History of Dakota Territory, volume III, Part 47

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920
Publication date: 1915
Publisher: Chicago, Ill. : S.J. Clarke Publishing Company
Number of Pages: 1146

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In his message to the Legislature January 8, 1890, Governor Mellette esti- mated the deficiency of the state during its first year at $172,905. The net lia- bilities of all the counties of the state in the previous November were estimated at $2,441,334. This was estimated to be about $37.10 per family. As the state debt proper at this time exceeded $1,000,000, the total indebtedness of the peo- ple of South Dakota at this time was about $3,500,000. This was not a crushing debt, but was sufficient to arouse the people and cause them to demand a stringent course of economy in the management of the state affairs. It was again proposed at this time to amend the constitution soon so that an increase in the state debt to the amount of $500,000 instead of $100,000 could be incurred. The matter had been submitted to the voters at the election in October, 1890, and was over- whelmingly defeated. The people were not willing to extend the debt limita- tion and were content with the constitution as it stood. Economy was the slogan at this time. In the fall of 1890 Congress allowed South Dakota the sum of $14,855.80 to cover the expenses of the Constitutional Convention of 1885.

The constitution required that property be estimated at its selling value. If this provision had been observed there would never have been any serious diffi- culty in raising the money needed by the state government for general purposes. It has only been within the last two or three years that any serious attempt has

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been made to comply with the mandates of the constitution and to the present (1915) this has only partially succeeded.

It was figured that the 2-mill tax allowed by the constitution upon the assessed valuation would yield about two hundred and two thousand dollars, not counting railroads, express companies, etc. This was less than half of what the actual expenses of the state would probably be. The Legislature took the position that the difficulty could be obviated by increasing the assessment, and an increase of about twenty-five per cent was gradually and actually made by the board of equalization. If this course had been persisted in the taxing troubles would have been ended then and there. The total assessed valuation of the state including railroads, telegraphs and all special properties yet to be brought under was $136,827,018. This would yield a revenue of about two hundred and seventy-four thousand dollars. The first Legislature was almost unani- mously in favor of great economy, and was opposed to every form of extrava- gance and many even opposed liberality. The truth was that the state authorities thought they were hampered by the legacy of debt, confusion and corruption that had been handed down from territorial days. It was realized and noted that many offices were far more ornamental than useful, were the creatures of grafters and soulless politicians, and accordingly the Legislature began at this session and gained momentum as time advanced to pare down all expenses, and eliminate every useless official, cut out every item of extravagance and manage the young state along what seemed to be the most approved lines of strict economy.

Under the constitution no more than a 2-mill levy could be made for state purposes, and no state money could be paid out unless appropriated by the Legis- lature. The State Board of Equalization was empowered to equalize values and to raise or to lower the assessments. As returned by the county boards of assess- ment in 1890, the aggregate valuation was $101,925,093, exclusive of railways, telegraphs, etc. The State Board of Equalization estimated the receipts from this assessment at a little less than $204,000. During the territorial period and near its close, the region that afterward became South Dakota annually raised a little over $550,000, but part of this sum was contributed by the Government. The railways and telegraphs were assessed $7,194,986. This was the general assessment in the summer of 1890, the total available assessment of the state being thus $109,120,079. Minnehaha County was assessed $11,952,616; Brown County, $7,364,974; Beadle, $6,356,593; Lawrence, $425,182; they were the highest.

