A person climbs the stairs of the South Dakota Capitol in Pierre. Lawmakers adopted a budget Thursday, which was the final day of the 2026 legislative session except for a day on March 30 to consider bills vetoed by the governor. (Photo by Joshua Haiar/South Dakota Searchlight)
PIERRE — South Dakota lawmakers approved a balanced $7.5 billion state budget on Thursday at the Capitol, up about $172.2 million, or an increase of 2.4%, from the budget they adopted last year.
Sen. Mark Lapka, R-Leola, is a member of the Legislature’s main budget panel, the Joint Appropriations Committee. He reminded lawmakers that they started out with a “bleak” budget in December, after Republican Gov. Larry Rhoden projected lower-than-anticipated revenue. That has since changed to a “better financial position,” after the committee adopted revenue projections $30 million higher than the governor projected two months prior.
“This is a budget that invests in the people of South Dakota where they need it the most, and that will have a positive impact on future generations,” Lapka said.
Some lawmakers criticized the budget because of its growing size, support for South Dakota Public Broadcasting and dependence on federal funding.
The budget is for fiscal year 2027, which begins in July. It includes $3.1 billion in federal funding, a 0.35% decrease from last year. It also includes the equivalent of 14,121.3 full-time employees, an increase of 26 from last winter’s budget bill.
Thursday was the final day of the annual legislative session, except for a day on March 30 to consider vetoes from the governor.
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‘Big three’ funding increase goes from flat to 1.4%
The so-called “big three” budget priorities — education, state employees and health care providers who treat Medicaid patients — received 1.4% funding increases, which equates to $34.5 million more than the governor’s proposed flat funding in December.
Lawmakers learned in February that they had enough money on hand from higher sales tax revenue projections to support an increase in funding for the “big three.” At the time, Rhoden supported a 1% increase.
Sen. Taffy Howard, R-Rapid City, sits on the budget committee. She voted against the budget Wednesday in the committee and on Thursday in the Senate partly because it didn’t include an increase in state education funding that met state law.
The law requires an annual increase of 3% or inflation, whichever is less — also called the index factor. Lawmakers often “ignore” that requirement, Howard said, because they rewrite the law each year to provide more or less funding than what is statutorily required.
“Instead, we increase welfare program spending, we add all these other additional programs that are new spending programs that we didn’t have before,” Howard said on Wednesday. “I just get really frustrated that we aren’t even taking care of what we’re already lawfully obligated to do, and yet we go out and keep spending on other things.”
If lawmakers increased “big three” funding by inflation — 2.5% — it would have cost the state roughly another $27 million. Just increasing state education funding to 2.5% would have cost another $11.7 million.
South Dakota Bureau of Finance and Management Commissioner Jim Terwilliger told lawmakers on the budget committee that state funding increases for education are 7.9 percentage points above what the index factor required since 2019, due to larger increases in prior years.
Other budget decisions
The budget passed by lawmakers differs from the budget recommended by Rhoden in December.
Lawmakers on the budget committee approved more funding for new positions in the South Dakota Treasurer’s Office, the Attorney General’s Office and the Public Utilities Commission. The four positions will cost $443,611 combined.
Lawmakers on the committee also voted to partially restore state funding for the Temporary Assistance for Needy Families program, which was cut by 30% last year. The increase will cost $427,000 in state funding and authorize the state Department of Social Services to spend another $427,000 in federal funds carried over from prior years. The decision reduces a 10% cut in benefits for families to a 5% cut.
More legislative news
See all of Searchlight’s coverage of the 2026 legislative session.
The committee increased state funding for the state Education Department by $592,224 to reimburse schools for reduced priced meals for students who are eligible, although the bill directing the department to do that is still awaiting the governor’s consideration.
The Department of Social Services received funding to implement a newly adopted ban on the purchase of soft drinks by people in the Supplemental Nutrition Assistance Program. That will require two full-time employees and software to track sales, file reports and help retailers determine which drinks are banned, needing $165,300 in state funds and $55,100 in federal funds.
The committee also increased funding for Medicaid reimbursement rates for critical access hospitals, which cost $1.3 million in state funding and $1.4 million in federal funding, and for Federally Qualified Healthcare Centers, which cost $3.4 million in state funding and $3.5 million in federal funding.
Critical access hospitals and Federally Qualified Healthcare Centers largely serve rural, underserved populations in the state, and directors of some centers told members of the Joint Appropriations Committee earlier this session that they were close to closing centers because of the low reimbursement rates.
Lawmakers doubled state funding for the Unified Judicial System alternative care grant program, which funds beds for the Teen Challenge program in Brookings. They passed a bill earlier this session that they believe will double the number of offenders referred to the nonprofit, faith-based addiction recovery program.
Current budget revisions
Lawmakers also approved a bill to revise the state budget for the current fiscal year, up about $111 million. The money includes state general fund dollars from higher-than projected revenue, as well as dollars from the federal government and other funds, including fees paid to state agencies.
The revised 2026 fiscal year budget uses $34.1 million more from the general fund. Sen. Paul Miskimins, R-Mitchell, told senators Thursday that the budget bill “makes key one-time investments to support state government and institutions.”
“We have bolstered infrastructure, provided additional security at correctional facilities, and invested in our technical colleges,” Miskimins said. “We continue to invest and reallocate taxpayer money into our core responsibilities while making measured investments when funds are available.”
Specifically, the bill pumps $555,000 of general fund dollars into the corrections budget for security equipment and $1.5 million for court security equipment, $10 million into information technology infrastructure and $3.1 million for tech upgrades in the state’s reemployment assistance fund program. The state’s technical colleges are in line for $4.3 million in general fund dollars for equipment.
That was possible in part because of a “lower than expected utilization in Medicaid,” which Miskimins said allowed the state to direct $7 million toward other priorities. The state also reallocated $15.8 million available because of lower public school student enrollment.
South Dakota Searchlight Senior Reporter John Hult contributed to this report.
