Staking claims on unclaimed property: $175 million haul sparks budget battle – South Dakota Searchlight

Governor Kristi Noem said during her recent budget address that she wants the state to return more unclaimed property to its rightful owners.

She could start by claiming her own.

She’s one of more than 2 million people with unclaimed money or property held by the state of South Dakota, according to the state’s searchable online database. Noem’s unclaimed property is described as “over $250” worth of mutual fund shares. Other recognizable names with unclaimed money include Lt. Gov. Larry Rhoden’s wife, Sandy ($10), state House Majority Leader Will Mortenson ($87.95) and state Senate Majority Leader Casey Crabtree ($20).

In her December budget speech, Noem said the value of unclaimed property remitted to the state had “dramatically increased” and was $76 million over estimates. She pledged to work with the state treasurer “to create a plan that ensures South Dakotans know that their own money can be returned to them.”

A spokesman for Noem did not respond to South Dakota Searchlight questions about whether she knows about her own unclaimed property or plans to claim it.

That the governor is among the people owed money by the state is symbolic of several problems: Some people don’t know they have unclaimed property, some dismiss official notices about it as spam, and some who want to claim their property give up when they discover it’s a multi-step process. The process includes filling out an online form and an emailed form, and providing copies of photo identification along with documentation of a Social Security number.

Unclaimed property consists of an array of abandoned or forgotten private assets, including money from bank accounts, stocks, life insurance payouts, uncashed checks, and even the contents of safe deposit boxes. 

“Everything from false teeth to gold bars,” said state Treasurer Josh Haeder, referring to the contents of those boxes. “Even love letters from World War II.”

The holder of the money or items, such as a bank, tries to find the owners. But after three years of dormancy, the property reverts to the state.

Physical items are held in safes at the Treasurer’s Office in Pierre. Haeder said the office tries to return those items, but after a year, most of the items go to a state auction; however, certain items – like love letters – remain in the state’s possession.

The calendar year-to-date value of unclaimed property flowing to the state as of Noem’s budget address was $143.64 million. As she mentioned, that was far above the projection of $67.41 million. For the 2023 calendar year, unclaimed property remitted to South Dakota was a state-record $175 million. During the 2023 fiscal year, which ran from July 2022 to June 2023, the state took in about $115 million in unclaimed property.

In response, Noem and Haeder plan to use a bigger portion of that money on advertising to reach people and encourage them to claim their property. 

But some leading lawmakers are skeptical. They’re not convinced the effort is necessary or would be effective, and they have concerns about the Treasurer’s Office increasing its own budget without approval from lawmakers.

How unclaimed property becomes state revenue

The state is obligated to pay anyone who claims their unclaimed property, whenever they claim it, even if the state has already spent the money. Even after people die, their unclaimed property can be claimed by heirs.

State law requires a portion of unclaimed property income to be set aside for those payouts. The remainder goes into the state’s budget as revenue.

The state projected $57.2 million in unclaimed property revenue for the current fiscal year. That projection is now $106.9 million after more unclaimed property flooded in. The current fiscal year ends in June.

The bigger-than-expected haul is largely due to an increase in unclaimed property audits at banks, and a cleanup of their old records. Those tasks piled up during the COVID-19 pandemic as many bank employees worked from home, according to the Treasurer’s Office. 

Since 1954 when the federal Unclaimed Property Act was passed, the state has taken in about 2.5 million pieces of unclaimed property worth about $1.1 billion. The vast majority of that — about 2.2 million properties — has yet to be claimed. 

South Dakotans are owed about 877,000 of the unclaimed properties, worth about $100 million. About 1 million unclaimed properties are owned by people outside South Dakota, and 271,000 are owned by people outside the U.S. That can happen when people move away and leave property behind, or when a bank is headquartered in South Dakota with customers in other states. South Dakota became a haven for banks decades ago when then-Gov. Bill Janklow and legislators uncapped interest rates on credit cards.

The single largest unclaimed property that came into the state’s possession last year was $2.64 million from “the West Indies,” according to Deputy State Treasurer Jason Williams. He said the largest unclaimed property from a South Dakotan last year was $214,431 from Sioux Falls. 

Williams declined to disclose further information, saying he does not want to encourage impostors to make fraudulent claims. He said both of the examples are on the state’s unclaimed property website as “more than $250.” 

The first three years after the state receives unclaimed property is “when you have the highest likelihood of properties being returned,” Haeder said.  

Big plans for ad spending

To get more properties back to their rightful owners, the Treasurer’s Office plans to increase its budget for the activity. Current state law does not require the office to request approval of state lawmakers for that.

Haeder said the plan is to adjust the annual advertising and outreach budget from a flat $125,000 to 1% of the value of unclaimed property remitted to the state each year. Based on the current record amounts, that 1% would be more than $1 million.

Haeder said the budget allocates, and will continue to allocate, 26% to in-person events, 25% to social media marketing, 18% to print media advertising, 16% to television advertising, 5% to event sponsorships, 5% to educational material, and the remaining 5% to research and promotional efforts targeting financial institutions.

The Treasurer’s Office paid back $28 million worth of unclaimed property to its rightful owners in fiscal year 2023, a record amount for the state.  

“At the end of the day, it’s not the state’s money,” Haeder said. “We have to do a better job of creating awareness.”

Haeder, a Republican who took office in January 2019, said some people are skeptical when they receive a letter or call from the government telling them they have unclaimed property. 

“We’ve got to be able to build trust with people,” he said. 

That’s why Haeder is appearing in ads encouraging people to visit a website where they can see if some of the state’s $924 million in unclaimed property belongs to them. The ads show Haeder with a pile of cash, informing people that the state has their money and wants them to get it back. 

