Capitol Connections February 11, 2019

| February 11, 2019

Capitol Connections February 11, 2019

Believe it or not, we are halfway done with the Legislative Session.  But, like a bunch of college students, we apparently are going to wait until late in the semester before tackling the real work.  The highlight of this coming week will be the Appropriations Committee adoption of the revenue targets for the Fiscal Year which starts July 1, 2019, and continues through June 30, 2020.  The revenue estimate will be key to making several major decisions, such as how to fund nursing homes, education, community support providers, state employees, and any one-time special projects.  

Two big questions will be: 1) how much revenue will come in from collecting online sales taxes? and 2) when and how will the projected recession affect the general fund?

Bills continue to move (sometimes slowly) through the process.  New this year is a tab on the LRC website that allows us to see bills that have been withdrawn by the sponsor.  Currently 20 bills have been withdrawn, with rumors of a few more that will probably be pulled.  Bills are typically pulled when someone convinces the prime sponsor that their proposal is unconstitutional (hey, it happens), is already addressed in state law, or their issue can be fixed with a simple conversation with the right person. 

School Capital Outlay Funding
One of the more confusing areas of state policy is our school funding formula.  We hesitate to use the word “convoluted,” but if it makes you feel better, go ahead use it.

There are several bills dealing with school capital outlay.  HB1139 would repeal the maximum taxes levied by a school district for capital outlay and HB1141 would increase the maximum taxes levied by a school district from $2,800/student to $3,800 per student.  Capital outlay impacts every property owner, but how exactly does it work?  

State statute gives school districts authority to levy up to $3 per thousand dollars of valuation for capital outlay purposes. Unlike the school general fund levy which varies among classes of property, the levy for Capital Outlay is the same for all land classes.  Capital outlay can be used to purchase capital assets, including school books and educational software, cover transportation costs, and pay for warranties on capital assets.  In addition, a school district may transfer up to 45% of its capital outlay taxes to the school general fund.   Growth of the school capital outlay fund is capped at three percent or inflation, whichever is less.  

When the legislature changed the school funding formula a couple of years ago, one of the provisions set a limit of $2,800 per student for capital outlay purposes, starting in 2021.  The same growth limitation of three percent or inflation is applied to the per-student limit.  Last year, the legislature recognized that some school districts had current capital outlay obligations exceeding $2,800 per student.  If the district had acquired debt prior to 7/1/16, then they can ask for their obligation payment plus an additional $2800 per student.  If they did not have debt prior to 2016, then school districts are bound by whichever of the two limiting factors will generate the fewest tax dollars – the three-percent-or-inflation index or the per-student cap. 

This is an issue that continues to generate discussion and we will be closely following the two bills filed this year dealing with increasing or doing away with the Capital Outlay limitations.

But we digress…
Now that you are up to speed on capital outlay, how are the other bills we are following doing…
SB4 passed Senate Tax Committee 6-0 after a hog-house amendment allowing for a pilot study in several counties (to be determined) of implementing a “most probable use” valuation for ag land tax assessments.  SDCA supported the study and continues to support gaining more information to ensure property taxes are assessed as fairly as possible across all types of ag land.
SB43 is the bill allowing SDSU to move forward with the 2+2 Rural Veterinary Education Program.  During the bill’s first hearing in Senate Ag Committee, there was an opportunity to provide legislators with a history lesson on the taxation of endo/ecto paraciticides, which is always fun to say in public.  The bill passed the Senate and is scheduled for a hearing in House Ag on Feb. 12.  Per members’ policy, SDCA is also supporting this measure.
SB44 allows SDSU to sell land it’s not currently using, and segregating the proceeds to be used to buy other property that can benefit the college.  It passed the Senate 30-2 and awaits hearings in the House.
SB40 transfers ownership of the ADRDL to Animal Industry Board to allow for additional renovations on the lab.  Once completed ownership will revert back to the Board of Regents for the use and benefit of SDSU.  SB 40 passed the Senate and will be heard in House Ag on Feb 12.  As proponents of the ADRDL updates, SDCA is watching this measure and will lend support if necessary.

