South Dakota Gov. Larry Rhoden presents his 2025 budget address to lawmakers at the Capitol in Pierre on Dec. 2, 2025. (Photo by Makenzie Huber/South Dakota Searchlight)
PIERRE — South Dakota Republican Gov. Larry Rhoden’s plan to keep state funding flat for Medicaid providers, state employees and schools could hurt the same areas Rhoden said he’s helped “prioritize” in recent years, advocates say.
Rhoden announced at his budget address on Tuesday at the Capitol that he wants to keep state support for the “big three” flat this year, due to “pretty flat” sales tax revenues. The last 0% increase proposed by a governor for the big three was by Gov. Kristi Noem for the 2019 budget, according to the state Bureau of Finance and Management.
Governor proposes ‘limited budget’ for SD that avoids big cuts but keeps school funding flat
School districts and health care providers across the state say they’re treading water after years of high inflation, despite relatively high funding increases attributable to an influx in federal pandemic aid and higher sales tax revenue coming out of the pandemic. Lawmakers approved a 1.25% increase for the big three last year, which was below inflation.
Rapid City Democratic Rep. Nicole Uhre-Balk said inflation will eat away at flat funding if legislators approve Rhoden’s plan.
“Not increasing is a cut,” she said.
Rapid City Republican Rep. Mike Derby, chair of the House Appropriations Committee, said projections and revenues could change after the New Year, which could allow for an increase in state support. When Noem last recommended a 0% increase in state aid to education, lawmakers bumped it up to a 1% increase that year.
“We’ll see how the next four months’ revenues come in,” Derby said.
Teacher pay: ‘My fear is that 0% is going to move us backwards’
But Rep. Mellissa Heermann, R-Brookings, worries efforts to “drag ourselves up” in teacher pay rankings will be erased without more state support to education. South Dakota moved up the national ranks from 50th in teacher pay in 2021 to 46th this year.
“It’s been difficult for us to even maintain the gains we’ve had,” said Heermann, who served on the Brookings School Board for six years. “All other states around us are also increasing their teacher pay, so my fear is that 0% is going to move us backwards.”
That could lead to school districts cutting other programs or positions, which could impact student success, said South Dakota Education Association Director of Government Relations and Communications Sandra Waltman.
“Up until about last year, schools were doing OK keeping up with inflation. They weren’t getting ahead,” Waltman said. “But when you start to receive funding that’s less than inflationary, that’s when you start to fall behind and see school districts cut positions and budgets.”
Heermann suggested splitting the big three up to give a targeted increase in state aid to education. Lawmakers traditionally group funding increases for Medicaid providers, education and state employees together.
Rhoden cautioned against using one-time funding, such as money from the state’s reserve funds, to boost big three funding.
Derby echoed Rhoden, calling any ideas to use one-time funding for ongoing expenses a “recipe for disaster.”
The stagnant state aid proposal comes at the same time enrollment in public schools is down, due to low birth rates and increases in alternative instruction such as homeschooling and private schools, Rhoden said. Alternative instruction enrollment has increased 216% since 2015.
Medicaid: Lower reimbursement rates create ‘disruption’ in health care
Senate President Pro Tempore Chris Karr, R-Sioux Falls, advocated for significant increases in Medicaid reimbursements for health care providers in recent years. The gains helped support a core obligation of state government and ensure health care providers were adequately reimbursed for their services, he said, but he doesn’t “see an option” to offer more than a flat rate this year with a lean budget overall.
“We’ve been working really hard to get them dollars, so not getting them an increase is concerning,” Karr said. “We don’t want anybody to get too far behind because it creates so much disruption in hiring people and providing the services needed, whether education or Medicaid providers.”
One year at 0% is manageable, Karr added, but he wants to see a return to increases that correlate with inflationary pressures to avoid “digging huge holes” for Medicaid providers.
Tim Rave, CEO of the South Dakota Association of Healthcare Organizations, said he is grateful there aren’t any cuts to state Medicaid reimbursement rates, saying cuts would risk health care access to South Dakotans.
“In light of increased inflationary costs,” Rave said, “especially in our case for hospitals and supplies where you’re looking at 10% or 12% inflationary increases, this certainly doesn’t help.”
