Even the slaves to conservative opinion who edit the Rapid City Journal admit that low teacher pay is making it hard for South Dakota schools to fill teaching positions.

Last week’s front-page Journal story on school districts that are having trouble filling open teaching positions was predictable. It has been obvious that South Dakota’s last-in-the-nation teacher pay was having an effect on recruiting teachers.

That is, it was obvious to everyone except state lawmakers.

Last year, the South Dakota Legislature formed an interim committee to study education funding. But the panel was forbidden to examine teacher compensation. Nevertheless, the committee introduced a resolution that would have recognized that the state’s low teacher salaries was creating a teacher shortage. The Legislature rejected the resolution.

What is obvious to everyone is that state lawmakers’ bury-their-heads-in-the-sand approach to teacher salaries is producing a teacher shortage [editorial, Rapid City Journal, 2014.06.29].

Now I know that legislators and the Governor like to pass the buck and say that they don't set teacher salaries, that the local districts do. They are technically correct: state government does not negotiate local teacher salaries or issue local teacher contracts.

But the Legislature could pass some bucks to teachers. Every public school teacher in the state is an eligible member of the South Dakota Retirement System. Every South Dakota teacher has less income to put into retirement than her or his counterparts across the nation. If it wanted to, the South Dakota Legislature could make a special appropriation to the state retirement fund to be divided equally among the accounts of every active public school teacher in South Dakota.

Consider the advantages of such a pension boost:

  1. Offering a better retirement package may attract new applicants, especially young, financially savvy graduates whose craving for new toys does not keep them from understanding the value of starting to save early.
  2. Boosting the value of existing state pension plans helps keep experienced teachers in the system.
  3. The Legislature gets more long-term bang for the buck. Our state investment gurus do a pretty good job of turning our gold into more gold and get paid nice bonuses to do so.

Offering teachers more money for retirement won't pay bills right now (although SDRS members can withdraw funds early, with the usual steep tax penalties). But it is a concrete step the Legislature can take, if it is willing, to compete with other states and other job sectors for good teaching candidates.


Bob Mercer hates it when Rep. Stace Nelson uses his work to make political arguments. But Bob's asking for it. Check out this land mine Mercer slipped into the middle of his article today on swimmingly safe solvency of the South Dakota Retirement System:

This year marks the tenth anniversary of the shake-up that then-Gov. Mike Rounds ordered in SDRS management shortly after he took office.

The past decade didn’t turn out so well, however. Many trustees and administrators didn’t initially grasp the costs of the Rounds-era trend of retire-rehire, where employees resigned their government jobs, began collecting their SDRS checks and then returned to work, often in the same job, while the retirement checks kept coming.

There also was a benefit increase that had to be rolled back a year later, after the markets tanked.

Daugaard’s remarks praising the conservative corrections by the trustees encouraged state investment officer Matt Clark [Bob Mercer, "Daugaard Likes Safer Direction Taken at SDRS," Black Hills Pioneer, 2013.09.07].

Hmmm... let me read that passage the way I'd read it if I were running for Senate against the Nine Million Dollar Man:

  1. As Governor, Marion Michael Rounds shook up our state pension system's management.
  2. The state pension system ran into all sorts of trouble in the following years.
  3. The system required "conservative corrections."
  4. Conclusion: Mike Rounds messed up the state's retirement system!

I'm not saying I agree with that syllogism. Expect Governor Daugaard, if pressed, to revise his remarks to avoid any appearance of impugning his predecessor's pension performance. But expect Stace Nelson to cite Mercer's article to add to his case against Mike Rounds's policy failures and faux conservatism.


Bob Mercer and Donald Pay both expressed skepticism about my report Thursday on the status of South Dakota's pension fund. They were right to be skeptical.

A conservative think tank called State Budget Solutions issued a report assailing all state pension systems as woefully underfunded compared to their liabilities. In the good-news/bad-news department, SBS found South Dakota had the third-best pension system but calculated we could only cover 52% of our liabilities.

