South Dakota law requires the Sioux Falls School District to publish an ad in a legal publication with the title of “Notice of Tax Increase.” While the exact title is mandatory by law, it is misleading. A Sioux Falls homeowner’s school portion of property taxes will actually decrease by over 20% in 2027 and the opt out amount utilized by the Sioux Falls School District will also decrease for the 26-27 school year.
The School Board tentatively approved the budget for the 2026-2027 school year in April 2026, and this opt out replaces a portion of a $5 million dollar levy that ends in 2027. The recommendation is to reduce the opt out by $1 million from the previous year and by $1.5 million from what was originally projected. The district works hard to respect taxpayers while still providing a quality education; demonstrated by eliminating $3 million from the ongoing budget a year ago and another $2 million this year.
South Dakota law requires education be funded at 3% or the rate of inflation, whichever is less. Despite this, for the 2025-26 school year, the state did not meet funding requirements and instead allocated 1.25% while the rate of inflation was over 3%. For the 2026-27 school year, the state allocated a 1.4% increase while the rate of inflation was 2.54%.
Counting one-time money being used to temporarily fill the gap until the full restoration of the three/tenths of the half penny sales tax the Legislature increased in 2016, State Aid as a share of the total state general fund budget will be 32 percent. While this is seemingly in line with what one might expect had K12 funding kept pace with the rest of the budget, about $210 million of that increase has been property tax relief funded through the state aid formula. Without that $210 million of property tax relief since 1998, State Aid would be only 26% of the general fund budget (or $210 million short of “keeping pace” with the rest of the state.)
This reality creates a challenging gap for school staff who face cost-of-living increases while their salary doesn’t keep pace. For this reason, and because Sioux Falls has identified other essential programs and priorities, the District exercises the option to opt out of property tax limitations to provide a quality education to every student.
Following advice of a committee of local business professionals called the Finance Action Network, the District has used a laddered approach to opt-outs since 2019. The group recommended overlapping smaller amounts each year to adjust for inflation, if needed, rather than requesting larger amounts at intervals of 5 to 10 years. The laddered approach, combined with a $5 Million reduction in ongoing expenses over the past two years, results in a lower recommended opt-out amount in FY27. Rather than adjusting “up” for inflation, the Board recommends dropping the opt-out amount by $1 million from the amount levied last year.
The result is that the overall school mil rate for homeowners is projected to drop from $7.13 in 2026 to $5.36 in 2027. This reduction will lower the school tax bill by 23% on a typical home. Homeowners will not see an increase in school property taxes; they will see a decrease, despite the required notice with the misleading title.