Sioux Falls warns of multi‑year capital reductions after 2024 sales‑tax growth misses target

Sioux Falls Finance Director Sean Pritchard told the City Council on Jan. 28 that the city closed 2024 with 1.5% sales‑tax growth, well under the 4% used to build the current capital program, leaving a gap that will ripple through the 2026–2029 capital outlook.

Pritchard said the shortfall left the 2024 capital plan roughly $5 million short of expectations. Interest and investment earnings produced an offsetting, one‑time benefit — about $4.7 million above budget — but Pritchard cautioned that investment income is volatile and not a reliable recurring revenue source. “We had about $4,700,000 of interest or investment earnings in excess of what we had budgeted,” he said, noting the city cannot count on similar gains in future years.

Why it matters: Sioux Falls relies heavily on sales and use taxes for capital projects. The council-approved capital program and bonding plans assume multi-year sales‑tax growth; missing that assumption forces staff and council to consider deferring, reprioritizing or cutting projects. Pritchard said current estimates show reductions of roughly $3.5 million to $4 million per year in available capital revenue across 2026–2029, or about $15 million cumulatively, similar to the reductions taken last year.

ARPA and project spending: Pritchard reviewed federal American Rescue Plan Act (ARPA) allocations to date. The city received $25,400,000 in ARPA funds. About $6,000,000 was used for community services outside direct city operations and, according to Pritchard, those programs have been fully expended as of the end of 2024 (he said “totaling about $5,600,000”). Roughly $19.9 million supported infrastructure: a $1.5 million allocation for Benson Road (Big Sioux) bridge deck work, about $2.2 million for cornice and roof repairs at the Washington Pavilion, $6.8 million toward wastewater system expansion (which leveraged additional state ARPA dollars), approximately $9.5 million for River Greenway improvements (Phase 3), and administrative costs. Pritchard said roughly $615,000 of ARPA funds remain to be expensed, mainly to finish the River Greenway low‑head dam portion.

Capital projects and 2025 bidding schedule: Pritchard summarized major projects rolling forward into 2025 that are funded from the sales and use tax (capital) fund: water‑reclamation facility expansion (Phase 1), Pump Station 240 force main, Basin 15 expansion, portions of South Veterans Parkway, River Greenway Phase 3, Jacobson Plaza and the Elmwood Clubhouse. Park projects scheduled to bid early in 2025 included the Levitt expansion and multiple bike‑trail reconstructions; McKennon Park pool was expected to be bid in April. Major street projects noted included Arrowhead Parkway Phase 2B (bids opened Jan. 23), Veterans Parkway (Cliff to Sycamore, state bid Feb. 12), the Cliff Avenue/I‑229 interchange (anticipated Feb. 19), and the I‑80/I‑229 interchange (state bid anticipated in May). Mark Hatter of the Office of Public Works told council the city’s share for the I‑229/I‑80 project is expected to be in the $5–7.5 million range and that state funding (a population‑based SDP allocation of about $6.2 million annually) is planned to cover participation.

Sales‑tax outlook and budget consequences: The 2025 capital program was built expecting roughly $99 million in sales‑tax revenue (about $99 million per penny). Because 2024 underperformed, the city would need 6.6% growth in 2025 to hit that target; a 3% growth scenario would leave an estimated $3.3 million gap against budgeted capital revenues. Pritchard said the city has carried forward capital surpluses from prior years that provide short‑term flexibility — he estimated about $4.4 million carried forward — but warned that cumulative misses force reduction decisions in later years if growth does not rebound.

Reserves and policy questions: Pritchard reminded council that the general fund reserve is set by resolution 109‑17, which requires an unreserved general‑fund balance equal to 25% of the general‑fund budget. He said the sales and use tax (capital) fund has informal reserve targets set by administration (current level roughly $3 million, about 3% of annual sales‑tax revenues). Several council members, led by Councilor McCarris, urged creating a formal sales‑tax reserve policy to avoid ad hoc decisions. McCarris said a written policy would prevent decisions driven by individual personalities and provide clarity about how much of the capital program is available to spend versus retain as a backstop.

Federal grants pause and near‑term risk: Pritchard flagged a recent federal directive pausing some grant and loan disbursements from federal departments. He listed federal programs that flow to the city — transit (about $4.8 million in operating, plus $300–400,000 capital), CDBG and HOME housing funds (roughly $1.5–2.0 million), HOME ARPA draws (about $1.8 million still in process), public‑health grants (about $5.3 million budgeted), a $3 million forestry grant and several planning‑ or study‑level grants (MPO funds about $900,000; Skunk Creek hydraulic/grant studies about $700,000). Pritchard said the city is current through 2024 on draws for transit and health and that, while he did not recommend major operational changes now, the administration would monitor the pause and could propose adjustments if funding did not resume after about 90 days. On a large capital award — roughly $13 million for Arrowhead Parkway — Pritchard said he expected the city ultimately to receive the funds and recommended proceeding with bid awards while managing cash flow.

Council direction and next steps: Council members asked staff to prioritize capital projects and produce ranked options the council can use to decide which projects to delay or cancel if revenues fall short. Pritchard gave the calendar: 2024 year‑end financials will be presented in April, the mayor’s recommended budget in late July, budget hearings in August and final adoption of the 2026 budget and five‑year capital program in September (first reading Sept. 9; final adoption Sept. 16). Several councilors asked administration to provide more program‑level outcome data for ARPA‑funded community programs before committing local funds to continue them.

No formal action or vote was taken at the Jan. 28 working session; the presentation was informational and intended to guide budget preparation.

Ending: Pritchard concluded by urging a “measured approach” to 2025 budgeting and forecasting, noting the city’s demographic growth remains intact even as short‑term economic cycles create revenue headwinds. Council members directed staff to return with ranked capital priorities, reserve‑policy options for the sales and use tax fund and more detailed ARPA program outcome data ahead of budget hearings.