2025 Q2 Dakota Outlook

Difficult Choices and Headwinds on the Horizon

As the second quarter of 2025 draws to a close we are confronted by national economy that has slowed noticeably since our last issue. The national economy may not officially be in recession, but warning signs are flashing in nearly every direction. In this issue of the Dakota Outlook we explore a number of the challenges facing South Dakota today, including property taxes, tariffs, and slowing economic growth. On the brighter side, this issue also brings a longer-view and demonstrates the many positives that economic growth has brought to our state since the 1990s.

One of the biggest political issues facing the state today is how to deal with rising property taxes. In this issue we explore how local opt-outs are affecting property tax rates. Sixty-two out of 148 school districts had local opt outs during 2024, raising $34.6 million (about $500 per student in those districts). The latest numbers show that districts with opt outs do have higher overall levies than districts without them, but it appears to be the case that opt outs are used to backfill constrained revenue sources. This will put even more pressure on state leaders looking to address property tax reform.

If property tax issues weren’t enough of a challenge, it looks like the days of rapid population growth may be coming to a close. South Dakota’s population grew by 6,364 residents between from 2023 to 2024, reaching nearly 925,000, but this was the smallest annual gain since 2020. Population growth slowed to 0.69%, down from peaks above 1.4%. South Dakota now ranks 28th in the nation, down from seventh in 2022. County-level patterns show that growth remains heavily concentrated: Minnehaha and Lincoln Counties accounted for over three-quarters of net migration gains, while most other counties saw modest or negative migration. Natural increase (births minus deaths) held relatively steady, but significant declines in both international and especially domestic migration drove the overall slowdown.

Adding to the economic headwinds facing the state are newly imposed tariffs that sap commerce and pinch consumer pocket books that are still recovering from high inflation of recent years. Trade barriers imposed by the Trump administration have resulted in tariff rates as high as 32% on Chinese imports and roughly 12% on Canadian goods under USMCA rules. South Dakota’s international trade is mostly dominated by agriculture-related machinery, chemicals, and fertilizers on the import side. Grains and animal products dominate on the export side. Applying current effective tariff rates suggests roughly $296 million in added import costs for the state, rising to $370 million if Chinese tariffs revert to 145%.

Finally, we bring a positive report that looks at changes in the state from 1990 to 2020. We show that real household incomes in South Dakota rose by 25% over the thirty-year period, and per capita incomes rose by 42.5%. Educational attainment improved markedly as well. The share of adults with at least a bachelor’s degree grew from 17.2% to 28.8%, especially in urban counties like Lincoln and Minnehaha. The labor market shifted toward professional occupations—rising from 21.8% to 36.3%, and female workforce participation climbed to around 65%. The state’s population has aged though, which will pose a challenge in the years to come. The number of people aged sixty and above rose from 22.1% of the population to 26.3%, and some counties experiencing more pronounced shifts than others.