Senate Bill 216 Governor's Property Tax Bill
Over the last five years, owner-occupied property assessments have skyrocketed in some parts of the state. This has led to higher property taxes for homeowners, especially for seniors and those living on fixed incomes. Governor Rhoden worked with a group of legislators during the 100th legislative session to provide property tax relief for homeowners. Senate Bill 216 was the result of that effort.
What does SB 216 do?
Property Assessments
Although suppressing valuations will not decrease the amount of property taxes collected, Governor Rhoden felt it was important to attempt to slow some of the shifting of the tax burden that has been occurring the last few years. SB 216 restricts counties from increasing owner-occupied valuations by more than 3% annually for the next five years. This limitation focuses on annual reappraisal increases. New construction and additions will not be part of this limitation. The limitation will impact valuations that are set for the 2026 calendar year.
Taxing District Budgets
Property tax bills are a direct result of the amount of property taxes being requested by the local governments. Currently, taxing districts (cities, counties, townships) can increase the amount of property tax they levy each year by a growth factor plus an index factor (which we call CPI). CPI can never be greater than 3%. SB 216 establishes a similar cap for the growth factor. This means that for most districts, the maximum increase they will be able to apply to their property tax budget would be 6% (maximum 3% for growth and maximum 3% for CPI). There are additional allowances to exceed that 3% growth cap, such as the usage of the discretionary formula and when a Tax Increment Financing (TIF) dissolves.
Tax Relief for Seniors on Fixed Income
SB 216 will increase the income and property valuation thresholds of the existing Assessment Freeze for the Elderly and Disabled relief program. The new income levels will be $55,000 for single member homes and $65,000 for multi-member homes, and the maximum eligible home value is being increased to $500,000.
How will SB 216 affect taxpayers?
It is important to note the 3% limitation outlined in SB 216 is not a limitation on an individual property’s value. The limitation is on the accumulative owneroccupied valuation within a county. Overall, owneroccupied valuations will continue to increase as the market dictates; SB 216 is simply slowing the rate at which owner-occupied valuations can increase annually. If valuations on owner-occupied properties are generally limited, then owners of other types of properties (such as agricultural or commercial properties) will pick up more of the tax burden. The cap on the growth of taxing district budgets will help slow the increase in taxes that can be requested by the local governments. This in turn will help lower the levy needed to be applied on the tax bill. The increases on the Assessment Freeze Relief Program thresholds will allow more senior or disabled homeowners to be able to qualify. The income increases will not go into effect until the 2026 application year. This means the earliest newly qualifying individuals will see a reduction in their assessed value is the 2026 assessment year for taxes payable in 2027.
How will SB 216 impact taxing districts?
A key component to SB 216 is that it is not decreasing valuations. It is simply restricting the total owneroccupied reappraisal valuation in a county from increasing more than 3% annually. New construction within the district is not part of that limitation, so the full amount of new construction will be added to the district’s valuation. That means the valuation limitation will have little to no effect on most taxing districts. The counties, cities, and townships will continue to receive the same amount of property taxes they are currently getting. The cap on the growth factor for budget purposes may impact some districts, but only those in high-growth areas. These limitations go into effect for the 2027 budget year. If a district typically sees less than a 3% growth, then this portion of SB 216 will have zero effect. To put this in perspective:
• Only 3 out of 66 counties have a 5-year average growth of more than 3%
• Less than 20% of cities reported a growth percentage of greater than 3%
• More than 96% of townships had a growth percentage of less than 3% last year
An increase in usage of the Assessment Freeze program will also not impact taxing districts. The districts will continue to be able to ask and receive the same amount of property tax dollars they are currently receiving regardless of the number of individuals that apply for the relief program. School district funding is handled differently than counties, cities, and townships. Since each fund has its own mechanism, each fund must be addressed separately.
SCHOOL GENERAL FUND
• Any district under the State Aid to Education Funding formula will continue to get the “Need” that is calculated by the Department of Education through a combination of Local Effort and State Aid.
• Districts that are fully funded by Local Effort will still see valuations increasing.
SCHOOL CAPITAL OUTLAY FUND
• The main functionality of the Capital Outlay limitations is not changing. The calculations have been and will continue to be based on the maximum allowable the district can get. It is NOT based upon the actual amount of taxes requested by the district. A school district will not be penalized if it is not taxing at the maximum allowable under SB 216.
• The only change happening for Capital Outlay is that the growth percentage is no longer “unfettered”. Starting in Taxes Payable 2027, the growth will not be able to be greater than 3% (barring situations with TIF dissolution and discretionary formula) for the Growth+3% Limitation.
- Worst case scenario, any school district that falls under the Growth+3% Limitation is a 6% increase in the maximum they could have received in the prior year.
• ONLY those school districts that typically seeing a growth greater than 3% AND fall under the Growth+3% Limitation will be impacted. Even then, this fund will be eligible for additional tax dollars each year. The increase may not be as much as realized previously.
• All districts now have the option to opt out of the capital outlay fund if they so choose.
- If school districts want to do this for Pay 2026, they will have two weeks to act on it. SB 216 becomes law on July 1, and the deadline to take action by the Board is July 15.
- The $3 maximum levy is still in place and cannot be exceeded. That means that the base CapOut fund + CO Certificates + CO Opt Out cannot generate more than a $3.00 levy.
SCHOOL SPECIAL ED FUND
• It is not possible to project what the SpEd max levy will be for the next 5 years, nor how that will play out with valuation changes in every single school district. But in general there will be minimal impact to the Special Ed fund under SB 216.
While SB 216 is a good first step, the Governor realizes more work is necessary to provide long-lasting property tax relief to South Dakotans. An interim task force on property tax reduction will begin this summer. Governor Rhoden has asked former State Representative Kirk Chaffee (and former Meade County Director of Equalization) to be his designee on this task force and will bring forward his Homeowner Property Tax Relief proposal. More information on the Governor’s proposal can be found here.