SBS uses a "market-value" model that assumes a return on pension fund investments of 3.225%, the return on 15-year U.S. Treasury bonds on August 21, 2013. Most states assume a 7% or 8% return. In 2012, the South Dakota Retirement System assumed a return rate of 7.75%. The SDRS trustees have stepped that down to 7.25%. The much smaller Department of Labor Employment Security Retirement Plan left over from before 1980 assumed 7.50%. SBS implies that South Dakota and every other state are using bogus numbers to make promises to workers that they can't keep.

Assuming nearly 8% may be bogus for South Dakota. According to a link Mr. Mercer submits, it's too low:

The South Dakota Retirement System’s assets have returned 10.3% for the past 39 years (since inception of the Council’s management responsibilities for SDRS). This performance has placed the Council in the top one percentile against other state pension funds [South Dakota Bureau of Finance and Management, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012," 2013.03.28, p. 3].

10.3%! Wow: one thing South Dakota does right is investing its retirement funds.

Now I'm not an accountant or an economist. But neither is the author of this pension study, Cory Eucalitto, who holds a B.A. in political theory from the Catholic University of America. So my B.S. (hee hee!) in math, M.S. in information systems, eight years of blogging in South Dakota, and ten years of participation in the South Dakota Retirement system may make this Cory more qualified than that Cory to comment on the performance of our pension system.

Try as I might, I can't get the formulas Eucalitto borrows from another conservative think tank to come within rounding error of the numbers on his spreadsheet. But I can tell you this: the state says the 2012 funding ratio in our pension system, assets to actuarial accrued liabilities, was 92.6%. If I use the market-value formula proposed by SBS but use the empirical 10.3% demonstrated by SDRS over 39 years, SBS's methodology tells me the South Dakota Retirement System is 41% overfunded. (Dennis! Don't get any crazy ideas!)

Plus, the SDRS Board of Trustees just voted to apply $630 million from savings toward long-term unfunded liabilities. Far from teetering on the precipice of insolvency, South Dakota's pension system appears to be looking pretty good.

SBS's mathematical mumbo-jumbo appears to be cover for a conservative plot. Eucalitto's headline speaks of broken promises and "the betrayal of pensioners." But as Mr. Pay suggests, SBS is spinning the serious B.S., advocating for "aggressive pension reform" that would aggress against state workers, taking more of their money, weakening their collective bargaining power, and making it harder for them to get better benefits.

State Budget Solutions is a less-than-transparent conservative advocacy group, using skewed data "slanted for political purposes." Its president, Bob Williams, is a favorite of ALEC and the Koch brothers. Williams and friends are interested in forwarding their political ends by manufacturing a pension crisis that, at least in South Dakota, does not exist.

Yes, Bob and Donald, I should be more careful about my sources.


Do all those South Dakota officials busted for corruption forfeit their pensions? Too bad for them if they do: South Dakota has one of the best-funded state pension systems in the country. Governing points us toward a new analysis from State Budget Solutions, which finds that nationwide, state public pension plans have assets that add up to only 39% of their liabilities. Everybody, retire slowly, please!

South Dakota is one of just four states whose funded ratio cracks 50%:

  1. Wisconsin: 57%
  2. North Carolina: 54%
  3. South Dakota: 52%
  4. Tennessee: 50%

California, whom our frugal governor regularly assails, has a pension funding ratio of 42%. The states down in the 20s are Kansas, Kentucky, Connecticut, and Illinois.

Break our unfunded pension liability down by population, and South Dakota's still looking pretty good. We rank tenth in unfunded pension liability per capita, $8,647, compared to the national average of $13,145. Ranking 42nd, California's per-capita liability is nearly double ours, $16,840. The worst state by this count is Alaska, where each resident would have to chip in $32,425 to cover their state pension's liability.

State Budget Solutions puts its state pension spreadsheet on Google Docs, bless their hearts! Their data show that South Dakota is much better off than some other states, but that we are all gambling on money we don't have yet.


