Yesterday Governor Larry Rhoden signed the two sensible regulations on data centers that the 2026 Legislature approved.
The more sweeping bill, Senate Bill 135, requires that data centers using 10 megawatts or more of electricity must pay for their own power. Those 10 MW+ data centers must obey water usage limits set by the Board of Water Management to water supplies for residential use and essential public services. SB 135 also requires the affected data centers to submit semi-annual reports to the BWM of their average water usage and certify that they are following those limits. Finally, SB 135 protects local governments’ authority to “to adopt ordinances and resolutions limiting, prohibiting, or otherwise regulating the construction, development, or operation of data centers.”
House Bill 1038 imposes a technical cost on 10 MW+ data centers, allowing the Public Utilities Commission to charge the centers for reviewing their requests for lower rates from utility companies.
The Governor framed the two bills as “Open for Opportunity” bills, even though data center entrepreneurs and some Republican legislators have said these regulations, paired with the Legislature’s rejection of tax incentives for data centers, say the opposite.
One of the primary arguments for incentives for data centers is jobs, jobs, jobs. But a November 2025 analysis of data centers and jobs in Texas (which has dished out over a billion dollars in incentives to data centers) by Ball State University economist Michael J. Hicks finds that “the causal estimate of net job flows attributable to data centers is zero, while even the gross job flow estimates are very modest – less than 10% of the gross employment effect of a WalMart Supercenter.” According to Hicks’s analysis, even the short-term jump in non-residential construction jobs produces “no net job growth associated with data centers”:
What is very clear from the results of these causal estimates of employment effects is that fiscal incentives for data centers cannot be justified on the grounds of job creation. State and local governments should suspend existing tax incentives and defer any future incentive decisions until more analysis has been completed [Michael J. Hicks, “Data Centers and Local Job Creation,” The Country Economist, 2025.11.10].
Governor Rhoden’s signings of SB 135 and HB 1038 don’t open any new opportunities, but the absence of data-center incentives in yesterday’s bill package keeps South Dakota’s economic development powder dry for promoting investment and jobs in other industries… or maybe just investing in school meals, K-12 education, and other public goods.