PIERRE — South Dakota lawmakers approved a $7.3 billion state budget on Thursday at the Capitol, down about $5 million from the budget they adopted last year. 

Rep. Mike Derby, R-Rapid City, is the co-chair of the Legislature’s main budget panel, the Joint Appropriations Committee.

“We had one job, one bill to take care of, the general appropriations bill,” he said of his committee’s work. “We delivered it on time. And we’re going to have a balanced budget for the 136th year in a row.”

The budget includes $3.1 billion in federal funding and the equivalent of 14,095 full-time employees, an increase of 24 from last winter’s budget bill.

Thursday was the final day of the annual legislative session, except for a day on March 31 to consider vetoes from the governor.

The final spending plan closes an approximately $50 million shortfall between ongoing revenue and expenses through a mix of cuts and fee increases to maintain a balanced budget.

The so-called “big three” — education, state employee pay, and health care providers who treat Medicaid patients — received 1.25% increases, consistent with the original budget proposal. 

The state continues to receive an influx of funds from unclaimed property, which consists of an array of private assets that have been abandoned for more than three years, including money from bank accounts, stocks, life insurance payouts, uncashed checks, and even the contents of safe deposit boxes. The latest estimate shows $237 million in revenue for the budget after payouts to the few people who come forward to claim their property.

Lawmakers passed a bill this year to gradually transition unclaimed property money into a trust fund, including $22.8 million this year, and eventually take only the interest earned from the fund as revenue. Voters will see a ballot question in 2026 asking permission for the state Investment Council to manage that fund.

Falling sales tax revenue put pressure on the budget this year, as did a $34 million rise in the state’s share of Medicaid costs. Medicaid is government health insurance for people with low incomes, and for adults and children with disabilities, funded by a formula that determines the state and federal shares. The state’s portion of the costs increased due to a rise in the state’s per capita income.

Lawmakers expressed pride in delivering a balanced budget, as required by the state constitution, and acknowledged some of the difficult decisions that were made along the way.

“We all have our golden cow we don’t want to be slaughtered,” said Senate President Pro Tempore Chris Karr, R-Sioux Falls. 

Former Gov. Kristi Noem proposed numerous cuts, but also some new spending, before she departed to accept a position in the Trump administration.

Noem’s proposed $52,000 cut for veterans’ burial assistance was revoked. So was her proposed $3.6 million funding cut to South Dakota Public Broadcasting. She also sought to cut $1 million from the State Library, but lawmakers reduced that to an $825,000 cut and reinstated the Department of Education’s ability to seek $1.4 million in federal funding for the library.

Noem’s $10 million proposal for school safety grants and $4 million proposal for education savings accounts failed as well. The ESAs would have provided public funds for students attending private schools, homeschools or other forms of alternative instruction.

Funding for the Board of Regents, which oversees the six state universities, was cut by $2 million, as proposed. Lawmakers also approved Noem’s proposed cost-sharing shift for the dual enrollment program, which allows high school students to earn college credits. The state will now cover 50% of costs, down from two-thirds, saving the state (and costing students and their families) about $1.2 million annually.

Lawmakers additionally approved phasing out a five-year, $1,000 annual stipend for teachers to attain national certification.

Noem proposed allocating $182 million to complete funding for a proposed $825 million prison. Lawmakers rejected that plan, causing new Gov. Larry Rhoden to appoint a task force to study the issue. The budget directs that money into reserves.

Lawmakers avoided a cut to the maintenance and repair of state buildings in the current fiscal year’s revised budget by using one-time funding sources. They weren’t able to avoid a $17 million cut in the 2026 fiscal year budget. Legislators typically try to use one-time funding sources — such as unclaimed property or federal stimulus funds — on one-time needs. Ongoing revenue, such as sales tax collections, is used to fund the everyday operations of state government.

A Noem proposal to appropriate $13 million to replace the state-owned Richmond Lake dam near Aberdeen was approved.

Current budget revisions

The budget adopted by lawmakers Thursday is for the 2026 fiscal year, which begins July 1.

The Legislature also approved a bill Thursday that revises the state’s current-year budget down by $74.6 million.

“This bill allows us to continue operating efficiently while meeting the needs of our citizens,” said Rep. Chris Kassin, R-Vermilion, who serves on the budget committee.

The adjustments reflect declining sales tax revenue following years of strong collections, and the depletion of federal pandemic aid and stimulus funding.

A significant portion of the reductions come from lower-than-projected Medicaid utilization. The Departments of Social Services and Human Services will see a combined $34.1 million decrease to align funding with anticipated needs.

The state also captured $25.1 million in savings from Medicaid and Children’s Health Insurance Program enrollment changes. An additional $31.6 million in general funds, set aside in prior years to prepare for the full cost of Medicaid expansion, was also cut due to lower-than-projected enrollments. In 2022, South Dakota voters expanded Medicaid eligibility to adults with incomes up to 138% of the poverty level, to capitalize on a 90% federal funding match included in the Obama-era Affordable Care Act.

Despite the reductions, the revision to the current budget include new spending in key areas:

• An increase of $704,938 for medical care at the State Veterans’ Home.
• $427,046 to upgrade a Spearfish radio tower for improved state radio coverage.
• $130,000 to assist counties with post-election audit costs from the 2024 election.
• $123,200 for legislative broadcasting equipment to enhance public access.
• $110,000 to fund a tribal-focused law enforcement training program.
• $5 million for the state information technology modernization fund.

Some lawmakers acknowledge the state’s 2026 fiscal year budget may need significant revising with President Trump cutting federal funding for programs utilized in South Dakota, sales tax revenue down 0.9% compared to this time last year, and Trump’s tariff and trade wars fueling fears of a recession. 

“We are going to face a lot of lean cuts in the next few years,” said Rep. Erik Muckey, D-Sioux Falls, who serves as the lone Democrat on the budget committee. “We face a lot of economic uncertainty as we head into the next few years.”

The Legislature lowered the state sales tax rate in 2023 to 4.2%, but made the reduction temporary and scheduled a return to 4.5% in 2027. The state would have $107 million more in annual revenue for the budget if the sales tax rate was restored to 4.5% this year.