City finance leaders warn sales-tax lag and property-tax cap will pressure future budgets; recalibration to begin

City finance leaders told the Sioux Falls City Council on July 15 that a shortfall in sales-tax growth and the state’s newly enacted property-tax growth cap will reduce future city revenues and that staff will begin budget recalibrations as part of the 2026 budget process.

Why it matters: The city relies on a mix of property taxes and a first-penny sales tax to fund core services such as police, fire, streets and parks. Finance staff said the sales-tax slowdown and a cap on growth that limits how much new construction can raise property-tax revenue over the next five years will depress revenue growth and put pressure on reserves and future budgets.

Director Sean Pritchett and Budget Officer Tim Kanda described the immediate position and near-term projections. Pritchett said the recently enacted Senate Bill 216 places "a cap now on growth for the next 5 years," which the city models as a 3% cap on growth. He explained that "growth" for city budgeting refers to new construction added to the tax base rather than market-driven reassessments of existing homes.

Kanda said city revenue performance through June was close to budget expectations overall…