Governor Kristi Noem delivers annual Budget Address, says the state can afford grocery tax cut

In about thirty minutes of remarks, Governor Kristi Noem laid out her administration would like to see nearly $2.2 billion spent over the course of the next fiscal year and a half.


PIERRE, S.D. - Governor Kristi Noem delivered her annual budget address Tuesday in the South Dakota State Capitol, hitting on a number of major proposals.

“We have $423 million in reserves. Historically, our goal is to keep 10% in these funds. Since I’ve been Governor, we have almost doubled that number. We ended last year with a record-breaking budget surplus of $115.5 million,” said Noem.

That historic surplus in Fiscal Year 2022 was largely thanks to sales and use tax receipts growing by more than 12% over the prior fiscal year. So far in the Fiscal Year 2023, sales & use taxes have grown by another 14.1%. Early indications for November have the state beating revenue projections by another $58.8 million, putting us up $135.3 million fiscal year to date. Sales tax alone is running $81.8 million ahead of the estimates that the state previously adopted, Noem said during her address.

“We expect $310 million in ongoing revenue available for the Fiscal Year 2024. And we are anticipating $216 million in one-time revenue will be available in the upcoming Fiscal Year, as well. The budget that I am proposing to you today invests every single dollar of those revenues wisely.”

Sales tax cut on groceries

Noem committed to keeping the biggest promise from her recent re-election campaign, cutting the state’s tax on groceries.

Efforts in previous years to repeal the tax have come up short, with many lawmakers suggesting it would be irresponsible for the state to remove that tax revenue without a plan to replace it.

“We have $310 million dollars in permanent revenue growth,” Noem explained. “After this tax cut, we will have $208 million dollars that will be available to us to meet the needs that state government is responsible for. We have been exceeding estimates by about $25 million dollars per month. The people of South Dakota overwhelmingly want this tax cut, and they know that we can afford it.”

Noem pointed to rising prices consumers are paying at the grocery as a reason to cut the tax, arguing that it was the best way to provide more immediate relief to consumers dealing with inflation. Her budget projects that the cut would cost the state $102.4 million, giving the legislature plenty of room to spare.

“My team and I are fully confident that this is the right tax cut at the right time. Let’s get it done.”

“Medicaid expansion passed on the ballot, and therefore it will be implemented.”

The federal government incentivizes states to implement Medicaid by subsidizing costs for the first few years. After that, the burden falls on the state.

"The first year, the cost for Medicaid Expansion will be $66 Million, but the state’s responsibility will be $13 million. In the second year, the program will cost just under $70 million, and the state will cover $16 million. We expect the cost of Medicaid Expansion to be $66 million in year one, just under $70 million in year two, rising to more than $80 million by year five,” said Noem.

Noem said that even though Medicaid expansion was passed, the goal should be to allow for more healthcare options, not government-run programs.

Funding state employees, providers and education aid

State statute requires Noem to provide at least 2.5% incremental raises to state educators, state employees, and healthcare providers. Noem said she recommends a 5% increase for all three, double what is required by state statute, but less than what she recommended last year, 6%.

A few years back, the legislature created a process to establish a rate-setting methodology for health and human service providers – this would affect services delivered by community-based providers. Unfortunately, reimbursement rates for many of these services have struggled to keep pace with rising living expenses.

“Today, I am recommending that we invest $22 million in targeted increases to reimburse at least 90% of the reasonable rate for all providers of these services,” said Noem. “To get to 90%, we will need a 21% increase in nursing homes, a 17% increase in community support providers for South Dakotans with developmental disabilities, and a 26% increase in psychiatric residential treatment facilities.”

Noem also said she wants to address South Dakota’s problem with recruiting state employees and other hard to fill positions. “My budget has $11 million in targeted pay increases for specific job areas and $11 million in added benefits to ensure state government has the workforce it needs to carry out critical services that are necessary for us to fulfill our responsibilities.”

She correctly pointed out that the government cannot completely control how schools and healthcare providers spend the money given to them, “But I would encourage all of them to put as much of it into pay increases as they can. South Dakota has the fastest growing incomes in the country, but if you don’t continue to invest in your workers, providers, and teachers, they will find good-paying jobs elsewhere.”

Funding building projects

Because of inflation, building projects that have already received legislative approval are coming in over budget.

“I am recommending $25.6 million in one-time funding to finish these critical projects that we’ve already started,” said Noem. “This request includes $13 million to the State Public Health Lab, $7 million to Board of Regents projects, and $6 million to the DEX – or Dakota Events CompleX – at the State Fair. All of these projects have received prior legislative approval, and they need to be completed.”

Noem’s budget also puts aside roughly $52 million to build prisons in the state.

Supporting growing families

Noem said she would like to cover 100% of paid family leave for state employees, an increase from the state’s current 60% coverage, costing the state about $3 million.

In an attempt to help keep parents and caretakers in the workforce, Noem said, “We will be including $20 million in one-time incentives – spread out over four years – to incentivize private businesses to buy into a new paid family leave opportunity.”

Noem said in January, she will suggest more policies intended to help support mothers and families through funding for adoption – including pregnancy and postpartum care for Medicaid patients, and scholarships for foster children.

South Dakota’s mental health crisis

Noem said now that the facilities have been built to support those experiencing a mental health crisis, funding is needed to provide those services.

“My budget proposes $5.6 million in ongoing funding to these regional facilities to get these individuals the help that they need sooner,” said Noem.

Public safety and infrastructure improvements

Noem said the new Incarceration Task Force agreed to put $86 million towards a new Incarceration Construction Fund, with $3.8 million for land and design costs for a new women’s minimum-security prison in Rapid City.

The engineering and design process came back with dollar figure estimates saying that we will need 300 beds at the women’s facility. The cost estimate for construction is $200,000 per bed, or $60 million.

The state penitentiary is outdated, not compliant with ADA requirements, and overcrowded. Noem recommends taking the same multi-year approach that was used with the women’s prison in Rapid City, with $52 million in funding to purchase land and conduct engineering and design for this new facility, “$27 million of that will come from the remaining dollars in the Incarceration Construction Fund, and $25 million will come from one-time general funds.”

Protecting South Dakotan’s personal information

Noem said the 35-year-old software system used by state agencies, including the Department of Health, Social Services, and child protective programs, store sensitive information. The outdated technology leaves South Dakotans vulnerable to cyber attacks.

“It will take 4 years and $70 million dollars in one-time funding to replace this accounting system – but we must get it done. We don’t want to look back and wish that we’d taken this threat seriously,” said Noem.

Supporting law enforcement & readiness centers

“My budget also provides one-time funding to upgrade the State’s Emergency Alert System and upgrade the remaining state radio infrastructure to support our law enforcement,” said Noem. “Currently, the state covers 50% of tuition if a Guard member attends a Board of Regents institution. We cover more than 80% of tuition at our state’s tech colleges. I want to take both of those numbers to 100%.”

The budget will also provide $8 million in additional federal fund authority to help them complete the Sioux Falls Readiness Center.

“And I am also supporting $29 million in federal fund authority for a Field Maintenance Shop for the National Guard in Watertown,” said Noem. “This will help us get more of our readiness capabilities in the same location.”

Many more details will come to light around these proposals by Noem, in the lead up to the start of session and during her annual State of the State Address. That will be on January 10th.

To see Noem’s entire proposed budget, click here.

To read her speech, click here.

To watch the speech, click here.

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