Hold on tight: South Dakota's budget is about to get real. Governor Larry Rhoden just dropped a budget proposal that could leave state employees and K-12 schools feeling the pinch – no salary bumps or funding increases are on the horizon. But here’s the question everyone's asking: Is this fiscal responsibility, or are we shortchanging crucial services? Let's dive in.
Republican Governor Larry Rhoden unveiled his budget proposal Tuesday, and the headline is clear: zero increase in state aid for K-12 education and no raises for the dedicated individuals working for the state government. This means schools might have to get creative with existing resources, and state employees won't see any extra money in their paychecks. This is tough news for many families.
According to Rhoden, this decision stems from sluggish revenue growth. "Because our revenues haven’t grown much, we have to keep them flat this year," he explained, encompassing education, healthcare providers, and state employees in this belt-tightening measure. Think of it like your household budget – if your income stays the same, you can't suddenly spend more.
Lieutenant Governor Tony Venhuizen added some context, highlighting that financial analysts hold South Dakota's fiscal management in high regard. He characterized Rhoden's proposed budget as a continuation of this prudent approach. "It includes some tough choices," Venhuizen admitted, "but it keeps the state in a strong financial position." So, is the pain worth the gain? That's the debate that's about to heat up.
While Rhoden acknowledged that sales tax revenue growth is slower, he also clarified, "That doesn’t mean our sales tax is weak…" In fact, the state's overall sales tax performance is better this fiscal year compared to the last. But here's where it gets controversial... Even with some improvement, Rhoden cautioned, "it also means we don’t have a ton of headroom." In other words, the state's financial wiggle room is limited.
This isn't the first time schools have encountered budget constraints. Rhoden had already warned them to anticipate a lean year. Back in 2011, lawmakers even approved an 8.6% cut in school funding aid. Imagine trying to run a school with almost a tenth less money – the impact on teachers, resources, and students would be significant.
And this is the part most people miss... Rhoden pointed out that public school enrollment is declining, while alternative options like homeschooling are gaining popularity. He also noted a 9% drop in birth rates over the past decade. These demographic shifts, combined with the fact that school funding is largely based on enrollment, contribute to the current situation. Fewer students often translate to less funding. However, is it the responsibility of the state to ensure funding for K-12 education regardless of the fluctuations in enrollment?
State employees have faced similar situations before. In 2025, for example, they received a 1.25% salary increase, alongside education funding. The last time a 0% inflation adjustment was proposed was for the FY2019 budget, according to the State Bureau of Finance and Management. It's a cycle of ups and downs, but the lack of raises can certainly impact morale and retention.
Rhoden emphasized that the state is "investing $3 million out of health plan reserves and implementing plan changes to keep costs from going up on state employees, since we won’t be able to give them a raise this year." Essentially, they're trying to offset the lack of salary increases by keeping healthcare costs stable. This is certainly helpful, but is it enough to replace the tangible value of a raise?
Now, Rhoden's proposed budget isn't set in stone. Lawmakers have the power to adjust it during the upcoming legislative session. This means there's still room for debate and negotiation.
Rhoden also stated that cutting Medicaid reimbursement rates is off the table. However, his budget doesn't include any increases to those rates for the next fiscal year. So while he's avoiding cuts, he's also not providing additional support.
Although the state's revenue picture is improving, Rhoden stressed that revenues will remain a concern. The current fiscal year is already lagging behind, with revenues $8.2 million short of legislative targets. "If you look at this year and last year, that’s two years in a row where we’ve been behind estimates," Rhoden said, highlighting the need for caution.
He emphasized the importance of setting conservative revenue projections for the upcoming year. The administration is estimating sales tax growth of $60.3 million and overall revenue growth of $58.7 million. But here's the thing: lawmakers often tend to be more optimistic in their revenue forecasts. Rhoden warned that while this has worked in the past, it might not in the future, especially since unclaimed property dollars will now be allocated to a specific trust fund.
During his address, Rhoden mentioned that some lawmakers are calling for cuts, while others believe the state's reserve funds are too high. He also expressed his desire to reduce property taxes, but not at the expense of healthcare, education, or public safety. "So, I ask the legislators who are asking for cuts, where should we cut? Should we cut healthcare, education, or public safety?" Rhoden challenged. "Folks seem to want to cut the general operations of state government, the 'All Other' on the far right." It's a classic political balancing act, trying to satisfy everyone while staying within budget.
The Governor emphasized that he views the budget as "the people's money" and wants to be fiscally responsible, balancing the budget and ensuring that "we don’t spend money we don’t have." It's a straightforward principle, but putting it into practice is always a challenge.
Specific Spending in the Budget
The budget does include some one-time spending and loan opportunities across the state. Rhoden's budget reflects about a $51 million increase in general fund spending. That includes roughly $13 million to support 133 full-time equivalent staff at the new women's prison in Rapid City, primarily for programming staff. This investment in rehabilitation could have long-term benefits for the community.
"The National Guard Readiness Center in Sturgis is too small and extremely outdated. I am proposing $2.4 million in state funds, which will leverage $8 million in federal dollars, to increase the size of this facility to over 26,000 square feet," Rhoden stated. Upgrading infrastructure is crucial for supporting the National Guard's readiness.
The state highway patrol is also slated to purchase a used plane with a budget of up to $5 million and will sell their current aircraft. Efficiency in transportation is critical for law enforcement across the state.
The budget further includes up to $15 million in 0% interest loans to airports in Rapid City and Sioux Falls. These loans can help these airports undertake vital improvements without incurring interest costs.
While exercising caution with one-time spending, Rhoden aims to transfer $98 million from state reserve money for investments throughout the state. This includes $30.6 million for overall maintenance and repair of state facilities. Maintaining existing infrastructure is crucial to prevent costly repairs down the road.
Rhoden has earmarked approximately $30 million for state universities and technical colleges, including $6 million for an advanced manufacturing center at Southeast Technical College in Sioux Falls. A $4.3 million investment in one-time equipment is designated for all four of the technical colleges. Investing in education can help the state grow in the long run.
Of that $98 million transfer, $14 million will be left to lawmakers to decide how to allocate it, Rhoden said. This move gives the legislative branch more control over the budget.
This story will be updated as Rhoden presents his address to state lawmakers.
So, what do you think? Is Governor Rhoden's budget proposal a necessary step to maintain fiscal responsibility, or does it shortchange crucial services like education and state employee compensation? Where would you make cuts or allocate resources differently? Share your thoughts and opinions in the comments below! Let's get the discussion going.