Under the tax law the mortgagor was made to bear an unequal and unfair burden of the expense of sustaining the state government. The mortgagee was also taxed dollar for dollar on these mortgage credits. Thus was introduced in the state a system of double taxation. As a matter of fact, in actual practice, the mortgagor and mortgagee both escaped taxation because the mortgages were not reported or were concealed. The mortgages of the state were not held by residents, but were owned mainly by wealthy outsiders in the East. However, the farmers or other realty holders, it was claimed, were taxed on the full value of the property covered by the mortgage. Thus the farmer whose place was worth $1,500 and on which there was a mortgage of $1,000, was really assessed, it was maintained, at the full value of the farm. In other words, he was taxed as well for what he owed as for what he owned. This was complained

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of grievously, but without truthfulness by the farmers throughout the state. The real facts were that while he was assessed the full value of his farm, he really had the use of the $1,000 secured under the mortgage, the profit on which was more than equal to the interest on the mortgage. He thus was not taxed on his full farm, but only on $500 of it. The aim of the men who framed the constitution was really to tax credit or the mortgage of the mortgagee and not the debt-mortgaged property of the farmer or other mortgagor. It was planned to subtract these mortgages from the assessed valuations of the farms and merely tax the credits held by the mortgagee.

By January 1, 1891, the state had been in existence fourteen months and the total expense during that period was less than four hundred and fifty thousand dollars. This sum included a considerable amount paid for permanent improve- ments and public necessities. Thus it cost the state considerably less to be conducted as such than it did the state as part of Dakota Territory.

The administration realized that good management by the state government would soon pay off the indebtedness, and that with a fair degree of prosperity South Dakota would become prosperous and soon have a large surplus on the right side of the ledger. However, it was imperatively necessary for the Legis- lature to make seemingly large appropriations in order to place the state insti- tutions on a firm foundation at the commencement of their career under statehood. This fact was voiced from all parts of the state by mass meetings of citizens who assembled and passed resolutions to that effect. Among the organizations which took positive action of this character were the Stock Breeders' Association, State Dairy Association, State Board of Agriculture, State Horticultural Society, Poultry and Pet Stock Association, State Farmers' Alliance, State Bankers' Association, State Educational Association, and many others interested naturally and seriously in the affairs and progress of the young state. Several of these organizations, however, opposed the appropriation of any considerable sum of money for the World's Fair at Chicago. They did not realize what an important and potent advertising medium representation at the fair would furnish at the outset. Thus many concerns within the state and no doubt a majority of citizens opposed the appropriation of any considerable sum in order that South Dakota might be represented at that exposition. As time passed and the date for the fair came nearer this sentiment did not change greatly, owing to the fact that. although the importance of the fair was now more keenly realized, the direful hard times, the evil panic of 1893, the large debt of the state, the many mortgages on the real estate of South Dakota and the partial failure of crops for several successive years, were sufficient to induce the associations and citizens to oppose still any large appropriation for this purpose. The Legislature was really afraid to advance, and so permitted the state institutions to languish. The disadvan- tages suffered by the state where in a measure handed down from the Church administration, one of the most corrupt, baneful and deleterious the territory had ever been forced to sustain. It was said that the $1,000,000 debt bequeathed by the Church administration instigated and originated the constitutional clause which limited the state debt and the rate of state taxation. The question of finance was of such superior moment that the governor's message in January, 1891, was largely devoted to showing how the expenses could be kept down and the state debt could be paid without becoming burdensome. He even suggested

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a reduction in the membership of the Legislature, abolishment of the office of immigration commissioner, the closing or consolidation of several of the state institutions and asked that counties should be required to pay part of the expense of the penal and charitable institutions. No wonder the Legislature hesitated to advance.

The total appropriations for the fiscal year 1891-2 were $723,914.60. The state officials cost $72,000; Legislature, $73,418; State University, $41,100; Madison Normal, $18,600; Spearfish Normal, $21,400; Reform School, $32,000; Agricultural College, $12,000; School of Mines, $16,000; Deaf Mute School, $24,700; Penitentiary, $57,900; Insane Hospital, $120,500; Soldiers' Home, $32,- 900; and bonded debt, $108,000. The Legislature of January, 1891, passed the delinquent tax law which fixed the penalty at 12 per cent per annum on each assessment after the succeeding February. The intention, it was later claimed, was to make this penalty 1 per cent per month instead of 12 per cent per annum.

