PIERRE, S.D. (Joshua Haiar-South Dakota Searchlight) – South Dakota’s top state government budget official warned Thursday that the current budget cycle “is playing out to be another belt-tightening year.”
Bureau of Finance and Management Commissioner Jim Terwilliger spoke during a Governor’s Council of Economic Advisors meeting.
“We probably just have to take a cautious approach as we move forward, given some of the circumstances that we’re in right now,” Terwilliger said.
Through September, the state’s general fund revenue was 2.5% below the budgeted projection, which meant revenue was $17.4 million less than expected. Derek Johnson, the bureau’s state economist, said the bureau is anxiously awaiting October tax collection reports. Sales taxes were $6.1 million below estimates through September.
Johnson pointed to numbers indicating slower spending despite rising personal income, and cited weak consumer sentiment — a measure of consumers’ attitude and confidence about the economy and their personal finances — and higher prices as part of the explanation.
The farm sector is another drag on state revenue. Taxable sales of farm machinery fell 21% in fiscal year 2025 and were down about 20% in the first three months of the state’s fiscal year 2026, which began in July. Corn, soybeans and wheat prices are all lower than last year, although cattle prices are up.
Council members from around the state reported uneven conditions. Sioux Falls City Finance Director Shawn Pritchett said the city will miss its sales tax revenue estimate and has already cut $6 million in ongoing expenses, with fee hikes on the table to help account for the remaining $4 million shortfall. He said the city is seeing softer restaurant traffic, ticket sales and hotel occupancy.
Rapid City is benefitting from a boom tied to the Ellsworth Air Force Base expansion (construction is underway to accommodate the impending arrival of new B-21 bomber planes) and continued migration into the Black Hills. City sales tax collections are up just over 3% this calendar year. However, “that number just tracks with inflation,” said Marnie Herrmann, chief banking officer at Security First Bank in Rapid City.
Retailers are bracing for a lean holiday season. Kevin Nyberg of Nyberg’s Ace Hardware, which has locations in Sioux Falls and Watertown, said national surveys suggest the average household plans to spend about $1,600 less on Christmas gifts this year. He hopes discounts, rewards and rebate programs will drive traffic.
“Call it a gimmick, call it a marketing ploy — either way, it works,” he said.
Carla Gatzke of Daktronics, an electronic display manufacturer based in Brookings, flagged tariff impacts, child care cost and eligibility, and workforce shortages as key issues in the Brookings regional economy. South Dakota’s unemployment rate sits at 1.9% — the lowest in the nation — with roughly three job openings per unemployed worker.
