On January 13, 2026, the 101st Session of the South Dakota Legislature opens with the Governor’s State of the State Address. The following discusses some of the more significant issues that will be considered during the upcoming session.
The Budget
Governor Larry Rhoden’s budget recommendations call for $7.44 billion in spending for the 2027 fiscal year, with $2.51 billion from state funds, $3.14 billion in federal funds, and $1.79 billion from other sources. Did you catch that? The federal government’s “share” of our state budget is a staggering 42.2 percent!
But this is nothing new. Data from the South Dakota Bureau of Finance and Management and the Legislative Research Council shows that from 2017 to 2026, South Dakota depended on the federal government to fund an average of 41% of our total state budget. During the same period, South Dakota’s state budget has ballooned from about $4.1 billion in 2017 to $7.3 billion in 2026!
A recent WalletHub study ranks South Dakota as the 4th highest in the nation among states dependent upon federal tax dollars. Wyoming is 12th, North Dakota is 25th, Minnesota is 28th, and Nebraska is ranked at 34th. California is often the brunt of humor among South Dakota residents, and often deservedly so. However, in 2024, Californians paid $275.6 billion more in federal taxes than the state received in federal funding.
During his budget address, the Governor remarked that, “by a wide margin” South Dakota has the lowest unemployment rate in the nation. That is true. He also observed that despite challenges in agriculture, “We still have labor force participation that is far ahead of the national average. We still have the second most competitive tax system in the nation and the second least regulations of any state. Our overall economic picture is in strong shape.”
Nevertheless, the Governor recommends (1) no increases for K-12 public education funding, (2) no increases to state employees, and (3) no increases in reimbursement to Medicaid providers. There is an obvious disconnect here.
Every Governor’s budget address that I have listened to over the years begins with a self-congratulatory statement that in South Dakota we balance our budget every year. What is left out is that our Constitution requires a balanced budget. South Dakota, unlike many other states, must operate within its means and cannot carry large deficits into future fiscal years. Because of South Dakota’s substantial dependence on federal funds, South Dakota more closely resembles a trust fund nephew of Uncle Sam than a self-reliant and self-supporting adult. This is the disconnect….if our state is so flush with federal dollars, why are our single-family homeowners crushed by rising property taxes?
Property Taxes
In recent years, rising property taxes have placed an increasing financial burden on homeowners, making it more difficult for young families to afford their first home, for middle-class families to maintain financial stability, and for retirees on fixed incomes to remain in their homes. In response, the 2025 Legislature formed the Comprehensive Property Tax Reform Task Force.
After a series of meetings in various parts of the state taking testimony, Task Force members made 19 recommendations for property tax reform. These include proposals to freeze or limit property tax valuations and assessments, to increase income limits for persons that qualify for property tax relief, to enact school district capital outlay limits and opt out reforms, to fund state aid to education using dedicated video lottery revenues, to reform tax increment financing, to apply budget reserves and the housing and infrastructure fund to provide one-time credits for homeowners, and to cut the general fund budget.
Multiple bills are expected on these and other topics, including increasing the state sales tax to fund the general and special education levies of school districts. The Governor says very little in these 19 recommendations impresses him. He proposes to lower property taxes by authorizing counties to enact an optional sales tax. But increasing sales tax is a Band-Aid, when surgery is needed to fix our broken taxing system.
The good news is that real reform is possible IF our Governor and Legislature have the political will to enact it and can stand strong against the blowback from the special interests and their lobbyists affected by this reform.
For example, the following rather simple four-pronged approach would, if passed by the Legislature and signed by the Governor, result in $275 million raised in tax revenue that could be applied to property tax relief for our homeowner citizens:
1) Eliminate the sales tax exemption for advertising and radio and television broadcasting. RESULT – $46 million could be applied to property tax relief
South Dakota relies upon state sales tax revenue for funding much of the state’s share of the total budget. But when one examines the actual sales tax structure, one finds a patchwork of exemptions in which lawmakers and governors have given in to the lobbyists and special interests over the years to selectively bestow preferential treatment for certain business activities while shifting the burden of funding state government to others, most especially home owners.