In 1890-91 the appropriation bill carried in round numbers about five hun- dred thousand dollars for two years' expenses. The estimate for 1892-93 ex- ceeded this sum by fully one hundred thousand dollars. Newspapers asserted in 1890 that the state institutions were unnecessarily put on starvation rations, and that numerous state officials were not allowed much more than half of what had been paid them previously under the territorial government. However, despite the hard times the total appropriation bill for the biennial period of 1893-94 was raised to $815,026.20, and the total assessment of 1893-94, includ- ing railways, telegraphs, etc., was placed at $137,035,974.

The early assessments, it is alleged, were nearly all formulated on the basis of 40 per cent of the valuation, and as the regular tax could not exceed 2 mills the revenue could be forecast immediately after the final assessment had been established. The practice of assessing at 40 per cent was not in accordance with the constitution, but was simply the forced custom of the assessors of the state through the insistence and dictum of the tax payers and the county authorities. The early deficiencies were largely due to the custom of keeping down the valuations to 40 per cent or under. If full valuation as provided by the consti- tution had been made by the assessors and had been approved by the State Board of Equalization, the 2-mill tax would have been much more than sufficient to meet the legitimate expenses of the state. It seems a strange circumstance, but it is a fact, that the Legislature, session after session, refused or failed to take any effective action to secure a general assessment at correct valuation, although they knew that by doing so the 2-mill levy would be insufficient to meet the expenses and that a deficiency tax would have to be levied, or the state authorities, in order to secure funds for the current expenses, would be compelled to anticipate the next year's tax. This seems a singular circumstance. A full valuation as the constitution provided would have yielded more than twice as much tax. Un- doubtedly the framers of the constitution had figured wisely and correctly on the future state valuations, and had determined that a 2-mill tax at full valuation would be amply sufficient to meet the ordinary expense. In spite of these facts and the knowledge of the constitutional provisions, the legislators, session after session, failed to meet the requirements of the constitutional provisions.

In 1892 every insurance company doing business in the state, except com- panies organized under state laws, paid taxes on the gross amount of premiums

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received in the state. Fire and life companies were required to pay 21/2 per cent. Every town collected in taxes and fees the following amounts: 1890, taxes $12,885, fees $8,267; 1891, taxes $14,260, fees $8,428; 1892, taxes $15,834, fees to November 1, $8,100. The total from all sources from insurance companies amounted to $67,776.98. Every organized town or city in which a regular fire department was maintained was entitled under the law to 2 per cent of the fire insurance premiums paid in such town or city. These amounts were paid in for the benefit of the fire department. The tax for any year was paid in July the following year. There were in the state the following insurance companies : Foreign Fire, South Dakota Fire, Foreign Life and Accident ; South Dakota Hail, Foreign Steam Boiler and Foreign Plate Glass. The laws concerning life insurance and assessment passed by the first Legislature gave excellent satisfaction from the start. Rigid compliance with the law was exacted to the benefit of all concerned. Every contract was carried out by the companies and by the last of 1902 no man had lost a dollar by means of default on the part of the companies. All wild-cat companies had been driven from the state and the business of legitimate companies had been vastly increased. Hail insurance, however, was not satisfactory and gave no protection to the policy holders. It was an absolute necessity and the state auditor in 1902 urged the Legislature to enact the necessary laws to carry hail insurance into effect. The losses annually were enormous and fell upon people who could not afford to bear the loss. The existing law he said was open to fraud, deceit, extravagance and mismanagement and a new law on a safe and conservative basis fully protected by restrictions should be at once enacted. He suggested that persons giving notes for insurance should be obliged to pay them and the company which insured against loss should be obliged to account for every dollar received. He further said that the laws governing fire insurance in this state were poor and inadequate and that new laws similar to those in older states should be enacted. He said: "The valued policy law should never be enacted in this state. It increases the moral hazard and is against public policy." At this time the insurance department of South Dakota was rapidly gaining in importance and already the creation of the office of commissioner of insurance was talked of. Up to this time no provisions for the publication of a state insurance report had been made although such a docu- ment was needed. The books of the state auditor showed that during two years ending with the close of 1892 the people of the state paid in premiums and losses a total of $1,573,313.18.

