“Will the 2025 property tax relief proposal in South Dakota, which caps annual assessment increases for owner-occupied homes at 3%, effectively limit tax increases over the next couple of years, given the facts available today and the historical property tax rate trends in Custer County from 2021 to 2024?”
Now, let’s answer that.
Analysis of Effectiveness
The 2025 South Dakota property tax relief proposal (Senate Bill 216), effective from 2025 for five years, caps annual assessment increases for owner-occupied homes at 3%. To assess whether this will effectively limit tax increases over the next couple of years (2025–2026) in Custer County, we’ll use current facts and historical trends from 2021–2024.
Historical Context (2021–2024)
From my earlier estimation (due to limited exact levy data):
- Effective tax rates in Custer County rose from ~1.00% to ~1.26% over four years, a total increase of ~0.26 percentage points (~0.065 points/year on average).
- Home values in South Dakota surged 42% from 2019–2023 (~9–10% annually), likely similar in Custer County given its tourism-driven market.
- Tax bill increases outpaced inflation (e.g., CPI at 2.4% for 2020 taxes), with public complaints in 2024 suggesting annual tax hikes felt closer to 5–10%, driven by both value growth and levy adjustments.
Key Facts Today (April 2025)
- The 3% Cap: Limits annual growth in assessed value to 3% for owner-occupied homes. For a $300,000 home, a market value increase of 10% ($30,000) would be capped at 3% ($9,000) for tax purposes.
- Tax Calculation: Property tax = Assessed Value × Levy Rate. The cap controls the assessed value, but levies—set by counties, schools, and municipalities—can still rise based on budget needs, subject to state limits (e.g., CPI + growth, historically ~3–4% annually).
- Custer County Dynamics: A median home value of ~$206,902 (recent estimate) with a 1.26% rate yields a ~$2,607 tax bill. If values keep rising at 9% (adding ~$18,600), the cap limits the taxable increase to ~$6,200, saving ~$156/year at current rates. But levy hikes could offset this.
- Statewide Trends: Property tax revenue has grown faster than caps historically (e.g., 42% value rise vs. ~3% levy limits), as local governments adjust rates within legal bounds to meet rising costs (e.g., education, infrastructure).
Will It Be Effective?
Yes, Partially—for Assessment Growth:
- The cap will slow taxable value increases. If Custer County home values rise at 9% annually (consistent with 2019–2023), the 3% cap cuts the taxable growth by two-thirds, reducing the tax base increase from ~$18,600 to ~$6,200 on a $206,902 home. At a 1.26% rate, this limits the tax hike to ~$78/year (vs. ~$234 without the cap).
- Over 2025–2026, this could save homeowners ~$150–$300 cumulatively, assuming steady levy rates.
No, Not Fully—for Total Tax Bills:
- Levy Increases: Historical trends show levies rising to offset capped assessments or meet budgets. If Custer County’s levy bumps from 1.26% to 1.31% (a ~0.05-point increase, within past norms), the tax on a $213,102 home (after a 3% cap) jumps to ~$2,792—a ~$185 increase, exceeding the cap’s savings.
- Past Evidence: From 2021–2024, tax rates climbed ~0.05–0.11 points yearly, suggesting local entities may hike levies within state limits (~3–4%) to compensate for capped assessments, especially with school funding pressures (56% of taxes).
- External Factors: Tourism-driven growth in Custer County could spur budget needs (e.g., roads, services), pushing levies up and negating relief.
Projection for 2025–2026
- Scenario 1 (Stable Levies): If the levy holds at 1.26%, a home valued at $206,902 in 2024 rises to $213,102 in 2025 (3% cap) and $219,495 in 2026. Taxes would be $2,685 and $2,766—annual increases of ~$78 (~3%), totaling a ~6% rise over two years. This is effective relief compared to uncapped growth (~9–10% annually).
- Scenario 2 (Levy Hikes): If the levy rises to 1.31% in 2025 and 1.36% in 2026 (mirroring ~0.05-point jumps), taxes become $2,792 and $2,985—annual increases of ~$185 (~7%) and ~$193 (~7%), totaling ~14% over two years. This outpaces the cap’s intent, rendering it less effective.
Conclusion
The 3% cap will effectively limit tax increases tied to assessment growth, keeping annual taxable value rises below historical averages (9–10% down to 3%). However, it won’t fully restrain total tax bills if levies rise—as they’ve done historically—at rates like 0.05–0.10 points/year. Over 2025–2026, expect tax increases of ~3–7% annually, depending on local levy decisions. In Custer County, where growth pressures are high, effectiveness hinges on levy restraint. Without it, relief will be modest, not transformative. For precise predictions, monitor 2025 levy settings from the Custer County Treasurer later this year. Does this clarify the cap’s likely impact?