Feeling Under-Taxed? One S.D. Legislator’s Answer

Print Share on LinkedIn More

March 20, 2011; Source: Rapid City Journal | In South Dakota Republican legislator Hall Wick says that a constituent complained to him about being under-taxed. So Wick submitted a bill, now signed into law, which would set up an endowment into which people can donate money for state projects.

Wick says that those contributing to the fund, which would be managed by the South Dakota Community Foundation, will be able to designate the money for specific purposes. But critics say the language in the bill does not protect donor intentions, and that it leaves the spending of the interest produced by the endowment to the legislature.

Even Bob Sutton, president of the community foundation, says that it would be difficult to ensure that small amounts of money given to the fund for a particular purpose would be spent for that purpose.

The governor's budget director, Jason Dilges, is one of those disturbed by the lack of details in the bill. He says that the bill provides that once the interest is handed to the legislature, “the Legislature can spend it. That's all the bill really says."

Indeed, some of Wick’s expectations for the fund seem slightly unrealistic. For instance Wick says that the fund should not replace state funding but be used to increase it. The probability of that, we think, may be slim to none. But the comment that most worries us for oh, so many reasons is the following from the Community Foundation’s Sutton: "I'll be anxious to see how South Dakotans react to using philanthropic dollars to support state government."

We’d love your reaction to this situation. —Ruth McCambridge

  • Michael Wyland

    First, there’s a typo – it’s Hal Wick, not “Hall Wick.”

    The full text of the legislation (HB 1194) is only one paragraph:

    “The State of South Dakota endowment fund may be established within the South
    Dakota Community Foundation. The purpose of the endowment fund is to provide a fund for any person who wishes to contribute to the endowment fund to further the excellent quality of life which is unique to this state. This fund shall be administered by the South Dakota Community Foundation. Any funds received by the state from the State of South Dakota endowment fund shall be
    appropriated by the South Dakota Legislature.”

    Rep. Wick is probably incorrect when he states that gifts to the fund could be further restricted to particular projects. As a former trustee and VP of a national foundation, the lack of restriction in the legislation indicates the more general use of funds. I would suspect the SD Community Foundation would advise prospective donors of this.

    About 1/4 of all public school districts have charitable foundations to supplement their activities, so the use of charitable dollars to fund government is nothing new. The IRS recognizes all units of government as charities for tax purposes; i.e., gifts to government can be treated by donors as charitable gifts for tax purposes. The US government administers a “Fund to Reduce the Public Debt” where people may contribute for that specific purpose.

    The SD Budget Director’s concern with the lack of detail appears to be one of the SD Legislature having access to a pot of money it can — potentially — spend without the Governor’s approval.

    It’s also important to note that the fund *may* be created, not *shall* be created. It’s unclear whether the State of SD will choose to create the fund.

    I suspect there will be relatively few donors, and hence little interest (of either kind) relating to the fund, if created.