South Dakota
Hot topics aplenty on South Dakota’s 2026 legislative session agenda
With a slate of hot-button policy issues on the table and limited funding to work with, state Sen. Jim Mehlhaff of Pierre said it is difficult to predict how the 2026 legislative session will play out in the Capitol this year.
“A legislative session is just like the rest of my life — it usually goes just the way I didn’t plan,” the Republican Senate majority leader said of the roughly two-month session that convenes Tuesday, Jan. 13. “Maybe we can have respectful discussions and find good compromises, but it could also become a rodeo-and-a-half, too.”
All joking aside, South Dakota lawmakers are expected to tackle a roster of topics that could have long-lasting impact on the state and its roughly 925,000 residents.
Mehlhaff said that in addition to the annual battle over how to spend state money, legislators are also sure to dive headlong this session into property tax reform and legislation regarding data centers.
Rep. Mike Derby, a Republican from Rapid City, said other major policy issues on the 2026 agenda include efforts to change the state’s electoral process, possible regulation of tax increment financing districts and refining how economic development tools are used in the state.
Hovering over any policy debates, however, will be the difficult task of developing and passing an annual state spending plan following a year when overall tax revenues fell by 1.4%. In response, Republican Gov. Larry Rhoden has proposed no funding increases for schools, state employees and government-funded health programs.
“That’s what we’re going to spend all session talking about,” said Derby, who will lead budget discussions as chairman of the Joint Appropriations Committee. “We have a long list of ideas people want to discuss.”
Passing a spending plan for the upcoming fiscal year is the Legislature’s only required action each year. After several years of receiving a total of roughly $1.3 billion in federal funds related to the COVID-19 pandemic, lawmakers are back into what Derby describes as budget “normalization” mode.
In his budget address in December, Rhoden proposed a lean budget but did include $14 million in discretionary funds lawmakers could possibly use to advance one-time local, regional or statewide projects.
Patrick Lalley / Sioux Falls Live
Derby noted that the governor’s budget recommendation is subject to review and alteration. For instance, some lawmakers might try to use the discretionary money to give one-time bumps to state employees, schools and Medicaid providers, he said.
Other ideas that could rise up during budget negotiations include funding of airport expansions, finding ways to tap into funds from unclaimed property and using money Rhoden targeted toward boosting state reserves to fund new or ongoing projects instead.
Lawmakers tried and failed in 2025 to reform the property tax system, which largely funds local schools and county governments.
The push to reform the property tax system comes as many South Dakota homeowners have seen sharp increases in property valuations that have correspondingly caused their tax bills to jump. Most state government operations are funded through the state sales and use taxes.
A summer task force made 19 recommendations on how to reduce the burden on homeowners, and those ideas are still on the table.
Rhoden has offered a plan to allow counties to vote in a local sales tax to offset a reduction in property taxes, and gubernatorial candidate U.S. Rep. Dusty Johnson has floated a plan to give homeowners a $400 annual property tax credit.
Mitchell Republic file photo
Mehlhaff told News Watch he will offer a plan this session to increase the statewide sales tax by 2% and use that money to remove the burden of funding schools from local taxpayers.
Pros and cons of data centers
The decision on whether to allow construction of data centers that use extensive electricity and water to store huge amounts of computer data is perhaps the hottest topic in South Dakota right now.
The issue
drew a large crowd and high emotions
at Tuesday’s Sioux Falls City Council meeting.
“There’s going to be a robust debate about whether we should incentive data centers to come to South Dakota or put up barriers to them,” Mehlhaff said.
A bill
has already been filed to provide tax exemptions for data centers in an attempt to encourage their development in the state.
Mehlhaff, who is a co-sponsor of that bill, said he would rather see data centers built in the United States, including South Dakota, instead of in foreign countries such as China.
Democrats to push prison reform
The recent large expenditures related to building new prisons for men and women in South Dakota will translate into efforts in the upcoming session to reform elements of the state judicial system and current criminal sentencing laws, said Rep. Erin Healy, a Sioux Falls Democrat who is the House minority leader.
In the past two years, lawmakers have approved construction of a $650 million men’s prison for a site in eastern Sioux Falls and an $87 million women’s prison now being built in Rapid City.
Healy said she expects to see legislation filed to keep low-level offenders out of prison and to provide better prison programs to reduce recidivism.
“I think people are realizing that incarcerating people is a very expensive endeavor and that if we take care of people after arrest or before re-entry (into society) that we can avoid some of those costs,” Healy said. “We can help people before they enter the system because it costs us less money but also because it’s the right thing to do.”
Healy expects to file a bill to provide some criminal immunity from drug charges to anyone who witnesses someone else suffering an overdose.
