The Republican executive on Tuesday will give his yearly budget address to the Legislature.
Lawmakers will revise this year's budget and shape the next one during the 2018 legislative session.
Daugaard says officials will have to "tighten our belt" for the current budget year and be "very judicious" with the money available for 2019.
Recently released state figures show revenues for the first four months of the current budget year are roughly $8.3 million below expectations due in large part to short sales tax receipts.
The session that starts in January and ends in late March is Daugaard's last as governor. He can't run again next year because of term limits and leaves office in 2019.
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Gov. Dennis Daugaard says money will be tight for South Dakota's upcoming budget year.