Calling the proposed 2026 budget the most difficult one in his eight years of leadership, Mayor Paul TenHaken today introduced a proposed budget that essentially is the same size as last year while including several operational cuts.
“We were faced with some challenges and headwinds leading to some tough decisions and discussions,” he said.
The convergence of continued growth, softening sales tax revenue, property tax revenue reduction and residents’ expectations put unique pressures on the proposed budget, which totals $775.9 million in 2026 for the general operating fund, capital improvement program and enterprise funds, or those supported by user fees.
The 2025 budget was $773.2 million.
“It’s important to note that despite adding more than 5,000 residents to our community, the proposed budget is flat compared to 2025, up just 0.3 percent,” TenHaken said. “If you account for inflation though, this budget is actually smaller than last year.”
When he took office in 2018, the Sioux Falls population had just exceeded 187,000.
“We have grown by almost 35,000 people, about 25,000 of those in just the last five years,” he said. “Think about that. That’s the size of two cities of Pierre. So that means we have needed to add and maintain the necessary infrastructure, roads and public safety to support two cities the size of Pierre.”
TenHaken also referenced Pierre in another way — pointing at state legislators’ passage of Senate Bill 216, which “caps property tax growth for municipalities, counties and school districts, ultimately reducing Sioux Falls’ revenue that we will receive from property taxes,” he said.
“With the information we know at this time because we have not heard directly from the state on how this will be implemented, our finance team estimates the city will lose at least $25 million in property tax revenue over the next 10 years due to SB 216.”
While not directly pointing to that vote, “unfortunately, some of our elected leaders are sending a clear message that growth is not a good thing,” TenHaken said. “The opposite of growth is stagnancy, or a community people aren’t proud of or want to live in.”
Almost one-third of the state’s sales tax revenues are supported by Sioux Falls and the southeast region, he said.
“Reducing service levels in our community without a legal mechanism for us at the local level to replace revenue loss elsewhere will certainly have a ripple effect not only on our community but across the state.”
This revenue loss to the general fund “will affect our ability to fund daily operations at current service levels,” he continued.
“Between this and sales tax revenues that are not meeting our budget expectations, we need to permanently reduce spending by $8 (million) to $10 million just from our general fund over the next three years, starting next year. Despite the fact that we are always looking at ways to innovate or create efficiencies, this legislation is forcing us to dig deeper, which is resulting in impactful service adjustments.”
The general operating fund, which is the part of the budget hit by the revenue drop, is proposed as $253.2 million, compared with $248 million last year.
It includes operational changes TenHaken first announced last week, including:
General government and operations
Culture and recreation
Streets, planning and development
Public safety and health
“While we wish we didn’t have to make these changes, I want to reiterate these are a direct result based on the changes at the Legislature,” TenHaken said.
“So if you’re challenged by this as much as we are, it’s important you reach out to your legislators. I am in favor of smart, strategic property tax reform, but we can’t go for the blanketed approach that’s been done with SB 216. Property taxes are a stable, reliable revenue source, so this is a trade-off. A property tax reduction or elimination without a revenue replacement will lead to a reduction of current service levels.”
The city made an intentional decision not to cut current employees’ wages and benefits “because we understand how important they are to serving our community and making it what it is today,” TenHaken said. “We also know that because of these financial constraints, we’re asking them to do more with less.”
City funding to outside organization also will be cut back in the years ahead, replacing ongoing subsidy agreements with a request for proposal process the city is calling its Community Partners Program. Funding will fall into three categories: supporting at-risk populations; supporting art, culture and community programming; and supporting economic vitality and growth.
The overall budget is based on the city achieving 3 percent growth in sales tax this year — so far it’s at 1 percent — and growing by 4 percent each year from 2026 through 2028 and 5 percent in 2029 and 2030.
The Sioux Falls City Council will hold hearings on the budget in August before a vote in September.
Much of the budget is dominated by public safety spending, which totals $117 million.
The year ahead will bring construction of the city’s next fire station, located within the USD Discovery District in northwest Sioux Falls. It will be the 13th in the city and is expected to be operational by the end of next year.
“It’s coming at a critical time when residential and business development just continues to grow in the north, specifically with development at Foundation Park,” TenHaken said, adding that the new location will require 15 more full-time firefighters and that the city is adjusting how it hires and trains to ultimately find some savings.
Another police report-to-work location also is coming, with money set aside in the capital improvement program for a future location on the east side and plans this year to purchase the building that has been used on the west side for the past several years.
The overall public safety budget at $117 million includes six additional police officers, which would bring the authorized force to 308.
“Between strategic paid marketing efforts, a stellar focused recruitment team and a community that embraces law enforcement, we just welcomed our largest recruit class ever in May,” TenHaken said.
“This class also marked another major milestone for the department as it led to them being at full authorized strength for the first time in recent memory. But with pending retirements and officers on leave at any given time, it’s vital to keep our foot on the gas for our recruitment efforts.”
TenHaken also is proposing to add two Metro Communications operators and an additional forensic specialist for police.
“We are asking our public safety teams in police and fire to look critically at their overtime costs and evaluate where we can potentially find efficiencies without risking the community’s safety,” he added.
While emergencies can’t be controlled, officers also are spending considerable time investigating crimes involving parolees, including some with serious offenses such as homicides and officer-involved shootings, he said.
“This is part of the reason we will be expecting a high degree of support of new laws from the state Legislature, an ongoing funding approach or additional financial support for Sioux Falls to take on the expected prison population increase and challenges that the new South Dakota State Penitentiary will bring to our community for generations to come,” TenHaken said.
The other additional four full-time positions being requested will be supported by utility funds, which are paid for by user fees.
Housing will continue to be a priority in the year ahead, TenHaken said.
“Uncertainty or even unpredictability at the federal level can affect this division, but at this point, we are optimistic based on written notice and conversations with stakeholders at the federal level that this team will receive the federal funding it expects,” he said, adding that the city is recommending $12.8 million to support “direct investment in helping connect people to housing resources and to produce, preserve or rehabilitate housing units.”
The operating proposal includes using $3.6 million from the city’s reserve fund in 2026, understanding that 2 percent to 3 percent typically is turned back. In 2025, it was budged to use $6.8 million. The decrease is because of some of the proactive spending cuts, city officials said.
The capital improvement program for 2026 is $229 million and includes much of the city’s spending on road improvements and other infrastructure.
For details on that plan, click below.
City’s newly proposed 5-year capital improvement program is heavy on roads
The post TenHaken proposed budget calls for public safety investments, spending cuts driven by reduced revenue appeared first on SiouxFalls.Business.
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