The Governor’s Budget Summary for the 2027 fiscal year contains six pages of sales tax exemptions that have mushroomed into an annual “carve-out” totaling $1.56 billion. In fairness, some of these exemptions make perfect sense given the importance of agriculture to our economy. Other exemptions make no sense at all.
In 1965, South Dakota extended its retail sales tax to services, which includes a wide array of service providers, from piano teachers to licensed professionals. However, advertising and radio and television broadcasting services are exempt from sales tax. This preferential treatment has no basis in need or logic, and costs South Dakota taxpayers $46 million in projected annual revenues that could be allocated to property tax relief and long-term reform.
Naturally, the Comprehensive Property Tax Reform Task Force studied sales tax rates and sales tax exemptions. When the media reported that part of potential property tax reform measures included a review of sales tax exemptions, and that the advertising exemption was being reviewed, the Association of National Advertisers, through its South Dakota lobbyists, delivered “strong opposition” to any such efforts. Legislators proposing to eliminate this exemption were subjected to a robotext campaign directed at their constituents. Those robo texts raised false alarms and accused the legislators of wanting to raise taxes. The robo campaign said that “Republicans don’t raise taxes.” On the contrary, this idea does not raise taxes, it increases fairness in taxation. This experience demonstrates the extent to which special interests and their lobbyists will go to interfere with and intimidate elected officials.
2) Raise the Contractors’ Excise Tax from 2% to 3%. RESULT – $112 million could be applied to property tax relief.
The contractor’s excise tax has essentially remained flat at 2% since 1984, even though billions of dollars in construction have been added to our state’s cities and towns. Construction activities increase the maintenance required for streets and highways. That affects the budgets of counties and cities and leads to increased property taxes. In my residential neighborhood in Sioux Falls, there have been instances when semi tractors with fully loaded side-dump trailers travel on residential streets. Encounters with cement trucks, heavy equipment, and dump trucks are commonplace.
Let’s take Sioux Falls as an example. Annual building permit values have consistently exceeded $1 billion in 2023, 2024, and 2025. Applied statewide, a 1% increase in the contractor’s excise tax would generate nearly $112.9 million in projected annual revenues that could be allocated to property tax relief and long-term reform.
3) Eliminate the sales tax exemption for vaping. RESULT – $7.3 million could be applied to property tax relief.
South Dakota does not tax vaping, unlike Minnesota, Wyoming, and Nebraska, while cigarettes or other tobacco products are taxed. This costs taxpayers more than $7.3 million in lost revenue that could be allocated to property tax relief and long-term reform.
A number of other exemptions could be included on any list calling for reasonable sales tax reform in order to lower property taxes.
4) Restore the state sales tax rate back to 4.5% now, instead of waiting until 2027. RESULT – $111 million could be applied to property tax relief.
In 2023, the legislature voted to temporarily lower the state sales tax rate from 4.5 percent to 4.2 percent until 2027. This was part of a compromise to counter potential ballot initiatives to eliminate the grocery tax. South Dakota continues to collect sales tax on grocery purchases. Minnesota, North Dakota, Nebraska, and Wyoming do not collect sales tax on most groceries for home consumption.
If the 4.2 percent rate was restored one year earlier to 4.5 percent, an additional $111 million in projected annual revenues could be allocated to property tax relief and long-term reform.
SUMMARY – If the above four tax reforms were made, more than $275 million in annual revenues could be allocated to property tax relief and long-term reform. If applied across the board, the average homeowner would see a reduction in property taxes of about 28 percent, ranging from 15-55 percent statewide.
Economic Development
In the past few years, the topic was special legislation to create hundreds of miles of landowner easements for a carbon dioxide pipeline across South Dakota. Today, the topic is special legislation to allow the construction of data centers. Even our President is calling for an “era of American AI dominance.”
