South Dakota begins the 2026 budget cycle with a structural deficit that has been building for years. While the state can still balance its books on paper, recurring expenses now outpace recurring revenues, setting the stage for difficult choices when lawmakers convene in Pierre on January 13.
Workforce shortages are driving payroll growth as agencies raise wages to fill vacancies, embedding higher costs into the base budget according to a report from the Bureau of Labor Statistics. Corrections spending is climbing as daily per‑inmate costs rise and new prison projects commit the state to decades of operating expenses. USA Facts data show Medicaid enrollment and medical inflation continue to push general‑fund spending upward, while K‑12 funding grows automatically under the state’s inflation‑linked formula.
At the same time, temporary federal pandemic aid that once cushioned the budget is nearly gone, exposing the underlying gap. Governor Larry Rhoden has previewed the challenge, but legislators must now weigh competing obligations—wages, corrections, Medicaid, and schools—while trying to keep the budget structurally balanced without new taxes. The deficit reflects long‑term demographic and economic forces that defy quick fixes, and the hard work begins next month.
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