Treasurers appearing in ads isn’t new. Former Treasurer Rich Sattgast, now serving as state auditor, starred in a similar campaign. 

Legislators push back on spending plan

Haeder recently told a legislative budget committee the increased advertising and outreach budget would help keep South Dakota competitive in the banking sector. He said other states are recruiting banks to relocate to their state. 

“States recognize the immense value that unclaimed property brings to the budgeting process,” he said. 

Haeder said banks want states to return property. He pointed the committee to a letter from Wells Fargo asking the state to make a good-faith effort. 

“We have to remain competitive,” Haeder told the committee. “We know what the potential could be. Banks can pack up and leave with a 30-day notice.”

Haeder said favorable taxes, no “anti-banking” laws and “good faith efforts to promote and return unclaimed property to rightful owners” are some of the factors banks look for when deciding where to set up headquarters.

Haeder shared a chart showing that Illinois, Massachusetts, Oklahoma and Indiana all spend 1% or more of the value of unclaimed property they take in on getting the property back to its rightful owners — suggesting South Dakota should follow suit. 

Noem’s former chief of staff, Tony Venhuizen, now a Republican legislator from Sioux Falls, questioned the usefulness of comparing South Dakota to those states, all of which have larger populations.

“I might suggest we compare ourselves to other states on a per capita basis,” Venhuizen said. 

He asked if the Treasurer’s Office would spend any of its higher advertising budget beyond South Dakota, since the majority of people owed unclaimed property are outside the state.

Haeder said he advertises only in South Dakota while sending letters and emails to people outside the state.

“I could ask you for $10 million and that’s not going to cover a national ad campaign,” Haeder said. “There’s no intent to do that.”  

Venhuizen has since introduced a bill that would require the Treasurer’s Office to go through the legislative budget committee to increase its budget for advertising and outreach.

“This is really a process bill,” Venhuizen told South Dakota Searchlight. “This bill just makes sure that the budget for this office is handled like any other state agency.”

Sen. Lee Schoenbeck, R-Watertown, the president pro tempore of the Senate, said he supports the bill. 

Haeder told South Dakota Searchlight the bill would impede the office’s “ability to make good faith efforts to return people their property.” Returning more unclaimed property could require more time and staff, Haeder said, so the office should have discretion to adjust its spending. 

Questions about effectiveness, process

At a recent budget committee hearing, Rep. Lance Koth, R-Mitchell, a retired banker, said banks work hard to identify the owners of unclaimed property prior to handing it over to the state. 

“So, in my mind, the unclaimed property, when it hits the state, there’s a lot of vetting that’s already been done and other than encouraging people to look at that website, I don’t know what else you can do,” Koth said.

Rep. Chris Kassin, R-Vermillion, said he has unclaimed property, but getting the money back has been a hassle. 

“Now it’s to the point where it’s asking me to print a form out, sign it, upload it or mail it and send it back,” Kassin said. “Is there a process improvement or something, just curious, where you could electronically sign it? It just seems pretty onerous what we’re asking people to do.”

Haeder said system improvements have “been the biggest headache” since he took office. He said making the entire process an online process is the goal. 

“By the time I leave this building, by God, that’s going to happen,” Haeder said. “We are continuing to make this process easier.” 

Deputy Treasurer Williams later told South Dakota Searchlight in an email that treasurers have made multiple improvements to the unclaimed property system since 2011. Those include updates to the website, allowing claimants to search and start claims on the site, and a secure portal for document uploads.

Additionally, the current administration rolled out a new phone app and the “Cash It!” program, which involves the state initiating claims for properties under $2,000 when there’s enough information to verify who owns the property. After validation and address verification through multiple databases, checks are sent to property owners.

A $1 billion liability

Of the $1.1 billion ever taken in by the state as unclaimed property, the state has paid about $175 million to claimants and spent about $900 million as part of the annual state budgeting process.

Legally, all of the money spent by the state could still be claimed by its rightful owners or their heirs. 

Thirteen other states have addressed that problem by allocating unclaimed property to a trust fund and spending only the interest gained on the fund. They include nearby states Colorado, Nebraska, North Dakota and Wyoming.

In 2021, Haeder testified to the Legislature in favor of creating a trust fund for unclaimed property. 

“Spending it absolutely creates a liability,” he said.

Bill sponsor Rep. Taffy Howard, R-Rapid City, testified that the banks responsible for the vast majority of unclaimed property could leave at any time, pulling the rug out from under the revenue stream.

“So, imagine the revenue completely drying up,” Howard said. “We’d still have hundreds of millions in claims we’re liable for.” 

Mark Quasney, with the Bureau of Finance and Management at the time, opposed the measure, arguing that unclaimed property older than five years is extremely unlikely to be claimed. 

The bill passed a committee but was defeated in the House of Representatives. Current House Speaker Hugh Bartels, R-Watertown, argued against the bill. 

“It takes a lot of one-time money away from us,” he said, noting that the state has used the money to fix infrastructure, build university projects and more. 

“A lot of this money will never be given back,” Bartels said.

But times are changing, according to Jeremy Dawson, the director of the National Association of State Treasurers. 

Dawson said “technology is making it easier and easier” to connect people with their property, pointing to data-matching tools that can help states identify rightful owners with less information. He said that in 2023, states returned over $5 billion in unclaimed property nationwide, a record.

The South Dakota Treasurer’s Office has not yet invested in those tools. Deputy State Treasurer Williams said the office is working with its voluminous datasets to make sure they’re compatible with the new technology.