Expect legislation this coming session to fast-track the construction of data centers in South Dakota. Look for legislative proposals that give sales tax exemptions for purchases of data center materials and electronic equipment. Data centers have local impacts as to noise and heat, require huge quantities of electricity and water, and create wildfire risks. Legislators will be asked to provide immunity and caps against lawsuits to data centers when these localized impacts cause harm and losses to others.
Proponents will cite the anticipated benefits of data centers in the form of increased property taxes, increased funding for schools, job creation, and the general argument that data centers are going to be built somewhere, and that the somewhere should be right here in South Dakota.
Opponents will cite the anticipated negative impacts on consumers with increased utility rates, electrical grid instability and continuity concerns, public safety concerns over fires, negative impacts on water usage, disposal of electronic hardware containing heavy metals and hazardous materials that pollute landfills, and abandoned asset concerns arising from the inevitable obsolescence of current technology.
South Dakota has a lengthy history of initiatives that offer our land and our laws to create financial opportunities for investors and entrepreneurs located out of state, without asking for much in return.
One may question whether South Dakota has taken a page from the marketing materials of the famous Washington D.C. lobbying firm of Patton Boggs:
Patton Boggs was built on the idea that the law can be changed to achieve client objectives . . . We see the law as a dynamic process, not as immutable rules and procedures. The Wolves of K Street.
In my lifetime, South Dakota has repealed its usury laws to bring credit card banks to South Dakota that charge consumers high interest and fees, enacted laws to allow trusts to last indefinitely which avoids future estate tax liability across multiple generations of high net worth individuals and provides secrecy in trust asset ownership and administration, repealed its gambling laws to allow video lottery and related gaming operations in South Dakota, legalized the use of marijuana for medical purposes, and passed legislation imposing landowner easements to build a carbon dioxide pipeline across South Dakota farms and ranches that was ultimately rejected by voter referendum.
It is a fact that South Dakota has the lowest percentage of unemployed persons in the nation, essentially “full employment” which begs the question as to why wooing national and international scale businesses to South Dakota is being vigorously pursued as “economic development” when we do not have the workforce to staff them.
South Dakota continues to brand itself as the “low wage, low tax, low regulation” state, which attracts substantial investment capital into our state, but also promotes the exploitation of our state’s land and resources. The same promises to South Dakota taxpayers accompany these efforts, lower property taxes, higher paying jobs, increased employment opportunities, and more money to educate our children.
Given this history, it is a fair question to ask whether South Dakota’s high-ranking dependence on federal dollars is due in large part to a state government that consistently has demonstrated more concern for the welfare of corporations and special interests than the taxpayers. Perhaps in decades past, South Dakota needed to offer financial incentives and tax breaks to bring businesses into South Dakota. But that time is past.
When property taxes make it increasingly difficult to own a home, when young families are priced out of the housing market, when middle-class families are finding it difficult to maintain financial stability, and when retirees on fixed incomes are finding it difficult to remain in their homes, a correction needs to take place. Economic development needs to be balanced with the needs of our citizens. When our single-family homeowners are being crushed by property taxes, something is out of balance.
What public good comes from economic growth that fails to create opportunities for our young people and the next generations of South Dakotans? More than lip service must be demanded by the voters from state government.
The Future Fund
The Future Fund is a pool of state money funded by a tax on businesses. South Dakota’s employers pay into the Future Fund when submitting payroll taxes for unemployment benefits based upon employee annual earnings. The fund was created in 1987 by former Governor George Mickelson when South Dakota’s economy was much less developed. State law requires that the Future Fund be used “for purposes related to research and economic development for the state.” The governor has exclusive control over this money. There is no consensus as to what these terms mean, and the lack of legislative authority over these taxpayer dollars means there is no accountability,
Fast forward to today. Payments from the Future Fund have included $13.5 million toward construction of a Rapid City-area shooting range, $2.5 million to promote and conduct a Governor’s Cup rodeo in Sioux Falls, and approximately $9 million for a workforce recruitment campaign that featured former Governor Noem.
