Last updated on 2012.02.08
Last week the Rapid City Journal reported that, according to Rapid City Area Schools budget manager Dave Janak, changing the tax system for rural electric cooperatives from a 2% gross receipts tax to a per-kilowatt-hour tax (Ã la Senate Bill 123) would cost Rapid City schools a million dollars each year. Given my interest in both tax fairness and school funding, I reported that figure and said that if legislators are going to impose such a hit on future school revenues, they'd better find an alternative mechanism to replace those dollars.
Following that report, the lines to Madville Times World Headquarters lit up. Dan Hutt, general manager at Black Hills Electric Cooperative, and Dick Johnson, GM at West River Electric Association, both gave me shouts saying a million-dollar loss in tax receipts for Rapid City schools is a bit high, considering that the total gross receipts tax paid by BHEC and WREA together in 2010 was just under $743,000. According to the spreadsheets Hutt and Johnson sent me, $421,000 of those tax revenues went to the Rapid City Area Schools.
By those numbers, the only way the Rapid City schools lose a million dollars a year is if Russell Olson hoghouses SB 123 to make the schools pay the electric co-ops more for electricity (hey, maybe that's why Senator Olson voted no last Tuesday!).
Under the estimates provided by Johnson, WREA would pay about $48,000 less under a per-kWh tax in 2012 than its 2011 gross receipts tax bill, a 7.3% decrease. WREA then pays 3% more each subsequent year. If I assume the average 9.7% annual increase that one analyst tells me the electric co-ops have seen in their tax bills over the past decade, I find that WREA's projected tax savings under SB 123 over the entire next decade total over $4.3 million. The Rapid City Area Schools' share of that would be $2.3 million, but again, that's over ten years.
And that estimate may shoot the moon a bit. BHEC's annual average gross receipts tax increase over the last decade has been just a bit over 7%. if we can extrapolate that growth rate to WREA, Rapid City loses about $1.5 million in potential revenue gains over the decade, or about $266,000 less in revenue in 2021 than it would see under the status quo tax system. Plus, BHEC estimates it will actually pay a little more under SB 123 next year. Eventually the 3% annual increase should catch up and help BHEC save as well, but over the next decade, Rapid City loses less from BHEC revenues than from WREA revenues.
Now every penny counts. SB 123 does reduce the revenues schools can expect over the next ten years. Our legislators should look for ways to replace that money. But the figures from the electric co-ops suggest that the direct fiscal impact on the Rapid City schools in the near term will be more like a quarter million a year, not a full million.
Update 2012.02.08 16:11 MST: I have corrected paragraph 2 to get Mr. Hutt's name right. Sorry about that, Dan!