State Sen. Jessica Castleberry, R-Rapid City, is accused of illegally accepting over a half-million dollars in COVID-19 relief funds to support her child care business, according to the governor and attorney general. 

Gov. Kristi Noem divulged the information in a news release Thursday, along with a letter from Attorney General Marty Jackley requesting that Castleberry repay the full amount or reach an agreement within 10 days, or face legal action.

Castleberry, who was appointed by Noem to the Legislature in 2019 after Sen. Lyndi DiSanto resigned, accepted more than $603,000 in COVID relief money for her child care business, Little Nest Preschool, the release said. Castleberry also voted on legislation that appropriated the federal stimulus funding, according to a letter from Noem to Castleberry that Noem released publicly.

A South Dakota Supreme Court advisory opinion from 2020 is relevant to the situation, according to Noem and Jackley. That opinion says the South Dakota Constitution bans state lawmakers from having direct or indirect interest in state contracts during their tenure and a year after their service ends.

“The Supreme Court could not have spoken more clearly or on point to this issue,” Noem wrote in her letter. “The senator has a personal and ethical obligation to avoid conflict of interests. The senator also swore an oath to support the state constitution.”

Castleberry said she applied for federal funds to offset employee payroll, provide personal protection equipment and ensure the child care center remained open. While some COVID relief programs came directly from the federal government, like Paycheck Protection Program loans, other federal programs were funneled through the state.

The senator told South Dakota Searchlight in an emailed statement that she hired independent legal counsel about her company’s eligibility to receive federal grants through the state. 

“After consulting with legal counsel, I believed my company was eligible,” Castleberry said. “Upon several occasions, I communicated directly and transparently with DSS staff regarding grant applications. I am committed to resolving the issue with the state and will work with them to ensure I acted in compliance with the state constitution.”

The documents released by Noem don’t itemize the allegedly illegal payments, but the state financial transparency website says Little Nest Preschool was awarded nearly $355,400 in ARPA Childcare Stabilization Grants as of July 26. The business received an additional $164,000 between July 2021 and February 2022. The website does not list transactions older than July 2021.

Little Nest Preschool also received $164,520 in federal PPP loans, which are not part of the state-allocated federal funds.

Noem’s letter said Department of Social Services staff found the violations while processing a $4,000 grant application from Castleberry’s business, Little Nest Preschool, for another grant program. In that program, Noem approved $12.5 million in American Rescue Plan Act (ARPA) funds to help registered or licensed child care providers expand or start a new facility. Castleberry’s application was denied by the state.

About South Dakota Searchlight: We use our journalistic searchlight to illuminate critical issues facing South Dakota, dissect the decisions made by state leaders, and explain the consequences of their policies and the role of politics on South Dakotans. South Dakota Searchlight launched in 2022. We’re an affiliate of States Newsroom, a national 501(c)(3) nonprofit supported by grants and a coalition of donors and readers. The staff of the Searchlight retains full editorial independence.