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Rep. Wismer: Video Lottery Funds Education, New Revenue Still Needed

Last updated on 2016.02.12

My post on Madison Central's proposed $6.3 million bond issue to build an unnecessary gym alongside its dedication of $8.2 million to make necessary renovations to the high school sparked a conversation about rededicating video lottery money to K-12 funding. Rep. Charlie Hoffman (R-23/Eureka) and Rod Goeman lament that the state has broken its promise to spend those gambling revenues on education.

But has the state broken that promise? Rep. Susan Wismer (D-1/Britton) contends the state has increased its K-12 funding by an amount equal to the revenues from video lottery. Moreover, Rep. Wismer says the argument that the state "broke their promise" deters legislators and voters from supporting the additional funding that our schools need.

Here is Rep. Wismer's complete analysis and commentary, edited just slightly for style:

I'm going to take a stab at this debate because I believe a correct understanding of it is critical to consideration of the proposed sales tax initiative, also because I believe that this blog attracts people capable and willing to appreciate "the rest of the story," and finally, I need the practice.

The debate to which I refer is that of "they broke their promise to dedicate the video lottery money to education." They did not.

Before I launch into a history of video lottery, you must remember this as well: A piece of the puzzle is that around 1995 there was a property tax revolt brewing. Gov. Janklow changed the education funding formula in two ways, effective @ 1997: first, to a per-student allocation. Second, he changed it so that the state picked up a larger share of education costs to take the pressure off local property tax rates. The change also happened to coincide with not only increasing video lottery revenue but crashing enrollments, so as schools lost students they lost funding. The price paid for that increase in state aid was a forced decrease in local education funding, and a new state limitation on what the locals could raise themselves by forcing the "opt-out" votes if the local boards felt they needed more than what 3% or the rate of inflation would raise. I was raising my kids then so I may have missed some of that story.

Video Lottery's first year was 1989. It took a while for the revenue to really grow, between the lawsuits and the gradual increases in the state's share of machine income, but by FY99 the state's share of video lottery revenue was $92 million. Twelve years later, the video lottery net state share is forecast to be around $100 million, which is a $10 million decrease from two years ago. General aid to education in FY96 was $84 million; in FY98 it was $232 million. It would take another historian to explain the fine points of how much of that increase was due to the change in the ed funding formula in 1997 I discussed in the preceding paragraph and how much was due to other factors.

Budgeted State Aid to education in FY12 was $329 million. So the state is kicking in $97 million more for state aid to education per year, even after the carnage this year, than they did 14 years ago, and $245 million more per year than they did 16 years ago. Pick your increase: either one is most or double what the state was putting into education before video lottery. And yes, my years don't coincide exactly because in this little two hour research project, I can't find the right years.

Bottom line to me is this. Education has received a funding increase equivalent to video lottery revenue every year. So get off it. Whatever the annual amount of video lottery revenue is, that and more, in addition to what the state put in before video lottery, is going to education. But it's not enough.

Would the crisis have come earlier without video lottery? You bet, and education would have been better off. We've been putting bandaids on this problem for 30 years: contractors excise tax, video lottery, property tax limitations because we don't trust locals to run their own show, fees and more fees and more fees, nickel and diming and bake sale-ing everyone to death because it's more fun to buy into the national rhetoric, ignore the fact that this state has been run by our conservative ancestors for 100 years and never went to the excesses exhibited by the rest of this crazy world, and vote for people who tell us what we want to hear rather than what our parents' civics teachers taught us.

Moral of the story for anyone who cares about education: don't let people get away with the old "they broke their promise on video lottery last time, so I'm not going to support an increase in taxes cause I don't trust them to spend the money where it should be spent." Set 'em straight and keep banging the drum.

[Rep. Susan Wismer, e-mail, 2011.09.22]


  1. Charlie Johnson 2011.09.23

    Wow----still doesn't tell us why funding is inadequate to run k-12 education nor that many people/companies pay little or nothing to fund education. Our tax system to fund education is from the horse and buggy era. Is that were education has to retreat to? Not in my opinion.

  2. Elisa 2011.09.23

    My personal feeling on the issue is that part of the problem lies in the fact that we have a state formula that dictates how much local districts can levy on property taxes. Districts have some flexibility in their capital outlay levy, but the general fund levy is set and a district's need for more money is only solved through the opt out process that can either be supported locally or highly contentious. Counties face the same issue with a formula that dictates how much of an annual adjustment can be made to the local property tax levy.

  3. Troy Jones 2011.09.23

    I've always likened the discussion to the following:

    A married couple can pool their pay checks and pay bills out of the pooled money or they can keep separate accounts and divide up the bills.

    The problem with the latter is what happens if one spouse has a drop in income, do some bills not get paid or some activities totally stop?

    When people talked about "dedicating" video lottery to education, I've always opposed it because who knew how stable that income was going to be? What would have happened when video lottery was shut down until a public vote? Or during the drop in VL income since the smoking ban?

    Anybody think education should have taken the full brunt and just not got their money?

    Or is it better the education money is from a pooled account?

    Bottom line: Video Lottery is the largest new incremental source of revenue to the state, gave us the means to increase the aid to education, funded the Janklow property tax freeze, and gave the Legislature room to adjust property tax rates on ag land to be more based on the income in produces and not solely on its value.

  4. Michael Black 2011.09.23

    It's one big pot of money. Period. Education will get what it gets. If you had more money available from another source dedicated just for education, the legislature would just cut it's general fund contribution to schools.

    We would all like to see education get more money, BUT we need to realize that they are not the only ones taking a hit: I have many friends at DSU that have not see a raise the last few years and prospects for any hike in pay is pretty dismal.

