Gov. Larry Rhoden opened his first budget Tuesday, holding K-12 education, healthcare provider rates, and state employee pay flat as the state adjusts to slower sales-tax growth and prepares for the 2026 legislative session. The plan relies on $51.6 million in new ongoing revenue and increases reserves to 12.5 percent, according to his budget address delivered at the Capitol.
Why it matters
Rhoden’s proposal sets a cautious tone heading into January as lawmakers face flattening revenues, weaker commodity prices, and a shifting cost structure. The budget directs major dollars to prison staffing, state infrastructure, rural healthcare authority, and targeted one-time investments, while leaving $14 million unallocated for legislative priorities.
Sales tax slows, Big Three stay flat
Rhoden said the state expects 4.4 percent sales-tax growth this fiscal year and $60.3 million in additional sales-tax revenue next year. With ongoing revenues $7 million below projections, he said the state must hold increases for the Big Three categories.
Reserves rise as revenues normalize
The budget raises general-fund reserves to 12.5 percent, or $413 million. Rhoden said the larger reserve target prepares the state for slower growth tied to weak farm income, flat sales-tax performance, and reduced one-time surpluses following creation of the Unclaimed Property Trust Fund.
New Rapid City women’s prison drives major spending
The largest new ongoing cost is staffing for the Rapid City women’s prison, which opens next year. The budget includes $13.2 million for 133 full-time positions, $2.4 million in one-time hiring funds, $1.1 million for offender healthcare, and $555,000 for new security cameras in Sioux Falls and Jameson facilities.
Infrastructure, IT, and maintenance see major one-time funding
The budget proposes $30.6 million in one-time maintenance and repair funds, $10 million for the statewide IT Modernization Fund, $260,000 for a cloud-based State Radio backup, $300,000 for a nuclear-energy study, and $3.1 million to modernize Department of Labor systems.
Airport expansions advance with zero-percent loans
Rhoden proposed up to $15 million each in zero-percent loans for the Sioux Falls and Rapid City airports, shifting unused housing-loan dollars into the REDI Fund.
Rural healthcare transformation receives large federal authority request
Rhoden requested $500 million in federal authority for rural healthcare transformation under President Trump’s “One Big Beautiful Bill.” Approval could come by late December.
Tech colleges receive targeted support
Education items include $6 million for an Advanced Manufacturing Center at Southeast Technical College, $4.3 million for equipment upgrades across the state’s four tech colleges, and $1.7 million in ongoing aid tied to enrollment growth. K-12 funding remains flat.
$14 million left for lawmakers
Rhoden left $14 million unallocated for legislative priorities and said he will outline a property-tax proposal during the State of the State address.
