by Makenzie Huber, South Dakota Searchlight
February 20, 2026
A South Dakota Senate Committee unanimously endorsed legislation on Friday to set new regulations around a common economic development tool used in the state.
A tax increment financing district is a defined geographic area where local governments use the new and higher property taxes generated by development — what’s known as the “increment” — to finance and pay off public improvements, such as infrastructure, within the district. State law requires that a portion of the district be “blighted” before redevelopment, or that a portion of the district will stimulate economic growth.
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There are 277 active TIF districts in the state totaling $3.5 billion in increment value, according to the Department of Revenue, most of which use economic development as their justification.
Several bills were introduced earlier in the legislative session to further regulate or reform TIFs — including proposals to require an area be blighted and require a public vote to approve TIFs of over $15 million. A handful of those bills, introduced by Rapid City Republican Sen. Taffy Howard, were tabled in favor of Senate Bill 228 on Wednesday. The bill was labeled as a “compromise” by nearly all proponents.
“When I say that no one is perfectly happy with this,” Howard said, “that means it’s a good bill.”
Howard was a vocal critic of TIFs in the last year, helping to lead an effort in Rapid City to refer a $125 million TIF to a public vote. Rapid City voters rejected the TIF.
SB 228, introduced by Sioux Falls Republican Sen. Chris Karr, received support from Howard as well as representatives of local governments, businesses and economic development organizations.
Karr told lawmakers the bill:
- Prevents properties within a TIF district from receiving a tax break known as the discretionary formula.
- Redefines a TIF district as “a contiguous geographic area,” with a definition of that phrase.
- Restricts the maximum value of TIFs for the state’s largest cities to 7.5% of the total assessed value in the city, rather than 10%.
- Raises the “blight” threshold from 25% to 50%, for TIFs that use blight as a legal justification.
- Requires a developer agreement to detail uses of a discretionary grant in a TIF, such as TIF funding that could be used for something other than public infrastructure.
- Reduces the threshold needed to amend a project plan without triggering a recalculation of the TIF from 35% to 25% of the project’s cost.
- Requires a third party review of the project from an expert who, as Karr said, “can’t be in the developer’s pocket.”
Sara Rankin, executive director of the South Dakota Municipal League, said the proposal builds “thoughtful guardrails” around TIFs but still “keeps TIFs usable.”
“If TIFs become overly rigid, overly burdensome or procedurally unworkable,” Rankin said, “municipalities will be left without a viable mechanism to address redevelopment challenges.”
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