  5. Stace Nelson 2011.09.23

    Rep. Wismer is correct in her statements that the lottery revenue does go towards education. It does so via "The Property Tax Reduction Fund;" however, the name and process gives the perception that it is high jacked from what voters were sold on and has created a counterproductive marketing problem.

  6. Charlie Hoffman 2011.09.23

    My whole point in the small piece of the plan which I have been touting for 20 years is why are we spending all of a very possible short term funding source instead of investing it into an irrevocable trust fund. With that said I am very aware of the misconceptions of the property tax reduction fund by the general public especially when the greatest source of revenue in every county is coming from property taxation which has continued to rise every year since the two or three years it dropped during Governor Janklow's administration.

    But here is the catch in all of this. What numbers are used continuously against the legislature in their funding of education? The teacher pay scale on a national level is used which places South Dakota at the bottom of the list. What are the two most important aspects of a childs education? First and foremost it is the quality of home study time and parents who encourage education as highly important; and teachers, are the most important aspects of any childs education. The legislature has zero control over each of the two most important assets of a good education. School boards control the teacher pay with frugality of South Dakotan's showing in the scale of our average teacher pay. The legislature could do something about teacher pay but it would need to earmark those dollars and not allow them to enter the general fund balances. That was the entire plan on taking 10% of the interest of a pipedream fund of over a billion dollars had we placed the gambling revenues into an irrevocable trust fund and sending it directly to every K-12 teacher in the state.

    On one more interesting note for all those who find the new ag property income tax fair and balanced. It seems to be just and fair to tax farmers and ranchers on their income but don't anyone dare talk about an income tax taxing the general public????? (and no Cory I am not advocating an income tax--just stating an observation for my city friends)

  7. Steve Sibson 2011.09.23

    "On one more interesting note for all those who find the new ag property income tax fair and balanced. It seems to be just and fair to tax farmers and ranchers on their income but don’t anyone dare talk about an income tax taxing the general public?????"

    Right Charlie, and in Davison County the Ag valuations jumped 10% due to the new income tax. Now remember that the mill levies regarding the state Aid was only allowed to drop only $1.5%, while owner occupied and commercial mills were to remain the same. For Davison County total valuations went up 5.6%. With the mostly static mill levy, property tax portion of the state aid formula increased, while the total state aid ceiling dropped 6.6%. The result is about a 15% drop in the amount the state pays in state aid to the Mitchell School District, or about $1 million less than what the state paid last year. As Rep. Wismer pointed out, the purpose of the state aid change in the 1990's was to shift the burden of education funding away from the property owners. That has now been reversed, at least it has in Davison County. Are we seeing similiar numbers in the rest of South Dakota?

    So during a economic recession, we have local taxes going up and now there are those who want to increases the state's sales tax 25% and pull another $175 million out of the South Dakota economy. If the economic recession is the source of the education funding problem, we are adding to the problem by increasing the taxes and fees. History has shown recessions to end when taxes are decreased.

  8. Charlie Hoffman 2011.09.23

    Looks to me like no one is arguing with us Steve. YaHoo!!

  9. caheidelberger Post author | 2011.09.23

    Hang on, guys: I just got home from work. I'll see if I can come up with some arguments! But first, a bike ride -- have you seen how nice it is outside?!

  10. Charlie Hoffman 2011.09.23

    I was out all day in total appreciation of why I live where I do. Three trucks rolling down McPherson 8, a few cars, one motorcycle and a gaggle of geese flying overhead more than once. Now it's off to a local FB game. CU later.

  11. Steve Sibson 2011.09.23

    "Looks to me like no one is arguing with us Steve. YaHoo!!"

    Charlie, only fools argue against truth. Get ready for the personal attacks.

  12. Charlie Hoffman 2011.09.23

    Steve; I am not smart enough to lie and not get caught, hence telling the truth even when it hurts a common denominator in my daily walk! FB game tonight was Leola/Frederick-36; Eureka/Bowdle-28; and a nail biter till the bitter end.

  13. caheidelberger Post author | 2011.09.25

    Sounds like a beautiful weekend in Eureka, Charlie. Football scores matter little against the grandeur of the first sunny days of autumn.

    And Steve, what personal attacks? You know I don't do that. The fact that you're crazy won't have anything to do with the following contentions. ;-)

    I agree on the inputs to good education, parents and teachers. The Legislature could have some impact on the time parents can spend with their children by increasing our minimum wage to make it easier for parents to bring home living wages without having to work two or three jobs. Let Mom or Dad stay home, and you'll get all sorts of educational support at the kitchen table.

    Saying teacher pay is wholly at the discretion of boards is technical speciousness. When the Legislature has moved more funding away from local control and throttled that funding, local boards have much less choice.

    Charlie, I won't charge you with advocating income tax. But I will agree that it is unfair to impose an income tax on ag producers but not on the other 90% (?) of South Dakota businesses. I will take your point further and say that we should indeed replace the whole obsolete and jerry-rigged property tax system with an equitable (Gerry-Lange-rigged?) income tax system. Do the tax system right, and we could even stop relying on gambling for our school money... which is ironic, because if we did education right, everyone would know their math and be too smart to waste their money on video lottery.

    That said, Charlie, I find I'm not so inclined to argue with your above points as I thought I might be (darned prejudice of mine, thinking no good ideas can come from Eureka Republicans). Maybe pouring those gambling dollars into a trust fund would be a good idea and provide some future stability (though investing that money and living off the interest means we'd need to find some additional revenue to cover the gap in the short term, right?). And I'm really intrigued by the idea of dedicating the money to teacher pay. What if we just made teachers state employees?

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