Amid a tight budget year, Democrats will be looking for new revenue streams in 2026 to counter the funding freezes Gov. Rhoden has proposed for schools, state employees and Medicaid-funded health programs, Healy said.
She also said the rhetoric in the Capitol might be heightened due to the upcoming 2026 gubernatorial election as candidates and their supporters seek to drive home messaging they believe will resonate with voters.
Rhoden, one of those candidates, faces primary challengers from within and outside of the state Legislature.
“There are going to be some interesting developments and potentially we’re going to see some new priorities coming out from different camps aligned with gubernatorial candidates,” Healy said.
— This story originally published on southdakotanewswatch.org.
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The existing water treatment plant for the Minnehaha Community Water Corp. on June 9, 2026, south of Dell Rapids, S.D. (Photo: Bart Pfankuch / South Dakota News Watch)
DELL RAPIDS, S.D. – Scott Buss can only imagine what this town north of Sioux Falls might have looked like – and how many jobs and taxes would have been generated – if there wasn’t a local shortage of available water.
Buss, executive director of the Minnehaha Community Water Corp., sat in the conference room of the rural water system based in Dell Rapids recently and ticked off the industrial and agricultural projects turned away due to a lack of water.
After hitting its limit on how much water it can provide a few years ago, the rural system has had to turn away proposed projects valued at hundreds of millions of dollars that offered an untold number of new jobs, he said.
The rejected projects include the Agropur Cheese plant that eventually opened in Lake Norden. A few proposed hog farms and dairy expansions in northern Minnehaha County were also stalled, Buss said.
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Other proposals, most of which never came to fruition in South Dakota, included the $1.5 billion Gevo corn-based jet fuel plant, the $5oo million Wholestone Farms hog processing plant and a data center that at some point all eyed the Dell Rapids area for development.
“All the water rights are spoken for between Dell Rapids and Sioux Falls, so there was no more water to be had in Minnehaha County,” Buss told News Watch in an interview in June. “With all the (residential) development that was coming in, we realized that our well capacity and our treatment capacity was limiting our ability to take on new high water-use customers.”
Buss and the nonprofit corporation’s board of directors aren’t waiting around to potentially miss out on more opportunities.
In a unique arrangement, the corporation is partnering with the neighboring Big Sioux Community Water System to the north on a $170 million expansion project called Shared Resources. The expansion, started three years ago, will use new wells into the Big Sioux Aquifer to generate 8 million gallons of water more per day starting this fall.
“It’s going to be a huge and great benefit for Big Sioux and Minnehaha water,” said Jodi Johanson, director of the Big Sioux system based in Egan. “This project is going to make sure that down the road we have enough water for the future.”
2 systems get stronger together
The Minnehaha water corporation is still able to bring on new residential and retail customers who consume part of the 9.2 million gallons of treated water it can provide on a daily basis.
The system was formed by a group of farmers and landowners in the 1970s but sought a reliable way of providing more and cleaner water to residents of Minnehaha County outside of Sioux Falls who relied exclusively on individual wells. The system started with about 1,200 customers but has grown to more than 5,500 now in seven cities, mostly north of the Sioux Falls metro area.
Given the limits on water from the aquifer, and balancing the water needs of consistent housing and retail growth in northern Minnehaha County, the water system had to say no to developments that request 1 million or more gallons of water per day, Buss said. A million gallons per day is equivalent to the water consumption of about 4,300 homes, he said.
Billions needed to keep South Dakota taps flowing
South Dakota water systems will increasingly turn to the Missouri River to provide water for future population, agricultural and industrial growth. But plans will require billions of dollars and decades of construction to keep taps flowing freely.
As with other rural water systems in South Dakota, the aquifers the systems rely on for their water are either running low or are legally tapped out, or both.
In the case of Minnehaha water corporation, the Big Sioux River Aquifer has gotten drier, but state law is also preventing it from taking more water from the aquifer.
In 1996, the state Water Management Board allocated water rights, or withdrawal limits, to systems that take groundwater from the aquifer, Buss said.
Those limits have now been reached, meaning that Minnehaha water cannot take any more than the 7 million gallons per day it is drawing now.
The system also receives about 2 million gallons per day from the Lewis & Clark Regional Water System, making its daily maximum capacity of about 9.2 million gallons per day, which it sometimes reaches, especially during spring planting season or hot summer months.
Directly to the north, the Big Sioux Community Water System produces up to 2 million gallons per day for about 2,400 customers in Moody and Lake counties as well as some in Brookings County and in western Minnesota, Johanson said.
The system still has room within its water rights to draw more water, making it an attractive partner for Minnehaha water.
