South Dakota

State Fiscal Briefs

September 2020

South Dakota’s budget basics

According to the National Association of State Budget Officers (NASBO), South Dakota’s total expenditures in fiscal year (FY) 2019 were $4.5 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, South Dakota’s combined state and local direct general expenditures were $7.1 billion in FY 2017 (the most recent year census data were available), or $8,091 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.

South Dakota’s largest spending areas per capita were elementary and secondary education ($1,733) and public welfare ($1,327). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

South Dakota’s combined state and local general revenues were $7.0 billion in FY 2017, or $7,976 per capita. National per capita general revenues were $9,592. South Dakota does not levy a corporate income tax or individual income tax. (South Dakota reports some corporate income tax revenue because it levies a special tax on financial institutions.) After federal transfers, South Dakota’s largest sources of per capita revenue were general sales taxes ($1,648) and property taxes ($1,621).

South Dakota’s politics

Governor Kristi Noem, a Republican, was elected in 2018 with 51 percent of the vote. The next gubernatorial election is in 2022.

Republicans control both the House of Representatives (59 Republicans to 11 Democrats) and Senate (30 Republicans to 5 Democrats), with veto-proof majorities in both houses. Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in South Dakota. The entire legislature is up for election in 2020 because both representatives and senators serve two-year terms.

South Dakota’s budget institutions, rules, and constraints

South Dakota uses an annual budget. The legislature must pass a balanced budget, but it can carry a deficit over into the following year. South Dakota further limits annual revenue growth with a binding rule that requires a legislative supermajority or vote of the people to override. A legislative supermajority vote is also required to pass any legislation that raises taxes or revenue. South Dakota limits total debt service incurred by the state, but not authorized debt.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

South Dakota’s recent fiscal debates

  • In 2016, South Dakota passed legislation (SB 106) that required remote sellers to collect and remit sales taxes to the state if they sold more than $100,000 worth of goods or completed more than 200 transactions in South Dakota. The law was intentionally designed to reach the Supreme Court and challenge a previous court decision that prevented states from collecting online sales taxes. South Dakota argued its law created an economic presence but did not unfairly burden companies doing business in the state. In South Dakota v. Wayfair, the Supreme Court agreed 5-4 and upheld the South Dakota law. Since the Supreme Court’s decision, nearly all states that levy general sales taxes have passed legislation similar to South Dakota’s law.
  • A spate of nursing home closures have raised concerns in South Dakota. According to the American Health Care Association, South Dakota’s Medicaid reimbursement rate for nursing-home care was the lowest of any state that supplied data. Because of the low rate, nursing homes lose money when treating patients on Medicaid. This shortfall led to dozens of nursing home closures in South Dakota. In 2019, the legislature approved a 10 percent increase in the state’s reimbursement rate. The higher rate was applauded as a ”good step,” but it does not fully address the funding shortfall. South Dakota is one of 14 states that have not accepted funds for expanding Medicaid eligibility created by the Affordable Care Act.
  • In November 2020, South Dakota will vote on a constitutional amendment that, if passed, would legalize and tax recreational marijuana. The ballot amendment calls for a 15 percent excise tax on marijuana sales. (Some states that legalized marijuana via ballot initiative have changed the taxes before implementation, though.) Currently, marijuana sales are legal and taxed in eight states. Marijuana is legal but not taxed in Maine, Vermont, and the District of Columbia.

South Dakota’s current budget

Governor Kristi Noem released her proposed FY 2020 budget in January 2019. Her plan included increased funds for K–12 education, technical training programs, nursing homes, and public employee salaries. However, Governor Noem mostly focused on her proposal to maintain a budget reserve balance of 10 percent and her plan to not raise taxes in her 2019 state of the state address.

The legislature passed its budget in March 2019. The enacted budget generally followed the governor’s recommendations, but it doubled the governor’s proposed funding for nursing homes.

Governor Noem released her proposed FY 2021 budget and gave her 2020 state of the state address in January 2020.

For more on South Dakota’s budget, see