The Levy Went Down. The Tax Bill Went Up

Reducing Property Taxes Without Cutting Local Services

A Proposal to Study Production-Based Revenue as Property Tax Relief

Background
South Dakota homeowners are experiencing significant property tax pressure driven primarily by rapid valuation increases, not local spending growth. Even when mill levies are reduced, double-digit valuation spikes have caused tax bills to rise, leaving families unable to budget or plan.

In 2023, South Dakota local governments collected over $1.6 billion in property taxes, with schools receiving the largest share. Property tax is uniquely burdensome because it is detached from income and penalizes long-term homeownership, retirees, and fixed-income households.

The Problem

• Property tax bills are increasing even when mill levies decline

• Valuation growth of 10–15% in a single year is not predictable or sustainable

• Levy reductions alone do not provide real relief

• Local governments still need stable funding for essential services

The Opportunity
South Dakota is a national leader in ethanol production, producing approximately 1.0–1.5 billion gallons annually, representing billions of dollars in economic output. This production is:

• Precisely measured

• Highly regulated

• Stable and predictable year-to-year

Other states, such as North Dakota, have successfully used production-based revenue from energy resources to reduce pressure on local taxes.

Proposal (Study Phase)
Establish a legislative study or task force to evaluate whether a portion of production-based revenue (such as ethanol or related energy output) could be used to offset local property tax requirements, particularly for schools and core services.

This study would:

• Examine revenue potential and stability

• Evaluate legal and constitutional considerations

• Model impacts on school and local government funding

• Identify guardrails to prevent misuse or general-fund diversion

Key Principles

• No immediate tax increases

• No elimination of local control

• No reduction in school or city services

• Dedicated, transparent use of funds

• Automatic reporting and sunset review

What This Is Not

• Not a proposal to abolish property taxes overnight

• Not an anti-agriculture or anti-industry policy

• Not a blank check or unfunded mandate

Conclusion
Property taxes punish stability. Production-based revenue follows growth.
South Dakota should at least study whether a smarter revenue mix can protect homeowners while keeping local governments whole.

North Dakota — the gold-standard example

• Uses oil and gas production taxes to fund the Legacy Fund.

• Production revenue helps:

  • Offset local government costs

  • Reduce reliance on property taxes

  • Fund infrastructure and schools

• Result: lower property tax pressure despite rapid growth.

👉 This is the closest analogy to what you’re proposing for South Dakota.

Alaska — extreme but undeniable

• Funds state government primarily through oil production revenue.

• No statewide property tax and no state income tax.

• Residents even receive dividends from production (Permanent Fund).

👉 You don’t need to propose Alaska’s model—just show that production revenue can replace tax burdens.

Wyoming

• Heavy use of mineral, oil, gas, and coal severance taxes.

• Production revenue:

  • Supports schools and infrastructure

  • Keeps property and sales taxes lower than regional peers

• Strong rural parallel to South Dakota.

Texas

• Uses oil & gas severance taxes to fund the Permanent School Fund.

• Billions in production revenue:

  • Reduce school reliance on local property taxes

  • Offset recapture (“Robin Hood”) pressures

• Property taxes still exist—but production revenue absorbs a major share of education costs.

New Mexico

• Oil & gas production revenue funds:

  • Schools

  • Early childhood programs

  • Infrastructure

• This reduces pressure on property and income taxes.

The Key Takeaway (This Is Your Line)

Multiple states already use production-based revenue to reduce reliance on property taxes—especially for schools. South Dakota is an outlier in relying so heavily on homeowners instead of growth-driven production.