Last updated on 2011.04.05
Up until now, Governor Dennis Daugaard and his fellow Republicans have taken the rather inconsistent buck-passing position that the state can't justify raising taxes to pay for education but that local districts are free to raise their levies if they see fit.
Governor Daugaard just moved to resolve that inconsistency... and school districts should be worried. The Governor's office has requested House Bill 1243, which would decrease the maximum property tax levy school districts can impose. The cap on residential and commercial property would decrease 7%. The cap on agricultural property would decrease 12.5%. If school districts want more, their boards must cast a two-thirds vote in favor of an opt-out, which is subject to referral by the voters (see SDCL 10-12-43).
Now 40% of schools have already opted out of the property tax levy cap. Even if the Governor bumped his head and suddenly decided to keep state aid to K-12 funding stable, HB 1243 would require more local districts to go through the difficult process of convincing local voters to support an opt-out. I suspect (but I don't have the numbers handy---anyone have this data?) that a lot of other districts are already at their maximum levy and thus would automatically have to go through the opt-out process just to maintain current local funding. I know the Governor wants us all to have a "good healthy conversation" about taxes, but he seems determined to make local funding for schools more difficult.
Update 12:01 CST: But wait! I learn from folks smarter than I in the Governor's office that HB 1243 is simply an enactment of the status quo, not a drastic change thereto. HB 1243 follows what's known as the Cutler-Gabriel Amendment, a school funding calculation implemented in 1995 that keeps the ratio between state funds and local property taxes constant. Since property values go up (yeah, check your assessment: they did!), Pierre adjusts the maximum levy downward to keep the actual dollar amount in line with what Pierre gives in per-student state aid.
Governor Daugaard himself explains the situation in this interview with Kaija Swisher of the Black Hills Pioneer. He acknowledges that he could ditch Cutler-Gabriel, ask for levy to be kept at current levels, and thus increase the amount local school districts could take in to make up for his cuts without having to opt out. But Governor Daugaard doesn't want to make that decision from Pierre:
My plan, is let each district make that judgment after a conversation between the administration of the school and the taxpayers. Let the taxpayers participate in that judgment on a district-by-district basis [Governor Dennis Daugaard, interview with Kaija Swisher, "Straight from the Governor," Black Hills Pioneer, 2011.02.02].
That darned governor, wanting us to have all these conversations....
I regret any confusion raised by my original discussion of the bill. Nonetheless, I think the original thesis still holds: combine HB 1243 and the Governor's proposed cuts to state K-12 aid, and you will see many more school districts driven to hard conversations about opt-outs.
We defeated two opt out attempts in our district. The last one was in 2000. In order to pass an opt out a school district must show that they have done everything possible to manage. Some pass because the people in the district are convinced that is true. Some pass because there is simply no one willing to go on record and present the other side.
At that time spending in our district was high, and raises for employees was much higher than for other workers in the area, jobs that required similar educational levels.
The hard thing is that when a district asks for an opt out they are asking farmers and business owners to take a pay cut in order to fund their raises. For example, to cover the cost of the tax raise, owners of a store must ask themselves if they can raise their prices slightly and run the risk of sending yet another customer to a big chain store to save a buck, or take yet more of a loss. The farmer has a different dilemma, some years they make a lot of money, some years no money, depending on market prices and weather. But every year that tax is the same. While a home owner pays a higher percentage than a business or a farm owner it is not from the place where they earn their living. Once upon a time a town had farmers, small business owners and a few preachers, doctors, lawyers, teachers etc. At that time funding a school through property taxes made sense. Now many people in the community work for industries and companies, their jobs, at least until recently, were secure with good benefits, something the farmer and small business owner does not have.
So my question to our district was; "Are your employees able to live comfortably in the district that supports them?" That answer was yes. So I was opposed to an opt out unless the employees were willing to take a lower percentage in raises and got rid of their golden parachute (another topic). When I was a board member, I refused any compensation from the district, I considered the amount similar to what a raise would be for the average teacher. As a business owner, I did not raise admission price to the movies (still haven't). In good faith I too, was willing to make a financial sacrifice for my community. The farm of course is the usual crapshoot.
The State has some financial difficulties but they must fairly compensate school districts so they can run well. Other things should be cut first. Each district used to collect their own taxes so some districts were better off than others, then it was thought that it was better for the state to collect the taxes (this is general fund, not capital outlay) and redistribute them more equitably. Since the State did this it is their responsibility to make school spending a high priority.
I'm going to reveal my ignorance about opt-outs here. Is an opt-out a one-time event - as in, the school district asks to raise taxes by x%, but would have to opt-out again to increase taxes later? Or does an opt-out then allow districts to raise taxes at their discretion?
Good questions, Wayne. As I understand it, schools are free to seet their tax levy each year at any amount up to the state-specified maximum. If the school feels it needs more than that, it has to approve that excess levy in a separate opt-out vote. Citizens can refer that opt-out vote.
Once passed, that opt-out amount is the new local maximum for the school district, and the school can set their levy at any level up to or including that amount. The school does not have to tax that full amount: Madison approved a four-year opt-out in 2006, then a couple years later considered not taxing that full amount. Time limits may vary: Madison renewed its $250K opt-out for four more years in 2010.
The Lake Herman Sanitary District appears to have a permanent opt-out. The board passed a $3000 opt-out a few years before I joined, and apparently that opt-out amount remains in effect, even though I have steadfastly maintained the budget below the amount permitted by that opt-out, since we don't have any viable project on which to spend the money.
Cory, isn't the capital outlay fund the only one that the local school board can set the levy for up to a certain maximum? The levy for the general fund and others are set by the state each year. We now have the maximum levy for capital outlay and have for a number of years. The opt out is only for the general fund, not the capital outlay.
You're right, Neal: the statues here deal with general fund levies. Opt-outs can only be spent on general fund expenses. SDCL 13-16-7 caps the capital outlay levy at three dollars per thousand in property value.