2026 Q2 Dakota Outlook
Abstract:
Welcome to the eighth issue of the Dakota Outlook. This quarter, we are pleased to introduce two new fellows to the Dakota Institute team: Joseph Schartz and Tracy Dice. Joseph Schartz earned his Master of Public Policy from Georgetown University. Tracy Dice joins us from Dakota Wesleyan University where she is an Associate Professor of Economics and Finance. Their additions strengthen the breadth of perspectives the Dakota Outlook brings to readers, and we look forward to their continued contributions.
As South Dakota’s ARPA-era federal funding finally winds down, Joseph Schartz turns attention to what “normal” actually looks like. Federal dollars are projected to account for 41.5% of the FY2027 state budget, not far from historical norms predating the pandemic. Medicaid remains the dominant driver, and even a one percentage point shift in the federal match formula can move the state’s obligation by $13 million. With sales and property tax policy in flux, Schartz argues that the greatest fiscal risk to South Dakota may not come from Pierre but from Washington.
Tracy Dice makes a compelling case that healthcare deserves a larger place in South Dakota’s economic conversation. At roughly 9.8% of GDP, it is the state’s second-largest industry. In the 31 counties with available data, healthcare accounts for nearly 16% of employment on average, and wages in the sector exceed the all-industry average in more than half of those counties. With the 65-and-over population growing in 56 of 66 counties, the demand side of the equation is only accelerating, making workforce shortages and rural access the central challenges ahead.
Kyle Kopplin digs into two major bills from the 2026 Legislative Session (SB96 and SB245) that replace property taxes with sales taxes at the county and school district levels. Using a game-theory lens, Kopplin shows that the benefits are grossly unequal: retail-heavy counties like Minnehaha and Pennington stand to replace most or all of their property tax levies, while smaller neighboring counties face pressure to follow suit or risk subsidizing someone else’s relief. What is framed as tax reduction is better understood as a reshuffling of who pays and how reliably revenue is raised.
David Sorenson reports that South Dakota’s population grew by 7,984 (0.86%) between 2024 and 2025, with Minnehaha and Lincoln counties accounting for roughly two-thirds of the total increase. One-third of counties lost population. If current trends hold, South Dakota would cross the one million mark by 2033.
Aaron Scholl finds that South Dakota’s long-standing housing affordability advantage within the Upper Midwest has narrowed considerably. Real median home prices rose roughly 30% between 2018 and 2024, and the typical borrower’s loan-to-income ratio now matches Minnesota’s. South Dakota built more per capita than any neighboring state during the boom, yet supply still could not keep pace with demand.
Devan Schaefer examines South Dakota’s position amid the national data center expansion. The state’s wind-dominant grid, cold climate, and lack of a corporate income tax check major boxes for hyperscale developers, but the 2026 legislative session reshaped the playing field by rejecting sales tax exemptions on data center equipment. Schaefer also highlights a cost reality that extends beyond state borders: South Dakota ratepayers will share in MISO’s $21.8 billion regional transmission buildout regardless of whether any facility opens here.