Cole R. Delaune tries really hard to portray GOP Senate candidate M. Michael Rounds as both too soft on abortion and too closely tied to the Todd Akinesque Bill Napoli on abortion. Delaune paints this Janus to justify his claim that "demonstrated pragmatist" Rep. Kristi Noem would be a better Senate candidate.

If we want to jam the Rounds noise machine, let's keep it simple. Let's talk money.

The discussion of Lucas Lentsch's reascension to power in the state agriculture department has reminded us of the mess he and Secretary Walt Bones found when Governor Daugaard brought them to Pierre in 2011. Governor Daugaard canned a lot of Rounds' people, and perhaps for good reason. As director of ag development, Lentsch saw some sloppy-looking bookkeeping. He spent $8,000 on an audit that discovered $17,000 in services unbilled and checks not cashed in the Farm Loan mediation program:

Employees sometimes waited months to cash checks for payment - mediation costs $50 an hour for the first hour and $25 for each additional hour - and at least 157 checks had to be returned, undeposited, because they were more than six months old, the audit showed.

In at least 54 cases, the federal Farm Service Agency, an arm of the U.S. Department of Agriculture, was not billed for mediation services, costing the state $2,700. From fiscal year 2008 to 2011, 120 hours of mediation went unbilled at a cost of more than $3,000.

The haphazard payment documentation "progressively worsened through fiscal years 2010 and 2011," making it hard to determine in some cases whether mediation even occurred, or why some people who had requested mediation did not follow through with it, Bollinger wrote [Cody Winchester, "Ag Loan Board Lost $17,000," that Sioux Falls paper, May 2012].

Secretary Bones didn't catch anyone pocketing state money and didn't publicly call for anyone's head to roll, but Ag Department legal counsel Aubrey Blair Dunn left the office in spring 2012, followed by Lentsch in August 2012.

Similar inattention to fiscal detail appears to have cost South Dakota much more in the state cement plant retirement fund. Governor Bill Janklow sold the state cement plant to a Mexican company in 2001, but the state still held the plant's retirement fund. Coming into office in 2003, Governor M. Michael Rounds forgot about that responsibility:

After the 2001 sale, the cement plant retirement system spent years as a political orphan in state government.

A Gov. Mike Rounds administration official acknowledged that it essentially sat forgotten in a drawer.

While unattended, the cement plant’s system suffered significant losses to its investment portfolio.

With no additional revenue flowing in, and with benefits being paid out, the portfolio hasn’t been able to recover sufficient value to get back in balance [Bob Mercer, "Future for Cement Plant Retirees Uncertain," Aberdeen American News, 2013.04.03].

To make up for Rounds's forgetfulness, the Legislature has had to pump $5 million into the cement plant retirement fund, including $4 million appropriated this year. Mercer reports that the Rounds Administration's lack of attention and foresight now socks us with spend $1.5 million a year for the next 14 years to keep our promise to the cement plant retirees... either that, or coax at least some of those retirees into trading their ongoing pension payments for lump-sum payments now.

Now maybe M. Michael Rounds would do less damage as one of 100 Senators than he did as South Dakota's chief executive. But his people's management of the Farm Loan Mediation program and the cement plant pension send a pretty clear message: hand Rounds your purse strings, and his bumbling will cost you money.

Draft Johnson? Draft Herseth Sandlin? Heck, just draft an accountant.


The welcomely resurgent Displaced Plainsman finds this flyer from California Congressman Devin Nunes (who blogs! the Congressman blogs!) promoting public pension reform. The good news? The South Dakota Retirement System (in which my wife and I both have some chips) is the fourth-healthiest in the nation.

The bad news: without changes (luck, gold strikes, the I-29 corridor turning into Silicon Valley II), SDRS goes broke in 2035... when I turn 64.

But why worry? By then, I'll have finally figured out how to make a living blogging.

p.s.: Congressman Nunes is the same guy who said the passage of health care reform last year constituted "the total destruction of our constitutional republic." I assume his re-election was thus the product of... what, tyranny?

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