Under the law of 1891 the state auditor was charged with the superintendence and direction of assessment, but had no power to enforce his rulings or instruc- tions. County auditors and assessors under the law could operate independently of the state auditor. Thus he was given superintendence over work and held for its execution when he had no power to enforce rules necessary for carrying into effect his duties. Under the law the fiscal year began from and after June 30, 1893, but before this it had been made by calendar years. At this time there was no special law fully defining the duties and powers of the state auditor, and when such duties were specified there was provided no way to carry the same into effect. The auditor was a member of the state board of school and public lands and accordingly he made suggestions as to how the funds should be in- vested. He recommended that a commission consisting of the county treasurer,

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school superintendent and state's attorney be created for the purpose of manag- ing the school fund and lands in each county. On June 30, 1892, the total bonded indebtedness of the state was $1,040,200, made up of coupon bonds to the amount of $880,200 and registered bonds of $160,000.

The grand total assessment of South Dakota in 1892, including railways, was $127,377,991 ; without counting railways the total assessment was $118,223,307 ; in 1891 the assessments, exclusive of the railways, was $119,113,006; that of 1890 was $129,379,049. Thus it will be seen that there was a considerable drop in assessments from 1890 to 1892. The falling off was not due to a decrease in population or to a decrease in the actual value of property. Farm lands had almost doubled in value. The high assessment of 1890 was due to the fact that the 2 mill tax would not furnish enough revenue on former assessments to pay the interest on the debt and meet the expenses of the state. Accord- ingly the assessment was raised in 1890 in order to increase the revenue under the constitution. At first it was thought that such a levy would be necessary to start the new state, but when it was learned later than an increase in the assessment was unnecessary, the levy of 1891-92 was considerably cut down. This accounts for the reduction in the assessments. There was much complaint over the assessment of 1890 when it was learned that such a step had been unnecessary. In fact, the complaints were so severe over the state that the state board of equalization thereafter refused to interfere to any material extent with the assessments as returned by the counties, but devoted their entire attention to making those assessments uniform. The Legislature of 1891 passed six new revenue laws, one of which was severe on all assessors who failed to make prompt returns.

An important decision of the Supreme Court at Yankton in 1893 held that the Legislature had the constitutional power to provideby law for a tax in excess of two mills. This question had been uppermost ever since the consti- tution had been adopted and it was thus thought that the Legislature had no power except in extreme and actual emergencies. The court held that the constitution provided as follows: (1) Annual taxes for estimated ordinary expenses of the state; (2) taxes to pay deficiencies existing from preceding years; (3) taxes with which to pay the public debt. The court said: "The constitution makers evidently foresaw that an emergency might arise in providing for a revenue for ordinary expenses of the state under a two mill levy and in their wisdom provided that wherever a deficiency existed in making a provision for the ordinary expenses such deficiency should be met by the levy and assessments of an amount sufficient to pay it without regard to the two mill limitation. Finding nothing in the constitution forbidding it, we are much of the opinion that it is within the con- stitutional power of the Legislature to direct by law a levy of a tax for the purpose of meeting any valid, proper and reasonable extraordinary expense which commends itself to their good judgment. The law providing for such tax must clearly state its object and the tax so raised cannot be diverted to any other use." Thus under the constitution it was made the duty of the Legislature to provide for taxation to meet the state deficiencies and emergencies.

