South Dakota State Budget FY2026 Analysis

South Dakota spent $7.3 billion across all funds in FY2026, or $7,807 per resident. All-funds spending counts the general fund, federal grants, and dedicated state funds together — the fairest basis for comparing states, since they differ widely in how much they route outside the general fund.

The general fund — the discretionary portion the legislature actually debates — was $2.4 billion, or 32.9% of total spending. The remainder is largely federal grants (Medicaid above all) and dedicated revenues such as fuel taxes earmarked for highways.

Reserves in the rainy day fund stood at $325 million. Because nearly every state is constitutionally required to balance its operating budget, reserves rather than borrowing are how states absorb revenue shortfalls in a downturn.

South Dakota's FY2026 General Appropriations Act (SB 220), signed by Gov. Larry Rhoden on March 28, 2025, totals $7.3 billion — roughly $5 million less than the FY2025 budget as adopted, a rare nominal contraction reflecting slowing sales tax growth and the runoff of pandemic-era federal money. General funds account for more than $2.4 billion, while federal funds supply about $3.1 billion, over 40% of the total. Legislators called it a 'tough decisions' budget: they cut roughly $70 million and held the 'Big Three' — K-12 schools, state employee pay and community support providers — to a 1.25% inflationary increase, among the smallest in years, with reductions touching Medicaid line items, programs for new mothers and infants, and dual-credit tuition support. The pessimism proved overdone. The fiscal year closed on June 30, 2026 with a $69 million surplus, built from $30 million in above-estimate receipts — sales taxes grew 6.6% — and $39 million in agency reversions, the largest share ($32 million) unspent at the Department of Social Services. By law the surplus flowed into reserves, lifting them to $325 million, or 12.7% of the FY2027 budget. That cushion and improved revenue let lawmakers raise the successor FY2027 budget to $7.5 billion with 1.4% Big Three increases in March 2026. Because South Dakota levies no personal income tax, the sales tax trajectory remains the swing variable for its general fund, and the FY2026 cycle showed both its downside risk and its capacity to surprise on the upside.