In December 2024, the Sioux Falls Development Foundation received $15 million, the South Dakota Chamber of Commerce received $16.8 million, the South Dakota Chamber of Commerce and Industry received $50,000, the South Dakota Trade Association received $3 million, and on January 14, 2025, the South Dakota Department of Labor and Regulation received $13,940,211. On December 10, 2025, Governor Rhoden awarded $1 million to help pay for business parks in Aberdeen, South Dakota.
Recent legislative efforts to curtail the Future Fund have been thwarted. The Future Fund is South Dakotans’ tax dollars. Eliminating the Future Fund would reduce taxes and benefit South Dakota businesses. The Future Fund has become a personal slush fund more befitting the boss of an urban political machine than the governor of a constitutional republic. Expect to see legislation proposed this session to limit or eliminate the Future Fund.
Lobbyists
In 2025, there were more than 1,100 lobbyists registered with the South Dakota Secretary of State for 105 legislators, a ratio of more than ten lobbyists for each legislator. Approximately 400 of these lobbyists are paid with taxpayer dollars.
There are two possible solutions to this saturation of special interests and their influence into the legislative process. One is to pass legislation to prohibit government entities to hire lobbyists. Another solution is for South Dakota voters to take a more active role in working with their legislators, both during session and the months before and after session. This calls for voters to be informed and involved in their local elections. Our citizen voices need to be louder than the voices of special interests and their lobbyists.
Prison Reform
The new men’s prison approved in Special Session this September has become a rallying point for corrections reform in South Dakota. Governor Rhoden appointed the Correctional Rehabilitation Task Force in October. The Task Force has 30 members and is charged with evaluating programming and treatment needs for inmates in the current and the new facility, to develop faith-based programming, to develop Native American-focused programming and, to develop best practices for re-entry of inmates into society.
A focused effort is underway to develop and implement real corrections reform. The Task Force is charged with making legislative recommendations to the Governor and the Legislature. Legislation is anticipated this Session on some or all of these policy initiatives.
Reform is sorely needed. This year alone, eight inmates have died from drug overdoses, deaths that Attorney General Marty Jackley has declared publicly were “absolutely preventable.”
The South Dakota Constitution places the responsibility for governing state corrections facilities squarely on the Legislature. The Legislature must take ownership of this responsibility, which includes implementing the programming that is under development by the Correctional Rehabilitation Task Force, and holding the executive branch of state government accountable for its duty to execute the public policy passed by the legislative branch.
Unity
Law mirrors culture, and culture is grounded upon core values. The South Dakota Republican Party Platform expresses our core values. You can download a copy here: https://www.sdgop.com/platform/
The Preamble states, in part:
The fundamental principles of the South Dakota Republican Party are rooted in the Declaration of Independence, the Constitution of the United States, and the Constitution of the State of South Dakota. The Party supports the preservation of our Constitutional Republic, its ideals, and its institutions for the good of all Americans.
The first Platform Principle states that:
The rights of American citizens proceed from God, not from government. Government authority proceeds only from the consent of the People. Individuals, including the unborn, have the unalienable right to life, liberty, and the pursuit of happiness. We affirm the sanctity of all human life.
Fundamental principles, like core values, are meaningless without a shared adherence to these principles and values. In simple terms, unity is required. However, in a free society such as ours, unity can be neither legislated nor enforced.
At this time in our state’s history, we have a partisan divide that threatens to destroy the unity that we need to move our culture in the direction of our values and away from bad ideas. When we take these steps, we move the needle of our culture in a positive way, and our laws will follow in alignment with our values. The South Dakota Republican Party needs to be unified. Persons with whom we disagree are not, for that reason alone, morally flawed. Human insensitivity, harsh criticism, mockery, and exaggerated claims are not the virtues of a healthy society.
Finally, I will leave you with a quote from Thomas Jefferson, which makes us all a bit uncomfortable, but which rings true,
The government you elect is the government you deserve.
Watch your legislators carefully and how they vote during this upcoming session. Make sure their votes are in line with your values and the core values of our South Dakota Republican Party.