The annual report of the state auditor for the fiscal year ending June 30, 1895. showed that the total receipts less the cash on hand at the commencement of the year were $622,723.86. There had been received from the sale of funding

MINNEHAHA COUNTY COURTHOUSE, SIOUX FALLS

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and revenue warrants the sum of $304,600. The disbursements less the cash on hand amounted to $627,593.48. At this time the auditor charged a large deficit to the Taylor defalcation. There was likewise a deficiency of about $100,000 due to the expenses of the Legislature. This deficit had occurred every year, and was due to the slipshod method of assessment and taxation. Of course, the two mill tax did not bring sufficient revenue, because the assessment was not placed where the makers of the constitution designed it should be. It was said at the time that the state was trying to fill an inch hole with a half inch plug.

The governor and the auditor showed, in 1896, the necessity of an improved constitutional revenue law. This requirement had been presented to every Legislature since the state was organized, but had received only passing atten- tion. It was questionable whether the existing law was constitutional and its enforcement was poorly provided for. The auditor declared that the next Legislature would certainly be nothing short of criminally guilty if they did not give the subject more attention than past bodies had done. The recommendations of the officers in charge, he declared, should certainly be at least noticed by the Legislature. For two years past he had referred especially to this subject and now again asked for relief. He pointed out that the assessment in general was not conducted with the care and regularity it should be. Numerous mistakes and errors were constantly creeping in to confuse the collection and proper disposal of the funds. He believed that if the board of equalization was not properly empowered it would be well to create the office of state tax statician and adjuster. He pointed out that the expenses of such an officer could easily be saved by taking the assessment of real estate once in two years instead of ever year, and that the necessary books and records in each county and additional clerk hire that could be saved would be many times the amount necessary to maintain such an officer. In addition he could be empowered to adjust discrepancies so numer- ous after every equalization, but which could not be remedied under existing laws. He said: "For instance, in the present year the assessors of Hutchinson County returned less land than in former years, but the state board had no power to place the land on the lists, and on the face of the returns raised farm lands which were in reality assessed as high as before, 10 per cent, or some $1,400 tax in round numbers. Since the action of the board the county auditor has dis- covered 8,695 acres of land with a valuation of $195,000 that has not been returned." In Douglas County, in 1896, the lands returned were 183,408 acres, while in 1895 they were 247,935 acres, and yet these lands had been proved up in Douglas County the past year. Either 64,527 acres of land in Douglas County had "literally walked away" or else the returns were grossly wrong, and the latter conclusion, declared the state auditor, was more plausible.

This illustrates the numerous errors which crept into the system of assess- ment then in vogue. There were similar discrepancies in the assessment of the state banks. In 1895 fifteen county auditors returned abstracts showing no moneys in banks and nineteen organized counties returned abstracts showing no bank credits. As the state board was totally powerless to remedy these evils, the state auditor asked the Legislature to intervene. Many similar discrepancies were shown in the assessment of goods and merchandise. One discrepancy was the admitted fact that the Legislature had failed to provide for equal taxation in unorganized counties. It was shown that in one county with a valuation of

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$63,590 the state extended $52.82 less tax than it took to pay the assessor. In four counties the tax extended was $826.90, while the cost of assessment was $604. Thus in these counties assessment was merely a job for the assessors. Nearly $2,000,000 of the state assessment consisted of this class of cases.

At this time there were no special class for mining lands, for machinery, for grain on hand; no adequate provision for listing goods and merchandise; no well defined provision for listing society property. The assessment was evidently falling off for reasons other than shrinkage in value. Since statehood the cor- porations assessment for the various years was as follows: 1892, $9,120,000; 1893, $9,164,000; 1894, $9,417,000; 1895, $9,418,000 ; 1896, $9,365,000. Thus there was practically no increase in five consecutive years in the assessment of corporations. On the other hand the property of private individuals listed by local assessors had varied greatly, as shown by the following table:

1879

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History of Dakota Territory, volume III, Part 47

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920 Publication date: 1915 Publisher: Chicago, Ill. : S.J. Clarke Publishing Company Number of Pages: 1146

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920
Publication date: 1915
Publisher: Chicago, Ill. : S.J. Clarke Publishing Company
Number of Pages: 1146