SB149 increases the amount authorized for certain brand fees and authorizes a brand registration application fee and an expedited registration fee.  The proposed increases will allow the brand registration program to meet its financial obligations over the next 5 years. The bill is identical to the one proposed in the 2018 session, which SDCA supported and we continue to support a fully funded brand program. SB 149 will have its first hearing in Senate Ag on Feb. 12.

SB93 would double the amount of time a young driver – between 14 and 18 years – has to have an instruction permit before they could get a regular driver’s license.  Currently, an instruction permit is valid for six months – this would take it to a year.  Following an amendment to allow for limited exemptions including agriculture and school functions, SB93 passed Senate Transportation 5-2.  SDCA members passed policy opposing these changes at the 2018 convention, and we have expressed our concerns about the negative impacts of this legislation in rural areas.  However, we are slightly more comfortable with the amended bill and we will continue to engage in discussions about how to make the legislation work for rural families.

HB1188 recognizes the nutrient value of manipulated manure differs from the nutrient value of commercial fertilizer, and proposes adjusting the fertilizer tonnage fee accordingly.  The bill passed House Ag Committee and awaits floor action. 

SB147 would require commercial pesticide applicators to carry a $300,000 bond or liability insurance of $100,000. 

HB1234 would take part of the contractor’s excise tax from CAFO construction and give the money to schools. HB1234 passed House Taxation after an amendment that would place the money into the capital outlay fund.   South Dakota is one of two states with a contractor’s excise tax, and it is the third largest source of revenue for the state’s general fund.

HB1223, sponsored by SDCA member Representative Kent Peterson, would take a portion of the contractor’s excise tax generated from CAFO’s and redirect it to the counties.  SDCA is inclined to support this legislation, though we aren’t optimistic it will survive.  We will know more following the release of the revenue forecasts this week. 

SB68 is being affectionately called the “fake meat” bill – it would “define certain acts as misbranding of food products.”  The bill will be heard in Senate Ag and SDCA will lend support to the measure.

SB110 would take anywhere from $1.5 million to $1.4 billion of money from the state highway fund (depending on how you read the language in the bill) and give it to each county and township in the state.  Senate Transportation sent the bill to the 41stday (there are only 40 days…).

HB1118 would also ding the state highway fund, to the tune of $7-8 million, by getting rid of the vehicle excise tax on rebates.  The bill limped out of House Tax committee and a fiscal note was requested so floor action is delayed.

HB1191 would legalize the growth, production, and processing of industrial hemp.  Passed House Ag Committee 13-0.  The Governor has indicated concern with the bill and is encouraging legislators to withdraw and/or oppose the bill.

HB1089 will allow electronic auctions that operate in accordance with the federal Packers and Stockyards Act to be held in South Dakota.  The bill has been assigned to House Ag Committee and SDCA intends to support the bill.

As drafted, HB1240would allow affected counties or municipalities to  request a public hearing – which shall be granted - if they believe the quality or quantity of their water supply will be impacted.  This bill causes concerns for SDCA and we’ll watch it carefully.

HB1251 seeks to place funds to the special racing revolving fund and the South Dakota-bred racing fund from the tourism promotion fund and simulcast wagering in hopes of rebuilding SD’s horse racing industry. 

SB63 increase the penalty for anyone found guilty of trespass to hunt, fish, or trap.  The individual’s privileges shall be revoked for two years following a second or subsequent conviction of trespass within the last ten years.  SB63 passed Senate 33-0.  SDCA will lend support if necessary.

SB66, the “territorial integrity act,” also known as the Great Battle between REAs and municipal electrics, continues to idle while the two sides finally convince legislators of the lack of merit in the ideas being suggested by the other side.  The latest we heard is that this issue will probably get to idle all summer in search of a compromise.  SB81, 82, and 83 all dealt with REAs, but we applaud the prime sponsor for adding them to the list of bills that have been withdrawn.

SB112 (the actual use bill) would categorize any land seeded to grass for at least 10 years as noncropland.  The bill will be heard in Senate Tax Committee on Feb. 11 and, per member policy, SDCA will support.

SCR6 urging the President of the United States to make agriculture exports a priority and protect agriculture products from all and future tariffs. Senate Ag passed the resolutions 7-0 and placed it on consent.