Simplified: The city is looking to "recalibrate" its overall budget in the coming years to account for less money coming in after state lawmakers voted in favor of property tax relief, Finance Director Shawn Pritchett told the City Council Tuesday afternoon.

Why it matters

  • Property taxes are historically one of the most reliable revenue sources for the city, but as folks pay fewer property taxes – prompted by Senate Bill 216 – the city will make less money. Conservatively, Pritchett estimates the city will lose $25 million in revenue over the next decade, but the actual number could be higher.
  • In addition, the city has seen lower-than-projected sales tax revenue increases for the last couple of years. Those types of fluctuations are easier to account for and average out over time, Pritchett said.
  • With sales tax fluctuations, the city can dip into reserves, and it all shakes out in the wash as sales tax hits highs and lows. But losing out on property tax revenue is a permanent hit.
"That's a permanent loss, and it requires a permanent recalibration of services in order to support that because if we do not make adjustments we will deplete our reserves in 10 years," Pritchett said.

Tell me more

Property taxes account for 38% of the city's general fund (which, itself, is a subset of the much larger overall budget).

  • The general fund is what covers the things you think about as city government: plowed roads, parks, libraries, filled potholes, public safety, etc.
  • The majority of the general fund – which last year was just shy of $250 million – goes to city employee wages. Right now, those wages are not on the chopping block.
"We've always taken a position to preserve our employee base," Pritchett said.

That means budget cuts will have to come from an even smaller subset of the general fund – about $90 million for the "cost of doing business."

"What does this look like?" he added. "It's street maintenance cost, its snow removal, its parks and recreation, library programming, it's taking care of our parks, it's public safety, health operations, gas in the police vehicles, supporting public transportation and housing, and other general costs of doing business."
  • That's where the city is eyeing to cut between $8 and $10 million in the next couple of years, Pritchett said. And whenever there are cuts, the public can expect to see a reduction in services the city government provides.

Tell me more about property tax relief

Property tax relief approved by lawmakers does a few different things:

  • It puts a cap on how much the county can increase the total assessed value of single family homes (not a cap on individual home assessed value increases, but a cap on the whole county's overall increase).
  • It puts a cap on the amount taxing districts can increase as a result of new construction.
  • It expands property tax freezes for the elderly.

(If you want the full story on the property tax relief bill and its path through the state legislature, South Dakota Searchlight has you covered.)

What happens next?

The work is mostly happening behind-the-scenes right now as individual city departments work up their budget proposals.

Then, in the coming months, the mayor is expected to release his five-year capital spending plan, followed by his proposed 2026 budget. The mayor's budget address is currently scheduled for July 24.

The City Council will then take over with budget hearings throughout August and a final vote in September.