Noem, lawmakers say 2023 South Dakota budget expected to be a return to ‘normal’

Water projects, prison spending and core state funding obligations for the upcoming fiscal year could be on the docket Tuesday for the Governor’s Budget Address.

Gov. Kristi Noem will give the budget address at the Capitol in front of 105 lawmakers and other government officials. The address will set what she sees as the state’s main funding priorities for the 2025 fiscal year.

Expected to be included in her speech will be a plan for the remaining millions in American Rescue Plan Act dollars that have yet to be allocated, funding for the so-called Big Three priorities and a return to a budget similar to the pre-COVID-19 era.

Noem already warned South Dakotans the state’s budget would be tight in her weekly column back in late October. 

“…there are many members of our state legislature that have not experienced a ‘normal budget year,’” Noem wrote. “These legislators are used to having huge revenues and surpluses to spend on whatever they want. They have not had to do what more and more families across America are having to do – stick to a tight budget.”

More: 98th regular Legislative session ends with historic tax cut, funding increases

Top lawmakers in the South Dakota Senate and House of Representatives, along with state government experts, say the tight budget is synonymous with budgets prior to COVID-19 pandemic when the state benefited from a large influx of federal dollars and saw increased revenues.

I’m new to learning about the South Dakota state budget. What are the Big Three?

The Big Three are the state’s core budget priorities: funding education, health providers and state employees.

This past year, health providers were reimbursed at a 100% rate where in previous years, providers were reimbursed at a lower rate. Nursing homes and other long-term care facilities benefit from these reimbursements. Hospitals also received a 5% funding increase.

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Based on recommendations from a summer study, long-term care facilities will also be a legislative priority for lawmakers when they return Jan. 9 to Pierre for the start of the 99th Legislative Session. 

Educators and state employees across the state also got a bump in pay over the last year. It’s unclear if another pay raise is in the cards for educators or state employees. 

The 2024 fiscal year budget came in at a record-setting $7.4 billion and included a hard-fought temporary sales tax cut.

More: Gov. Kristi Noem approves $7.4 billion budget for South Dakota in 2024

What projects could the remaining ARPA funds go toward?

In the past few years, a majority of the ARPA funds have gone toward infrastructure improvements across the state such as housing, broadband and environmental projects. The state received $974.4 million in federal ARPA funds.

“The funds that we did have as a state, we were really diligent about making sure those were one-time investments that produced a long-term return for the people of South Dakota,” said Senate Majority Leader Casey Crabtree, R-Madison.

The central question the state is asking ahead of the budget address is where will the remaining $104.6 million in ARPA funds that have yet to be put into an infrastructure project go?

All ARPA funds the state received must be obligated by the end of 2024 and then must all be spent by the end of 2026.

Bureau of Finance and Management Commissioner Jim Terwilliger told appropriators Nov. 13 that Noem will lay out a plan for the $104.6 million to be spent during her budget address.

“She will look forward to having that conversation when the time is ready,” he said.

One Republican lawmaker from Rapid City, Sen. Helene Duhamel, has been pushing for the funds to go toward water infrastructure improvements in the western side of the state that has critical water needs because of its drier climate.

Duhamel has brought two bills in the past two years to dedicate a portion of the ARPA funds to water projects, including a $3.5 million study of a West River water pipeline. Her bill in 2023 passed the Senate but failed in the House by two votes.

“Every dollar invested in water pays dividends to every citizen of our state,” she said. “For us to unlock our potential in western South Dakota, we need a reliable source of clean water.”

Crabtree said Duhamel has done an incredible job to champion the water needs in the western side of the state and added northeast South Dakota would also benefit from water infrastructure. 

More: South Dakota Republicans criticize program that provided $3.8B to state

“The legislature, really as a whole, has a pull toward wanting to put what they can for ARPA funds that remain into water infrastructure projects. That provides a good return, we’ve got a need across the state,” Crabtree said, adding the water projects are just one part of the overall remaining ARPA fund conversation.

The state is also facing down major prison projects, including the construction of a 1,500-bed men’s facility in Lincoln County that will replace the current state penitentiary and continuing the construction of a new 288-bed women’s prison in Rapid City. It’s possible some ARPA funds could be used in those projects. 

More: DOC’s lack of transparency about new SD prison could have long-term consequences, expert says

A return to normal

For Michael Card, a professor emeritus in the politics department at the University of South Dakota, he’s not sure how different the state’s spending will be during the upcoming fiscal year from the past few years.

He said that although state revenues are estimated to decrease by 2%, because of the general sales tax cut, which “sets the stage for a tight budget,” there are still millions in ARPA funds that have been obligated for projects but remain unspent.

“How do we deal with these unobligated funds? How do we deal with some expenditures that haven’t been made?” Card asked. 

House Majority Leader Will Mortenson and Crabtree agree the upcoming budget will be a return to normal.

“It makes the budgeting process easier in that we know which core priorities we have to fund,” Mortenson said. “This year will be about needs, not wants.”

The Pierre Republican remembers working for the Daugaard administration in 2011, when the state faced deep budget cuts, and said the Legislature is working hard to avoid a repeat of that in the future.

“The key to avoiding it is being frugal in the times that you have money and not overextending the obligations of state government,” he said. “I think we’ve been pretty prudent in the last few years, but this year is going to demand additional prudence.”

When is the South Dakota budget address?

South Dakotans can watch or listen to the Governor’s Budget Address at 1 p.m. Central, 12 p.m. Mountain on Tuesday, Dec. 5 at sd.net.