Gov. Kristi Noem signs historic budget, tax cuts while remaining critical of legislative choices
"Only time will tell if it was a wise decision to spend these additional dollars," she wrote in a letter to lawmakers, referencing about $87 million in spending above her recommended budget.
PIERRE, S.D. — A historic set of spending increases and tax cuts is coming to South Dakota, as Gov. Kristi Noem signed the legislature approved budget on March 20 before following it with a signing of a three-tenths percent general sales tax cut on March 21.
The moves come after weeks of critical statements from the South Dakota governor on over-spending among budgeters and a lack of permanent tax relief to boot.
“Our people deserve permanent tax relief. The legislature has instead offered them a tax holiday for four years," Noem wrote as part of her signing statement.
The temporary sales tax cut down to 4.2% is expected to return around a half-billion dollars to taxpayers over its current four-year span.
On the budget side, Noem also wove some of her previous criticisms of lawmakers into a letter tied to her signature, mainly questioning legislators for supporting increases totaling $87 million above what Noem had proposed in her December budget.
The total budget eclipses $7.3 billion, though the largest portion of this funding comes from federal sources.
“I agree that our economy is strong, and I am responsible for ensuring that additional spending in our state’s budget is sustainable into the future. I’ve put significantly more funding into reserves in recent years,” Noem wrote. “Only time will tell if it was a wise decision to spend these additional dollars.”
On March 9, lawmakers finalized a state budget that increases funding to education and state employees by 7% and care providers by 5%, though larger increases are scheduled for several provider categories in the form of a boost in rates paid by the state for certain Medicaid services.
The set of spending priorities passed the South Dakota Senate 29-3 and the House 66-3. It’s the largest single-year bump for education since the half-cent sales tax increase in 2016 and the largest ever for providers and state employees.
Most of that extra spending referenced by Noem — a result of higher revenue estimates from legislative staff than the administration’s Bureau of Finance and Management— went into increases to the “Big Three” of education, state employees and providers.
Noem further criticized this 7-7-5 funding increase as a departure from a “tradition of funding equal inflationary increases” for all three of these groups, saying it sets a “bad precedent” that could lead to one of these three groups being “left behind in future years.”
Lawmakers painted the increases as generally equivalent due to the targeted provider increases.
Other changes to Noem’s baseline budget from lawmakers included around $12 million in extra state funds put aside to begin saving for the end of federal incentives for Medicaid expansion, which run out in July 2025, two years after implementation.
“What we've done is we've recognized our issues. If you've listened to me long enough, I believe workforce was the biggest issue of this session: how can we recruit and retain our people?” Sen. Jean Hunhoff, of Yankton, the top budgeter in the Senate, said on March 9. “And we have heard from the groups that this is what they needed to have.”
One day later, Noem's signature on House Bill 1137 ended the lone holdover from the recently wrapped 98th legislative session, a $100 million, three-cent cut to the overall state sales tax that lawmakers also passed overwhelmingly on the final day of the regular session almost two weeks ago.
A four-year sunset clause on the tax cut was essential to getting the priority through a Senate worried about balancing state obligations with oncoming financial uncertainty.
That tax cut was already baked into the wider budget, as lawmakers have spent $100 million less than they otherwise would have with full revenues.
Were Noem to veto the tax cut and have the veto sustained — leaving aside the high likelihood of lawmakers overriding the veto — the state would have simply collected those extra tax dollars and transport them to the bottom line.
In urging Noem to put her signature on the largest single sales tax cut in state history, lawmakers made overtures to the spirit of compromise.
“One thing that you realize with a big broad tax cut like this is that you either want to make it a priority to cut taxes, or you want to make it a priority to cut taxes in exactly the way that you want to,” House Majority Leader Will Mortenson, of Pierre, whose chamber preferred a sales tax cut without a sunset, told reporters on March 9.
Lawmakers will return to Pierre on March 27 for “Veto Day,” where they will consider any gubernatorial vetoes from the preceding two weeks.
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or email@example.com.