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South Dakota Gov. Larry Rhoden gives his budget address on Tuesday, Dec. 2 at the state Capitol in Pierre. Photo courtesy of The Dakota Scout.
PIERRE – Education, Medicaid and state workers will not receive any increases in their state funding next year under a budget proposed Tuesday, Dec. 2 by Gov. Larry Rhoden.
The so-called “Big Three” typically see at least inflationary adjustments, but softer revenues and additional requirements mean the biggest drivers in the state budget find themselves in a budgetary holding pattern.
“There’s been a lot of speculation on the economy. I won’t sugarcoat it: revenues have been pretty flat – only rising slightly,” Rhoden said.
Despite no increases in those areas, the fiscal year budget Rhoden proposed has about $50 million more than the current budget year that started July 1. But much of that additional money will be used to offset other areas. For example, the state needs $13.2 million for a new women’s prison in Rapid City that will be operational soon. With the exception of 133 full-time employees for the prison, Rhoden said his budget on new state employees is “flat.”
Terwilliger
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In a briefing with reporters prior to Rhoden’s speech, Bureau of Finance and Management Commissioner Jim Terwilliger said the prison represented “mandatory” spending for which the state needs to account.
“We’re taking care of those mandatory needs, and everything else is staying flat,” he said.
Revenues in fiscal year 2025, which ended June 30, were down 0.6%. Terwilliger noted it was only the third time in 30 years that year-over-year revenues declined.
While revenues were down, Rhoden said sales tax revenues have rebounded since the start of the current fiscal year, including a very strong October.
State has gone above and beyond in education funding, Rhoden says
Rhoden noted that the state has gone above and beyond in previous budgets to pay for education, the largest item the state funds. Since 2016, the state education aid formula has required the state to increase K-12 education by 21.7%. But the state has actually increased spending by nearly 28%, he said.
State spending on Medicaid, meanwhile, grew by 90% since 2020, representing $360 million in additional spending. Much of that – $180 million – has gone to increase reimbursements to providers.
“This Legislature has made the decision to increase provider rates, including to groups like CSPs (community service providers), above and beyond what is required,” the governor said.
Rhoden also pushed back on conservatives in his own party who have called for budget cuts. The governor challenged them on where they would find cuts — education, health providers or public safety. Outside of education, social services programs and public safety, the rest of state government receives only 4% of what’s left over in revenues.
“So, I ask the legislators who are asking for cuts, where should we cut? Should we cut health care, education or public safety?” he said.
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The budget leaves more than $413 million in reserves, equal to about 12.5% of the state general fund — more than a 10% requirement. That fund had been as high as 20% of the general budget, but it contained money being used for construction of a new men’s prison in Sioux Falls.
Rhoden said the budget is committed to using one-time money for non-ongoing expenses. Based on the recommendations of the Governor’s Resilient Infrastructure Task Force, he’s requesting $10 million to harden the state’s information technology system – in part a reaction to a power outage that paralyzed state government last summer.
The committee also requested $260,000 for cloud-based backup to the state radio system in the event of another outage and $300,000 to fund a nuclear energy study.
“This will help ensure an all-of-the-above energy approach for South Dakota,” Rhoden said. “We’re already the national leader in largest share of energy that’s produced from renewable sources. More energy flexibility will lead to a more stable energy supply.”
Rhoden also included $14 million from the reserve fund that is unallocated. He told lawmakers that he wants them to come up with worthy options for that $14 million.
Reaction to Rhoden’s budget plan mixed among House leaders
Reaction to the governor’s proposal was mixed among the House Republican and Democratic leaders.
Odenbach
Republican Majority Leader Scott Odenbach said it is obvious the COVID-19 budget years where the state saw huge influxes of federal dollars are over. He also noted that the state has big mandatory spending requirements.
“When you look at what’s happened with Medicaid, it’s a big number,” said Odenbach, who represents Spearfish.
He also pointed out that K-12 education spending has risen faster than inflation even though statewide enrollment has dropped. He suggested that could be an area lawmakers examine when they look at proposals to reduce property taxes during the next session starting in January.
Healy
Democratic Minority Leader Erin Healy of Sioux Falls said the state could easily take $70 million more out of the rainy-day reserve fund for education and still have 10% set aside.
“I feel like it’s never a rainy day in South Dakota,” she said of the state’s hesitance in using reserves. “I think now is the time to be investing in the people of South Dakota.”
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Healy also said there was no discussion about funding for emergency medical services, which are critical for rural South Dakota, and she wanted the governor to restore $5.3 million in cuts to the Temporary Assistance for Needy Families program that had been made in the current budget.
Still, she added, there are positives in Rhoden’s budget. Although he isn’t budgeting for a raise to state employees, he’s investing $3 million into their health care premiums, which Healy appreciates. She also praised Rhoden’s desire to focus on rehabilitating prisoners at the new Rapid City women’s prison, noting that rehabilitation will be a big area of improvement for the new men’s prison in Sioux Falls.
“Our caucus is focused on rehabilitation efforts,” she said. “We need to start now rather than later.”