North Dakota vs. South Dakota: The shocking spending gap

According to the National Association of State Budget Officers (NASBO), after accounting for all state funds, North Dakota spent $5,969 per resident in 2024. South Dakota spent 27 percent less in the same year — $4,360 per resident.

The gap between North Dakota and South Dakota is particularly striking with Census Bureau data.

Combining state and local funds (inclusive of federal grants), North Dakota spent $15,955 per resident on general government functions, such as welfare, roads, police, education, and public safety. Nationally, North Dakota ranked ninth-highest. South Dakota spent $11,129 per resident — 30 percent less — and ranked 10th-lowest.

Despite similar per capita incomes, North Dakota outspent its southern neighbor in every category detailed by the U.S. Census Bureau. Most notably, North Dakota spent $13,340 per person below 200 percent of the federal poverty level on public welfare. South Dakota spent about half as much — $6,879 per person.

What explains this gap? And what does it mean for the long-term health of each state’s budget? Certainly, oil and gas tax revenues are part of the story, but they do not explain everything.

Figure 1: State and Local Direct General Expenditures per Capita, 2023 (2025 $)

Oil and gas tax revenues do not explain the entire difference

According to the Bureau of Economic Analysis (BEA), the extractive industry accounted for 18 percent of North Dakota’s private sector economic output in 2023. Severance taxes — those levied on oil and gas, mining, and other extractives — accounted for 41 percent of all state and local tax revenues.

Adjusted for population, North Dakota collected $4,253 in severance taxes per capita. South Dakota collected just $7. But while oil and gas provide North Dakota with extra fiscal capacity to afford additional spending, differences remain even with other taxes.

Specifically, in 2023, North Dakota collected $6,112 per person in non-severance taxes, such as income, property, and sales tax. This was 10 percent higher than the tax burden faced by South Dakota residents, indicating that underlying policy decisions, not merely the availability of resources, influence the two states’ diverging fiscal trajectories.

Figure 2: State and Local Tax Revenue per Capita, 2023 (2025 $)

This fiscal gap has far-reaching implications, particularly given North Dakota’s persistent structural deficit.

To the extent that appetite for large government is inherent in North Dakota’s political culture, spending cuts proposed by Governor Kelly Armstrong could face a tough road ahead. At the same time, continuing to rely on oil and gas to maintain current expenditures will likely only worsen the state’s fiscal woes.

South Dakota, however, is proof that North Dakota can have a functioning government without volatile oil and gas revenues or burdensome taxes. The path forward simply requires lawmakers to make the difficult decisions needed to rein in spending.