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South Dakota’s Noem tries to convince lawmakers on tax cut

SIOUX FALLS, S.D. (AP) — South Dakota Gov. Kristi Noem on Tuesday will try to win over the Republican-controlled Legislature with details of her plan to enact a historic repeal of the state’s tax on groceries. But to deliver on the campaign promise, the Republican governor must convince lawmakers the state can also afford to tackle inflation and a long list of items pressing on the state’s budget.

Noem, a Republican, was critical of a proposal to repeal the state grocery tax during the final days of the legislative session in March, but this fall, she changed course and made it a centerpiece of her reelection campaign. It would help alleviate the squeeze of inflation on household budgets, she has argued.

Inflation, however, also has lawmakers focused on other budget items. Some Republicans and Democrats say they first want to shore up funding for people who draw their income from state funds — teachers, state employees and health care workers funded through government programs. Lawmakers will also look to pay for a list of upcoming expenses: Medicaid expansion that was approved by voters this year, a $600 million upgrade to the state’s prison system, and plans to address labor shortages in elder care facilities.

Some Republicans are also pushing a plan to reduce property taxes on people’s homes by replacing revenue from property taxes that would go to schools with state funds.

“We’re going into a year where there’s a real interest in cutting taxes but there are also a lot of new demands because of high inflation,” said Tony Venhuizen, the former chief of staff to the governor who will next year take a vice-chair position on the House Appropriations Committee. “It will be interesting to see how the governor proposes to check those boxes.”

Noem hosted a dinner Monday evening for lawmakers on the committee that irons out the state budget, offering them a preview of her budget plan.

The governor has estimated that repealing the state tax on groceries would cost about $100 million and argued that state revenue growth can cover it. Revenue growth this year has been $76 million more than the Legislature’s adopted projections, and the state ended the last fiscal year in July with a $115 million surplus.

During her victory speech on Election Day, Noem was so confident that the state was ready to cut the grocery tax that she also hinted at other projects she would like to fund — incentivizing paid family leave and creating a way for childcare workers to get benefits.

Budget-setting during most of Noem’s first term was filled with state revenues swollen by consumer spending and federal pandemic relief. Noem has credited her hands-off approach to governmental COVID-19 protection measures for keeping the state’s economy humming.

But lawmakers are also cautioning that those years of plenty — when millions of dollars went to upgrading university campuses — could soon be over.

A potential recession could take a toll on state budget revenues in the coming year and inflation has already left budget holes to fill, said Sen. Lee Schoenbeck, a Republican who presides over the Senate.

As he and Sen. Casey Crabtree, the newly-elected Republican caucus leader, carpooled to the Capitol on Monday, they said they were taking a cautious approach to the budget and expressed skepticism at the idea of cutting taxes that provide ongoing revenue for the state.

Democrats, meanwhile, have pushed for years to repeal the state’s tax on groceries. But even Rep. Linda Duba, who will be just one of two Democrats on the Joint Appropriations Committee, predicted that the state could afford only an incremental cut to the tax if it also keeps up with inflation in funding for teachers, state employees and community support providers.

“We are going to see a fight between those who want to do all these tax relief programs — but you’ve got to care for all the people in our state,” she said.

Stephen Groves, The Associated Press