Revenues are set. Where does the South Dakota Legislature go from here with tax cuts?

PIERRE — Record-breaking state revenues for the next fiscal year have been set. Tax cut proposals are being heard in appropriation committees. Plans are being made on what programs to fund in the state's upcoming budget. But at the end of the day, it's still up in the air what, if any, of the three major tax cuts proposed will come to fruition.

The Legislature's Joint Appropriation Committee set the projected 2024 fiscal year ongoing revenue funds at an a record breaking $2.38 billion. That's $182 million more in ongoing revenue than what Gov. Kristi Noem proposed during her budget address in December.

Yet, in the room on Valentine's Day, when the revenue committee adopted the draft projections, there was a pragmatic discussion about what the state might face in the next few years with a possible mild recession, funding Medicaid expansion and future infrastructure projects.

More:Billions expected in 2024 revenue projections for South Dakota

"At the end of the day, we still have to look at what are the things that we are going to fund," Sen. Jean Hunhoff, R-Yankton, said Tuesday, adding it's the state's priority to fund education, state employees and healthcare providers.

Included in those funding discussions are the construction of a new women's prison in Rapid City and the purchasing of land for a state-of-the-art men's prison in Sioux Falls to ease the overcrowding in the corrections system, as well as improving mental health access across the state.

And some lawmakers say it's time to "take care of our house" before the more than $350 million in tax cuts can be considered.

What tax cuts are on the table?

The highest profile tax cut that's been talked about since September is cutting the overall state sales tax on groceries. It's a campaign promise Gov. Kristi Noem made on the trail and Rep. Mary Fitzgerald, R-St. Onge, and Sen. John Wiik, R-Big Stone City, are leading the charge on HB 1075, which would take the 4.5% sales tax on groceries down to zero.

It's been estimated the cut could return between $102 million to $113 million to South Dakotans.

The grocery tax cut is heavily favored by Democrats, with economics professor Sen. Reynold Nesiba, D-Sioux Falls, saying the cut is more straight forward than some of the other proposals.

More:Education lobbyists, tribal reps worry SD food tax cut may be more harmful than good

The second proposal would attempt to drop property taxes for South Dakota homeowners. Originally, House Bill 1043 would have single occupancy dwellings appraised at $100,000 less than their value. The maximum benefit a property owning taxpayer could receive would be just under $300.

But on Thursday, during a House Appropriations Committee hearing, Rep. Tony Venhuizen, R-Sioux Falls, introduced a friendly hoghouse amendment that wholly changed HB 1043. Instead of accessing the value of the single owner dwelling at $100,000 less, each property owner would receive a $300 tax credit toward their property tax.

"I think the idea was, 'Let's just cut to the chase, and instead of having this complicated mechanism, let's just say it's a credit of $300,'" Venhuizen said. "It's just much simpler."

The new tax credit would cost the state an estimated $73.5 million, similar to what the original property tax cut proposal would have cost, Venhuizen said.

More:Property tax cut that would lift burden on homeowners moves to appropriations

He added renters would not be impacted by the property tax cut, and "that's clearly a disadvantage of that mechanism."

The third tax cut is a proposal Rep. Chris Karr, R-Sioux Falls, brought back from the 2022 Legislative session: cutting the overall sales and use tax to 4%. That would return $174 million to South Dakota based on the revenue projection adopted by the Joint Appropriations Committee.

Republicans in the House and Senate have been hesitant to throw their weight behind any of the three proposals but said they are focused on providing some kind of tax cut.

"We would not be moving forward with any tax cut if we didn't think it was sustainable," House Majority Leader Rep. Will Mortenson, R-Pierre, said.

'Take care of our house'

Forward-thinking lawmakers are focused on upcoming improvements to the state, while being mindful of the tax cuts.

Sen. Helene Duhamel, R-Rapid City, pointed $104 million unused ARPA dollars that could be used for water projects across the state, especially West River, and the upcoming corrections projects.

"I think there's growing sentiment that maybe we need to take care of our house before we look at tax cuts," she said Thursday, during a weekly press conference between reporters and Senate and House GOP leadership.

More:Gov. Kristi Noem's family leave plan dies in South Dakota House Appropriations debate

Mortenson pointed to a bill that would set aside dollars for Medicaid expansion funding in a few years as an example of future planning. As part of the expansion plan, the federal government will pay 95% of the costs for the first two years and after then cover 90% with the state picking up the rest.

"I think it's fiscally prudent to start planning for that," he said.

And lawmakers continue to think back to budget cuts made in the late 2000s during the Rounds and Daugaard administrations as a result of the 2008 Great Recession. If the economic headwinds turn down in the next year, lawmakers worry what that might mean in terms of budget cuts.

Rep. Linda Duba, D-Sioux Falls, said as a member of the appropriations committee, she had to think about those possibilities.

"It's my job right now to say, 'Are we really in a position to give back tax relief now knowing that we won't have all of this federal funding and stimulus coming into the state within two to three years down the road?'" she said.

All three tax cut proposals will be heard in House appropriations on Tuesday. If any of the bills make it out of committee, they'll be heard on the House floor ahead of Crossover Day on Wednesday afternoon.

This article originally appeared on Sioux Falls Argus Leader: Where do South Dakota tax cuts fit in after 2024 revenue projects were set?