call and they offer me a ridiculous amount of money.
Lori Walsh:
But where are you going to go if you sell your house?
Linda Duba:
Point well-taken.
Lori Walsh:
You can't buy anything else.
Linda Duba:
That's the point. The point is, in this market, prices are high. Plus, I like where I live.
Lori Walsh:
Right, exactly.
Linda Duba:
So it can work both ways, but at the end of the day, yeah, they're going to offer it up.
Lori Walsh:
So a sustained, long-term look at revenue and these different revenue streams and spending needs to happen, and it can't just be the executive branch. That's sort of what I'm hearing.
Linda Duba:
It cannot. The legislature needs to be involved. That's why you... And we have experts in there that can do this. And you also need to go outside, so you need to have county people and city people and people in education. You can't make this about this. And ag people, you've got to have a comprehensive look. Now, it's hard to do because that's a big group of folks, but if you target it well and you've got strong leadership, you can have a long-range plan.
Lori Walsh:
I want to pivot a little bit because you mentioned leadership and I'm thinking of Governor Rhoden and the Prison Project Reset and what needs to happen going forward. And maybe we'll start with Representative Duba this time and then bring Senator Hunhoff into the conversation.
Is this a leadership test for him to say, "All this water has gone under the bridge with what the Prison Project should be. I'm hitting reset. I'm gathering 22 people with more public input around the table. We're asking ourselves these three important questions: do we need a new prison, how big should it be, and where should it be at?"
Pretty much everybody agrees that we need a new prison. That's an obvious yes.
Linda Duba:
Not everybody. We have a few that still think we can fix the one we've got.
Lori Walsh:
A few holdouts.
Patch the walls? Okay, fair.
Linda Duba:
Yeah.
Lori Walsh:
Not everybody agrees that. What do you think of this as a test of his leadership ability, Linda?
Linda Duba:
Well, to be perfectly honest with you, I understand why they did it. It's very disappointing. As a member of the Appropriation Committee and the prison study, to now I guess it'll be almost three years ago now, we were very open in public about all of it and we had numerous hearings.
And so what we've seen now is a group of individuals who are balking at what the plan is. And I truly believe it's not just the cost that's driving this. It's where it's located. It's become a political football.
But did the governor have any choice? Well, they couldn't pass the bill, so what else are you going to do?
So they're starting on, I believe, April 2. I think they've got two days of meetings here in Sioux Falls. I'm trying to decide if I want to go show up at one of those meetings and I might because I invested a lot of my time and energy in those decisions along with Senator Hunhoff. Do they have a choice? No, because right now, there's quite frankly misinformation out there.
So we need several people that have fresh sets of eyes. There are some holdovers on that group, but most of these people coming in, fresh set of eyes, and now they're going to be in the seats that we were in and I really hope that they walk in there with an open mind and understand what is looking us in the face.
Lori Walsh:
Will they all have the same facts? Can we agree on that anymore? Because I think it's in the executive order. He actually writes that there is a process to make sure they're all working off the same information.
Linda Duba:
Well, you have to work off the same information, but there still will be open public testimony and we still have individuals out there who like to provide misinformation, and so you can choose to hear it and ignore it or believe it. There will be a lot going on behind the scenes. I got to trust the committee that they're going to do their job, but there's going to be a lot going on behind the scenes.
Lori Walsh:
Yeah. Senator Hunhoff, your thoughts on what Governor Rhoden has in front of him here and how he's proceeding?
Jean Hunhoff:
Well, I would agree with Representative Duba. He's where he is at right now with, I guess, the consequences that have come out. But I will go back to we spent two years, we certainly heard the consultant, we heard other individuals, we listened to everything.
We've been to the prison. I've been there every year that I've been on Appropriations and have seen the conditions there. And it was not like we did this in a very overnight fashion and just projected.
