BROOKINGS – Some South Dakota cities’ sales tax revenue is down, and municipalities are reporting troubles balancing budgets.
That’s not the case in Brookings, where sales tax revenue is up, which officials say is a very good thing.
“Our 2015-2016 total was up 4 percent, so that’s a good healthy increase,” said Al Heuton, executive director of the Brookings Economy Development Corporation.
“It’s a primary revenue source for the city,” City Manager Jeff Weldon said. “On the 2016 budget, we brought in $6.6 million on each (first and second) penny.”
For the 2017 budget, each penny is budgeted at $6.4 million, “so that’s what we need in sales tax revenue to make the 2017 budget,” Weldon said.
2 percent to Brookings
Instead of a state income tax, South Dakota has sales tax. That means the amount of state tax South Dakotans pay is directly related to how much they buy.
Some of that sales tax revenue goes back to the cities, and that means about $13 million for Brookings annually, said Weldon.
“It is state law that there is a 4 1/2 percent sales tax on virtually all goods and services in the state,” Weldon said. “The state has a very wide tax base. By and large, most items that you buy as a consumer are taxable in South Dakota.”
The state keeps that 4 1/2 percent but gives cities the authority to piggyback an additional penny – for a total of 5 1/2 percent – and that additional penny goes to the cities.
A number of years ago, the city of Brookings adopted a second penny tax, so “consumers in Brookings will pay 6 1/2 (cents) sales tax,” Weldon said. The first 4 1/2 goes to the state and the remaining 2 percent goes to the municipalities where the items were purchased.
What it buys
“Our first penny is dedicated to general operations and basic services of the city: police, fire, parks, all those types of ongoing operating expenses, so it makes up a big share of the general fund. The first penny goes to the ‘boring’ stuff. It’s the day-in, day-out routine services of the city government,” Weldon said.
“Where the city council spends most of its time and where a lot more heavy decisions are made is how to spend that second penny and prioritizing our capital projects,” Weldon said.
“Our second penny, we try to reserve that for capital purchases, so that is what’s allowed us to pay cash for the (under-construction South Main Fire Station). It allowed us to pay cash for the (newly constructed) street maintenance building,” Weldon said.
It also pays for heavy equipment and infrastructure projects.
“These would be one-time purchases, when that project’s done, we’ve got another project lined up behind it,” Weldon said.
“When the council has made commitments to the hospital and to the Performing Arts Center, that is second-penny money, but that is second-penny debt, so we have pledged future second-penny dollars to those projects. So you can use the second penny as debt payments,” he added.
Why thriving?
Why is Brookings’ sales tax revenue thriving?
Both Weldon and Heuton credit the city’s diversity.
“Fortunately for Brookings, we have a very diverse economy,” Weldon said. “A diverse economy means our local economy is not too heavily dependent on any one type of business activity.”
That diversity is represented by South Dakota State University, the manufacturing companies, the variety of shops here, and the housing boom, not just because of the money and people they bring in, but from the ripple effects that cover the entire community.
SDSU can “recession-proof a community,” Weldon said, “because no matter what happens in the recession, the economic activity generated by a higher education facility seems to continue.”
All those thousands of students live here, eat here and shop here. The activities hosted by SDSU draw people from outside the community who spend money here, as well.
Brookings businesses, including manufacturing plants, have been growing, which means physically adding onto the business by construction and increasing the workforce.
“Between SDSU, the city and private businesses in town, we’ve had a tremendous amount of construction activity over the past five years or longer,” Heuton said.
Construction workers often stay in town during the work project and eat, sleep and shop here, Heuton said.
“Our manufacturing community has been doing very well,” Heuton said. “We’ve been hiring new employees through business and industry expansions, which is creating new households in the community, who are spending more money.
“In the past five years, we’ve added 586 housing units; that’s a combination of single family and apartments,” Heuton said.
All those houses have to be furnished with beds, couches, drapes and appliances, which are all taxed.
Younger people are raising their families here, increasing enrollment in the Brookings School District, which just built one elementary school and is already talking about needing another school building. Older folks are retiring here because Brookings has the amenities they want, drawing their kids and grandkids to visit.
Visitors, whether they come for family or events such as sports or concerts or theater productions, tend to stay in the hotels, eat in the restaurants and shop at the local stores, which all contributes to the sales tax revenue, say Weldon and Heuton.
“So all of these things have a multiplier effect because they’re interdependent in helping to keep an economy not only stable, but strong,” Weldon said.
The future
Keeping Brookings’ economy strong is part of Weldon’s plan.
“I just think Brookings is an economically strong community. That’s a by-product of a strong local economy as more purchasing is happening,” he said, but he still sees room for improvement.
South Dakota has very low unemployment, and Brookings is no exception. Not only does Brookings have a very small number of people out of work, there are jobs that are open because they require a certain skill. It’s a challenge to find people with those skills, Weldon said, so he wants to attract people here to fill those jobs.
There’s another need for new blood, Heuton said.
“Over the next 10 years, there will be several thousand employed workers in Brookings County who reach retirement age. We’d like to keep those people in the community, and then as we find replacement workers for those jobs, that’s more new households, more new families in the community,” Heuton said.
The BEDC is doing a study to identify the industries that need people with the skills the SDSU graduates have, such as nursing, pharmacies, ag-bio, engineering and related fields, as well as vo-tech grads.
“What we’re looking for is those higher-wage, higher-growth types of businesses that are going to employ professional and technical people that match up well with what we’re producing for graduates at SDSU,” Heuton said.
He wants to bring in small businesses that employ five to 25 employees.
“It’s a real incremental growth process,” Heuton said.
Weldon also wants to plug the retail leakage of Brookings residents traveling to other communities to buy things.
“We know that we’ve got a lot of leakage, for example in the home furnishings department and men’s, women’s and children’s clothing,” he said. “There are some people who, come hell or high water, want to shop at a Target. And that’s leakage. There’s not anything that you can find at Target that you can’t find at our local Wal-Mart, but for some shoppers, that’s important and they’re going to drive to a neighboring community.”
There are people who don’t want to drive to other communities, mostly because they’re too far away, and they stay in town to shop.
“Of course, that’s much better for us. That gets back to consumer preference; everybody’s different,” Weldon said.
“Leakage goes the other way, too. We know we are a commercial hub for a lot of the smaller communities around us – 10-, 15-, 20-mile radius – because we are the commercial shopping area for all these communities that simply don’t have any of those amenities,” he said.
Weldon wants to offer much more of those amenities.
“Our efforts at Brookings Marketplace is a classic example of why we want to make sure that we have a robust sales tax growth because that gives people opportunities to shop in town,” he said.
“It provides more amenities for the residents. We’re giving them less and less reason to leave town,” Weldon said. “We’ve got private developers who do a very good job with encouraging more retail development and growth in the community to help do that for the same reason.”
That fits in with Weldon’s overall plan.
“What that means is that we have to make sure that we keep doing what we’re doing and not throttle back on anything. We’ve got to keep working on the economic development,” he said.
Contact Jodelle Greiner at jgreiner@brookingsregister.com.