Though Big Sioux Community Water System has not turned away any large projects, it needs more water to serve a boom in residential growth in the region, Johanson said.
In the area around Lake Madison, near Madison, developers are considering projects that could someday bring 500 new homes and a new nine-hole golf course, she said.
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The system also serves a number of dairies that use significant water and provides water to the Dakota Ethanol plant in Wentworth, which is undergoing an expansion. Farmers in the region are also using greater quantities of water to deliver chemicals onto their land, Johanson said.
“This is our first expansion,” she said. “We’re looking forward and we’re trying to find the solution before we face a problem.”
Federal government and customers pay the way
The biggest Shared Resources ticket item is a new $80 million water treatment plant that is nearly completed on 240th Street a few miles north of Dell Rapids.
A 20-inch pipeline from the plant to the east will end at a 1.5 million gallon water tower, and a 24-inch pipeline to the west will terminate at a ground-level storage tank with a 4 million gallon capacity.
Six new wells will draw the water, and the storage tanks will provide both pressure and the ability to adapt to changing demands without service interruption, Buss said.
As with most modern water projects, the costs will be shared by government and end users. The systems are funding the project with $49 million in grants from the Biden-era American Rescue Plan Act and $121 million in low-interest loans from South Dakota’s Drinking Water State Revolving Fund.
The two systems are sharing the cost of the project loans commensurate with how much water they will receive, meaning Minnehaha will pay 65% of the costs for its 5 million gallons per day while Big Sioux will kick in 35% for its 3 million gallons more per day.
Minnehaha water is assuming $87 million in new debt and Big Sioux will take on $42 million in new debt, Buss said.
The average residential consumer in both systems that uses about 7,000 gallons per month will see their bill rise to $135 a month, roughly double the cost in 2020.
“It’s a big project, and it’s a good example of how two systems can work together to have some economies of scale,” Buss said.
Ratepayers will see a significant increase in their monthly water bills. The average residential consumer in both systems that uses about 7,000 gallons per month will see their bill rise to $135 a month, roughly double the cost in 2020, Buss said.
A big project, but even more water needed
But both systems view the Shared Resources project as a temporary fix and both are looking toward proposed projects that will tap the Missouri River for more water in the future.
Buss said his system has applied for 10 million gallons more water per day from Lewis & Clark, which has two expansion efforts planned.
Minnehaha water has simultaneously applied to receive 10 million gallons per day from the proposed Dakota Mainstem Regional Water System, a potentially $10 billion project to carry Missouri River water to more than 50 communities and organizations across eastern South Dakota and parts of Minnesota and Iowa.
The dual application effort is to make sure Minnehaha water can rely on taking in more water from at least one of the two systems as they come online, Buss said.
Johanson said Big Sioux has also signed on to accept water from Dakota Mainstem, even if it takes 20 to 40 years for the water to begin flowing.
To ensure that steady supply of high-quality drinking water, four major projects are in progress to take more water from the Missouri River – including WEB Water in the northeast, Lewis & Clark and the proposed Dakota Mainstem in the southeast as well as the proposed Western Dakota Regional Water System in western South Dakota and the Black Hills.
The projects are part of a wide-scale increase in water service capacity now underway in South Dakota, where water managers of several systems are implementing plans to serve the state for the next 40 to 50 years.
Regional rural water systems such as Minnehaha and Big Sioux are critical components of those projects because they provide water to communities and individual customers at the end of the delivery system.
Alicia Deschepper, zoning administrator for Moody County, said the water system expansions should allow for more growth to occur in Moody and Minnehaha counties, which are seeing new single-family housing developed at a rapid rate.
“I think it will be a great thing for our county and hopefully enable us to bring in more bigger businesses as well as more homes,” Deschepper said.
South Dakota News Watch is an independent nonprofit. Read, donate and subscribe for free at sdnewswatch.org. Contact content director Bart Pfankuch: 605-937-9398/bart.pfankuch@sdnewswatch.org.
SIOUX FALLS, S.D. (Dakota News Now) – The South Dakota Department of Public Safety said a nine-year-old girl from Waterloo, Iowa, is dead following a fatal Hughes County crash on Saturday.
This crash happened on Saturday, July 4, near the Spring Creek Recreation Area about 15 miles northwest of Pierre.
Preliminary crash information suggests a utility vehicle driven by a 37-year-old Iowa man was driving south on Spring Creek Drive. He attempted to turn around and rolled the vehicle.
A 16-year-old boy was also in the vehicle and was hurt, while the driver was not hurt.
The South Dakota Highway Patrol is investigating the crash.
Copyright 2026 Dakota News Now. All rights reserved.
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