Amid the widespread budget cuts that Republican Governor Kristi Noem proposed during her recent budget address, there was one source of surging revenue that will provide legislators with spending decisions this winter: unclaimed property.

South Dakota received $308 million worth of unclaimed property this year, nearly double the state’s previous record from last year.

Unclaimed property consists of an array of abandoned or forgotten private assets, including money from bank accounts, Paypal accounts, stocks, life insurance payouts, uncashed checks, unused refunds, and even the contents of safe deposit boxes.

“Everything from false teeth to gold bars,” state Treasurer Josh Haeder has said.

Image

Holders of the money or items, such as banks, try to find the owners. The property reverts to the state after three years. Much of the money flows into the state budget, while physical items are held in safes at the state Treasurer’s Office in Pierre. The office tries to return the items, but after a year, most of them go to a state auction to be converted into revenue for state government.

Rightful owners can still claim their assets from the state at any time, and state government maintains some of the unclaimed property revenue in reserve to pay claims. But much of the money is never reclaimed. Last year, as the state took in $175 million of unclaimed property, it paid out $38 million in claims to 6,768 claimants.

The Treasurer’s Office maintains a website where people can see if they’re owed money, but making a claim is a multi-step process that some people deem unworthy of their time for what could be a few dollars. The process includes filling out an online form and an emailed form, and providing copies of photo identification along with documentation of a Social Security number.

Why unclaimed property is surging

South Dakota has long enjoyed a stream of unclaimed property revenue, due mostly to favorable laws that have prompted some national banks to place their charters in the state.

The last three years have brought large increases in unclaimed property revenue, in part due to the country’s continued recovery from the COVID-19 pandemic. Haeder said the pandemic prompted widespread relocations, and some people left abandoned assets behind. The three-year dormancy period for many of those abandoned assets has now passed.

“We’re getting a lot of money from those COVID years,” Haeder said.

This year’s record amount of unclaimed property is also driven by a big bank that moved its national charter to South Dakota, according to Haeder.

He declined to name the bank, but Bancorp publicly announced the relocation of its headquarters to Sioux Falls last year. U.S. Treasury records show Bancorp holds over $8 billion in total assets.

A billion-dollar liability

The value of unclaimed property transferred to the state that’s never been claimed by its rightful owners now stands at $1.19 billion, of which $549 million has accumulated in just the past three years. Because the state spends much of its unclaimed property revenue, that amount of money is not on hand, but the state is technically liable to pay it if all the claimants came forward at once.

In her recent budget address, Noem proposed putting $43 million of unclaimed property money in the state’s reserve fund, which would increase the fund balance from 10 percent to 12 percent of state expenditures and provide a cushion for increased claims.

Image

“This money belongs to the people, and we must be ready to pay it back when those claims come in,” Noem said.

Haeder wants the state to change the way it handles unclaimed property revenue. Rather than putting most of it into the state budget every year, he advocates for the creation of an unclaimed property trust fund. That approach would retain money to cover potential claims, while the state could peel off the annual interest.

“That’s a more stable source of revenue,” Haeder said.

Some lawmakers say a trust fund is unnecessary, noting that some of the funds come from outside the country and unclaimed property older than five years is extremely unlikely to be claimed.

But there is new leadership in the state House and Senate this year, and incoming Senate President Pro Tempore Chris Karr, R-Sioux Falls, supports the trust fund concept.

“It’s not the state’s money to begin with,” Karr said. “Yet, we are in a position where our ongoing expenses are dependent on a certain amount of unclaimed property funds coming in every year.”

Spending proposals

South Dakota legislators and governors typically distinguish between ongoing and one-time revenue and expenses. One-time revenue, such as money from a legal settlement or other sudden windfall, has traditionally been used for one-time expenses, like paying off debt or constructing a building without incurring debt. Ongoing revenue, from sources such as sales taxes, is used for the general support of the state’s operations.

Noem is proposing numerous cuts in ongoing spending due to declining sales tax revenue. Those include large cuts to the Department of Social Services, Department of Human Services, South Dakota Public Broadcasting, the State Library, the state university system, and the repair and maintenance of state buildings. She’s also proposing only a 1.25 percent funding increase for schools, state employee pay, and health care provider reimbursements.

Yet she’s also proposing some increases in ongoing funding, such as her plan to spend $4 million on the creation of education savings accounts that would provide public funds for families to pay for private school tuition or alternative instruction costs, such as homeschooling.

Noem’s proposed budget predicts $229 million of available unclaimed property revenue for the state after payouts to claimants.

Of that amount, she wants to label $61 million as ongoing revenue. In her budget address, she said that’s the amount “we can safely and responsibly plan for moving forward.”

“We are considering everything above that amount to be one-time revenue,” Noem said.

That’s $167.7 million of one-time revenue from unclaimed property. When that’s combined with unspent money from the current budget and other one-time sources, Noem’s fiscal year 2026 budget anticipates about $280 million in one-time revenue that lawmakers can choose how to spend.

She wants to use $182 million to continue building up a fund to build a prison south of Sioux Falls, which would replace the Sioux Falls penitentiary, parts of which date to 1881.

The state has already set aside $567 million for the project, which is expected to cost $825 million. Noem said the state expects $76 million in interest earnings from the prison fund. The interest and the proposed $182 million would fully fund the project, she said.

Other major one-time expenses recommended by Noem include:

$54 million to pay off bonds for the state Animal Disease Research and Diagnostic Lab, Precision Agriculture building at South Dakota State University, and some state fish hatcheries. $13 million for a dam replacement project at the Richmond Lake Recreation Area near Aberdeen.$5 million to improve state government’s information technology infrastructure.$10 million for grants to improve safety in K-12 schools.$5 million to cover costs associated with emergencies and disasters.$2.6 million for wildfire suppression efforts.$2.1 million to help recruit medical professionals to rural areas.$425,000 for tax refunds to low-income elderly and disabled residents.$75,000 to expand the state veterans cemetery.

Lawmakers will begin debating Noem’s budget proposals when they convene January 14 at the Capitol in Pierre for their 38-day lawmaking session. Noem is expected to resign sometime after President-elect Donald Trump’s inauguration January 20 to accept his nomination as secretary of the Department of Homeland Security, assuming Noem is confirmed by the U.S. Senate.

South Dakota Searchlight is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. South Dakota Searchlight maintains editorial independence. Contact Editor Seth Tupper for questions: info@southdakotasearchlight.com.