Oct. 2 -- MITCHELL -- As South Dakota voters prepare for the Nov. 5, 2024, general election, Initiated Measure 28 (IM-28) has emerged as a contentious issue among residents and city officials alike.
Mayor Jordan Hanson and Matthew Bogue, State Public Policy Director for the South Dakota Farm Bureau, held a public informational meeting Wednesday morning at the James Valley Community Center to discuss the implications of Initiated Measure 28 (IM-28).
If passed, this measure would prohibit the state from collecting sales or use tax on most items sold for human consumption, a move proponents say would alleviate financial burdens for low-income families. The measure has city leaders bracing for potential budget shortfalls and considering various scenarios to address the financial impact.
South Dakota is one of two states that tax groceries at the full state rate without any tax credits, a situation Gov. Kristi Noem and others have unsuccessfully attempted to change. Advocates for IM-28 argue that removing the tax on groceries is a long-overdue relief for families struggling to make ends meet.
Rick Weiland, a co-sponsor of the measure, has consistently emphasized the importance of fairness throughout the campaign. He argues that families should not be burdened with taxes on food, which he considers a basic necessity.
However, opponents are raising alarms about the potential consequences of the measure. The South Dakota Municipal League, along with various chambers of commerce, have formally opposed IM-28, labeling it an "irresponsible" decision that could jeopardize local funding. Opponents also warn of the measure's vague wording and potential unintended consequences.
In Mitchell, both the Chamber and Development Corporation have voted to oppose the measure, according to Mike Lauritsen, CEO for the Mitchell Area Development Corporation and Commerce.
"We like tax cuts, right? However, they have to be tax cuts that make sense, and this one I don't think makes sense," Lauritsen said. "It's too severe, and it would be very detrimental to our community."
If the initiative passes, the state could see a reduction of $123.9 million in annual revenue. This financial gap raises questions about how local governments, such as Mitchell, will cope with funding shortfalls. Sales tax and utility rates are the city's two primary sources of revenue.
The financial implications for Mitchell vary depending on the interpretation and implementation of IM-28. In a scenario limited to groceries, the impact would be approximately $1.4 million, which the city has already factored into its budget.
However, in a worst-case scenario, if the measure applies to all "human consumption" items and the city loses its ability to collect these taxes, that figure could soar to $6.8 million -- nearly 50% of Mitchell's total sales tax revenue.
"At that point, we would have to have some hard conversations at city council to decide what things we would have to cut. If we would have to cut, we would definitely have to make some large cuts, because our current budget is around $20 million."
Local leaders are already brainstorming solutions to counterbalance potential revenue losses.
Hanson emphasized that essential services such as Emergency Medical Services (EMS) and Fire Department operations are primarily funded through sales tax revenue. Because these critical services cannot be cut without compromising public safety, the potential budget shortfall from IM-28 would likely impact other areas of city operations. Hanson indicated that non-essential services and facilities, such as the recreation center and ice arena, would be among the first to face closure or significant reductions if the measure passes and leads to substantial revenue losses.
"It's a tough trade-off; you'll either pay more in taxes or lose essential city services," Hanson said. "Things that we don't necessarily need to survive, those are probably things that will be first on the chopping block to cut."
Hanson said Mitchell has approximately one year of capital reserves to absorb initial impacts
At Wednesday's public meeting, Bogue highlighted the importance of educating voters about the implications of IM-28. He also noted the uniqueness of South Dakota's tax structure.
"South Dakota taxes a lot of things, but they're all at a low rate. This creates a more stable budgeting process," Bogue said.
Bogue noted that South Dakota recently lowered its state sales tax rate from 4.5% to 4.2%.
Bogue pointed out that South Dakota is one of only a few states without a state income tax, a point of pride for many residents and a key factor in the state's economic strategy. The passage of IM-28 could lead to the introduction of a state income tax to make up for lost revenue, according to Bogue.
Dale Houchin, who grew up in South Dakota and has lived in four other states during his adulthood, believes that having no state income tax is beneficial.
"This is one of the few states with a balanced budget," Houchin said. "When I returned 25 years ago, I saved 7% of my income right off the top."
An often-overlooked aspect is the impact on tourism-related revenue. Hanson notes that 75% of credit card spending in Mitchell comes from out-of-state visitors.
"So it's a big impact that we will have to carry that burden rather than the people coming to enjoy and visit our state," he explains.
If passed, IM-28 would not take effect until July 1, 2025, giving cities some time to prepare. However, the measure's passage would likely face judicial challenges and review.