The SD legislature has taken historic action this year with respect to school funding. While they are still working out the details of the funding formula, we do know that both houses have passed HB 1182, Governor Daugaard’s proposal for a new revenue stream for k-12 education. Governor Daugaard is expected to sign this bill into law this week.
The bill increases the SD sales tax to 4.5%. This extra half penny will be used for two purposes. The first is to increase average teacher salaries in the state, and the second purpose is to provide nearly 40 Million dollars in property tax relief. It remains important to note that our school will be required to use any additional funds for the purpose of increasing teacher salaries, and it will not be something that can be used to cover our district’s $500,000 shortfall in the general fund.
The property tax relief portion of HB 1182 will decrease General Fund levies across the state by approximately 12%. Based on preliminary information from the Governor’s office, we expect that the levies for the General Fund will decrease by $0.198 per thousand for ag property, $0.454 per thousand for Owner-Occupied property and by $0.972 per thousand for commercial or “other” properties. In a previous post, we have published information from the County Auditor’s office regarding how much the opt out would cost each of us. In light of the decreases in GF levies, those numbers will be off-set by the above amounts. What that means to property owners in the district is that the opt out will actually cost each of us less than originally anticipated.
The original calculation for ag property was that the levy would increase by $0.84 per thousand. With the tax relief built into HB 1182, the increase in the levy will actually be $0.642 per thousand of taxable valuation. In a previous post, we explored the idea of the taxable valuation per acre in our district. That average taxable valuation is $2,631. That means that the average 80 acre section of land has a taxable valuation of just under $210,500 (sale price is definitely higher, but we’re talking about taxable valuation). Using the levy adjusted by HB 1182, the tax on that 80-acre section of land will go up by slightly over $135. In an 80-acre section of land, the difference between our original estimates and the estimates after the tax relief from HB 1182 is just under $42.
With the property tax relief, the increase in the levy for Owner-Occupied property will go up by $1.736 per thousand, as opposed to the original figure of a $2.19 per thousand increase. For every $100,000 in taxable valuation, homeowners will pay an additional $173.60 if the opt out passes. Our original figure was that property owners would pay $219 for every $100,000 in taxable valuation on their home. For a home valued at $150,000, the original estimate of increased taxes was $328.50. When the Governor signs HB 1182 into law, the increase in taxes caused by the opt out for that same house will be more like $260 per year.
The passage of HB 1182 will also blunt the increase in property taxes for businesses if the opt out election proves successful. The increase in the levy for business will be $3.708 per thousand, rather than $4.68 per thousand in taxable valuation. For every $100,000 in business valuation, business owners will see a smaller increase – approximately $370 rather than $468.
When Governor Daugaard signs HB 1182 into law, it will not solve our fiscal challenges. This law will, however, reduce the property tax impact if voters in our district pass the opt out.