Some of the same individuals that are questioning the size of the facility need to look at the laws we keep passing every year that are felonies that are requiring institutionalization. Our numbers continue to escalate. Now, nothing was discussed about, they did talk about a little bit about parole or whatever, but again, it's a one-shot, one project, not a looking at the whole system.
I think the other thing is this is change and change has stages that it goes through. And I've lived through two of those. So when former Governor Janklow walked into Springfield with security and told the people there, "We're closing the college, and it's going to become a prison," believe me, that was a very tense moment in my life as to how all those people in that community were reacting.
What happened? It went on. It became a prison, and now the community embraces it because it's economic development.
Fast-forward a few years, Yankton College, that was just the epitome of our community in Yankton, right in the middle of a very old historic Yankton, the founding area and everything. The people, again, they reacted, "We can't have this here." We had issues. We had all kinds of narratives going on about the bad things that would happen.
That is now a very beautiful campus. We have not had incidents. It's one that, because of the level of those prisoners, doesn't require barricades or fences around. They live across the street from the facility. It brought economic development to this community. It brought a beautiful resurrected campus. Even though it's a federal prison, it brought people, it brought jobs, and it stimulated the economy, but it had to go through stages.
And I would agree with Representative Duba in the sense that this is a change and people are certainly the unknown, and they give examples or whatever, what could happen. I have to remind myself, so when I was sitting on the property tax summer study, people from that area did come in and they were talking about their property and what the level that their taxes were rising so high and the sale of the property and everything. When we had anything about the prison and those individuals that were living in those communities came in, they would come and do their presentation as to why they raised concerns and certainly valid issues or concerns, but one of them that they expressed that it would devalue their property assessments and they didn't want to see that done. So I'm thinking here, "Okay, both sides of the street here. Where's the win for anybody living there? Because it's either devalue if I have a prison there, or if I don't, then I need property tax relief because it's so high."
Again, I think it's stages and I think that the unattended consequences, in the future, if the state decides to do something with any kind of facility or a capital asset and put it outside in a community or whatever, if the people rally that this isn't the right thing to do, the precedent has been set. We've already, if that location has changed, we've already done that. Will that then create other scenarios out there that'll be more difficult for the state to do anything outside of Pierre, if it's necessary to do?
Lori Walsh:
Yeah. "Here's the roadmap."
Linda Duba:
Yeah. And the thing that is so difficult with this is that we are stewards of the taxpayer's dollars, and we have watched this and looked at this so closely throughout the two to three years that we worked on this, and now because of the reset, we stand to cost ourselves 40 million minimum and possibly up to 100 million more dollars, and everyone calls it the billion-dollar prison. Well, we weren't there yet, but we're going to get there very quickly.
I talk to a lot of the folks that have, some have homes around there, some do not. It's an interesting situation.
Now, I personally live within a mile of the current prison and I have no concerns. I understand that they built their dream homes, but we took care as we were working with the secretary of corrections about making that aesthetic so that you wouldn't know what was behind the rows and rows of trees. So it's not like you're going to look out your back window and 600 feet away, there are prisoners out there looking at you. That is not a true statement, but that is what is being sold to the public and it's unfortunate.
I believe, when all is said and done, they're going to come back and they're going to say, "This was a solid proposal."
Maybe they won't have 1,500 beds. But as Senator Hunhoff has pointed out, we continue to change our statutes so we can lock more people up. So if we really wanted to do change, the prison is operationally how we support folks and how we get them the education they need. Over here, we should have a concurrent thing going on with justice reform. That is important. We need to take a serious look at that, but I don't know if we've got the stomach for it in this state.
Lori Walsh:
All right. What else did we not get to today? Veto Day? Anything from Veto Day that you want to wrap up with, Senator Hunhoff?
Jean Hunhoff:
No, the legislature spoke and certainly I can appreciate. It is challenging as everything comes in. It's out-of-state that's coming in and are the locals really involved? But I think the process we currently have in place is a good one.
Linda Duba:
100% agree with that statement and I'm glad to see that the governor vetoed the bill and it was upheld in the Senate.
