Rhoden unveils plan to slow property tax increases for five years

PIERRE — Responding to a public outcry about rising property taxes, South Dakota Gov. Larry Rhoden proposed a bill Thursday at the Capitol to cap growth in owner-occupied home valuations for five years.

The plan would also put stricter limits on the annual growth of local governments’ property tax collections and expand eligibility for property tax relief programs.

Rhoden lauded the approach as a reasonable compromise in a legislative session where property tax relief has spurred a host of competing proposals.

The governor’s version will take the form of Senate Bill 216, introduced as an empty “vehicle bill” seven days ago. This week, Rhoden’s team filed a proposed amendment that outlines the plan’s provisions. The governor described it as “an agreement” reached by a property tax working group made up of 10 state lawmakers and representatives from his office.

Flanked by that group’s membership at a Thursday press conference in Pierre, Rhoden thanked them for their “passion to relieve the tax burden on South Dakota homeowners.”

What it does

The total assessed value of all homes in a county is part of the math that determines a South Dakotan’s annual property tax burden, as are the values of home improvements across the county.

An individual homeowner’s property tax rate is set by dividing a local government’s funding needs by the combined value of all of a county’s homes, commercial properties and agricultural land.

Budget cuts look more unavoidable after adoption of South Dakota’s revenue estimates

Typically, the home value piece of that equation is tied to the housing market. In recent years, ballooning home values in some parts of South Dakota have pushed assessments – and the tax bills that ultimately flow from them – up.

The governor’s plan to address the issue wouldn’t lower anyone’s property tax bills directly, but would instead make a handful of adjustments to keep them in check.

The proposal would cap growth in the total taxable value of a county’s owner-occupied homes at 3% a year for the next five years. It would not make changes to valuations for commercial properties or agricultural land.

It would also shield home improvements worth less than 40% of a home’s value from factoring into a county’s total property value.

“Local governments shouldn’t need to grow just because a homeowner makes small improvements,” Rhoden said.

On the “funding need” side, the governor wants to cap how much money a local government can ask for in property taxes.

Currently, unless two-thirds of its voters “opt out” of the state’s property tax limit, a local government can only ask for 3% more or the rate of inflation – whichever is lower – each year. On top of that, they can also ask for more based on new construction or home improvements. 

Rhoden’s bill would limit annual growth based on new construction and home improvements to 2% and apply the same limit to school capital outlay funds. Schools use their capital outlay funds for land, buildings and equipment.

Finally, the bill would increase income limits for the state’s property tax freeze relief program for elderly and disabled people – provided they’ve lived in the state for at least five years. Rhoden said the income limit for a multi-person household would rise from $45,000 to $65,000, for example, and the maximum value of a home eligible for the program would rise from $350,000 to $500,000.

Reaction, competing ideas

The Rhoden-backed bill is a corrective to changes in property tax policies on agricultural land more than a decade ago, he said, which put additional pressure on homeowners to pick up the tab in the years that followed. 

Property taxes are a critical funding source for county governments and school districts. The state relies on sales taxes to pay the bulk of its bills.

Over the past five years or so, spiking property values in some areas of South Dakota have created sticker shock that drove lawmakers to appoint a study group on the issue last year and pledge to provide relief this session. 

SD governor predicts solution for rising homeowner property taxes

At a Republican leadership press conference held shortly before Rhoden unveiled his plan, lawmakers pointed to property tax relief as a top priority. House leadership said public school leaders might need to find ways to tighten their belts.

“To actually have a real property tax cut, you have to cut schools, because schools are 56% of our budget,” said House Assistant Majority Leader Marty Overweg, R-New Holland.

Rhoden said he’d need to hear more about specific ways schools would save money before responding to Overweg’s comments. He said he hadn’t heard them yet.

Rhoden did acknowledge, however, the multitude of property tax and property tax-adjacent proposals circulating in Pierre this session. 

Just this week, for example, the Senate defeated a bill from freshman Sen. John Carley, R-Piedmont, that would have given parents a property tax break if they choose to enroll their child in some manner of alternative to their local public school. Other property tax bills were deferred for later action as lawmakers waited for Rhoden’s plan.

Rhoden didn’t speak to specific proposals, but said lawmakers should settle on a plan by the end of the legislative session next month. 

“Is this going to be an end-all, be-all? And the answer is no,” Rhoden said. “There are a number of bills being worked on, and we’ll consider them individually as they come forward. And quite frankly, I think there are some reasonable proposals in addition to what you see before you today.”