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Commentary

Commentary

Whatever lawmakers do about property taxes, it’s too late to save us from the price of ‘Freedom’

A state senator recently offered an insightful opinion on South Dakota’s property tax conundrum.

He was arguing, unsuccessfully, for a bill incentivizing data center construction. But his comments made a broader point.

“What’s happened in South Dakota is we get people moving here for freedom, and that’s great,” said Sen. Steve Kolbeck, R-Sioux Falls. “But then they work from home. And there is no large commercial building paying property tax.”

In other words, people need public services such as schools, roads and law enforcement. Remote-working homeowners pay property taxes to the local South Dakota governments that provide those services, but their employers often do not, because they’re in a different state or don’t have a physical location.

It’s partly a product of the in-migration surge that South Dakota experienced during the COVID-19 pandemic. The governor back then was Kristi Noem. She infamously flouted public health precautions and invited the world to relocate here for our “Freedom” (she always capitalized the “F,” apparently to inflate the word with her expanding sense of self-importance).

Noem’s overtures worked for a while. The number of people moving to South Dakota briefly surged during the pandemic.

One of the consequences was out-of-control home prices in parts of the state. Some Freedom-lovers came from states with higher incomes and housing costs. When they brought their bigger incomes to South Dakota and saw the lower home prices, they salivated. Some were eager to bid more than the asking price to get the house they wanted.

Counties in South Dakota assign a taxable value to every home based on its market value, so when prices go up sharply, it affects property taxes.

Since the beginning of the pandemic, the median listing price in the state exploded upward by 65% from $242,000 to a peak of nearly $400,000, while property taxes paid by homeowners have increased by 43%.

When those increases took off, complaints followed. Not knowing how to solve such a big and complex problem with property taxes, but desperate to appear to be doing something, lawmakers and Noem temporarily lowered the statewide sales tax rate from 4.5% to 4.2%. They did that three years ago and scheduled a return to 4.5% next year.

Voila, tax relief!

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South Dakotans weren’t buying it. The sales tax reduction saved them a penny for every $3.33 they spent. Property taxes were hundreds or even thousands of dollars higher for some people than they had been a few years earlier. They kept complaining.

Noem moved on to lead the federal Department of Homeland Security, leaving her successor and lawmakers to respond to lingering calls for property tax relief. They did so last year, with multifaceted legislation. It temporarily caps the countywide growth of taxable home values, and also temporarily limits the value from new construction and growth that can be used to increase property tax collections. It prevents some home improvements from causing higher home valuations, and expands eligibility among disabled and elderly people for property tax relief programs.

With elections looming, legislators have filed dozens of bills this winter to show they’re doing even more to bring property taxes down. The leading contender, due to a lack of consensus around other ideas, is Gov. Larry Rhoden’s proposal to let counties impose a half-percent sales tax and devote the proceeds to property tax credits for homeowners.

Kolbeck, the senator from Sioux Falls, thinks data centers could be part of the property tax solution. It’s true that a large data center would pay a lot of property taxes, but that would only ease the burden for taxpayers in the local jurisdiction where the data center is located. And questions remain about how the extreme electrical needs of large data centers might affect the rates paid by other electrical customers.

Meanwhile, the housing market continues to normalize as the effects of the pandemic fade.

Whatever lawmakers do now in response to an eruption of property tax anger that peaked several years ago will be too late for relief that was needed back then. They could’ve quelled property tax complaints at that time by using the state’s run of budget surpluses — buoyed by several years of federal COVID relief and stimulus programs — to provide property tax credits or other forms of temporary assistance.

Instead, it appears the trade-off we’re about to get for lower taxes on our homes is higher taxes on the things we buy.

I guess that’s the price of Freedom.

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