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2021 Capital Outlay Cap Will Cut Eureka School Building Funds by 65%

Superintendent Henry Eggert came to my candidate forum last week. He also attended my opponent’s eat-and-greet at the Millstone last Monday.

Superintendent Eggert won’t be voting for me or for my opponent in the District 3 Senate election. He doesn’t live in District 3. He lives in District 23, where he took charge of the Eureka School District last summer.

Superintendent Eggert gives not one lukewarm darn who wins the District 3 Senate race. He is on fire on one issue: the survival of his school district.

Eggert’s constituents rejected a $300,000 opt-out in June. Their willingness to entertain a loan rather than a tax increase to sustain the Eureka School District indicates a lack of will for responsible fiscal planning. And come 2021, says Eggert, Eureka and many other small schools will get hit with a cap on capital outlay levies written into the complicated 2016 revision of the school funding formula (2016 SB 131) that made possible our teacher pay raises. Section 13 of that bill, now SDCL 13-16-7.2 caps school districts’ capital outlay levies (the money meant to pay for buildings and other school infrastructure, not teacher pay and programs) at $2,800 per student in 2021. In subsequent years, that cap will increase by three percent or the index factor (the Legislature’s estimate of inflation), whichever is less.

Naturally, any per-student limit on funding hits smaller schools harder than larger schools. A building with twenty classrooms costs the same to build, drywall, and heat whether it houses 200, 220, or 400 students. Smaller schools have higher per-student costs. We acknowledge that fact in our sliding general funding formula, funding smaller schools on the assumption of a 12:1 student:teacher ratio and larger schools at 15:1. The capital outlay cap ignores that fact.

Eggert told me and tells the local paper that the 2021 cap will ultimately cut Eureka’s capital outlay funds by more than half, from $1.2 million to $425,600. The capital-outlay cap gives Eureka a temporary reprieve to collect another $230K each year to pay off their new 2016 building, but after that… well, expect hard choices to be forced on Eureka, where the school is already down to bare bones:

When the opt out failed, Eggert said, the school board decided not to go back to voters immediately. But that doesn’t mean the financial problems have gone away. Cuts were made to the district budget.

Business Manager Tonya Maier said the district cut the librarian position, who also organized the makerspace program. And it did not fill a position when a teacher left for another job. That teacher handled physical education, government and health classes. Those cuts saved $75,069, she said.

Eggert said not hiring for the jobs, which he still feels are needed, meant shuffling the duties of other teachers to ensure all classes are covered. But the result was the loss of an elementary school art teacher, he said.

If the financial strain continues, he said, more cuts will have to be considered.

“We’re going to be beyond bare bones cutting into the curriculum and barely able to satisfy the state’s (requirements),” he said [Elisa Sand, “After Cuts, ‘Financial Jeopardy’ Still Looms for Eureka School, Superintendent Says,” Aberdeen American News 2018.09.30].

Superintendent Eggert says both the capital outlay and and general state aid forumlas are skewed toward the big schools (one of which sits here in my district) and that the state needs to contribute more to K-12 education. But the capital outlay cap doesn’t require state money to fix. The Legislature just needs to rediscover local control and say to Eureka, “If you need more capital outlay, go ahead and levy what you need. That’s your decision.”

Superintendent Eggert is already having to make really hard decisions in a community that just won’t support higher taxes. The least the Legislature can do is allow Eureka to keep the capital outlay funds it’s already collecting.

11 Comments

  1. o 2018-10-02

    Cory, can you help me understand this story? Eureka’s capital outlay is being cut, but the $75K in teacher position cuts would be a general fund outlay. Was the district using capital outlay to make ends meet for the general fund?

  2. Donald Pay 2018-10-02

    Yeah, Capital Outlay Funds are separate from General Funds. The opt out that failed would have been for an increase in General Funds. When that failed, the district decided they had to cut positions/programs. Capital Outlay Funds can’t be used for operations, but can be used for curriculum, so the capital outlay cap probably affects curriculum, but not teachers.

    I understand the problems faced by small schools. Larger schools have more flexibility. Rapid City can jam 600 elementary-aged into one school. Rapid City closed a number of older, 300-capacity schools to accomplish that. Essentially RC used capital outlay to build new buildings that would save money in the General Fund.

    For small districts to do that would require closing schools and busing students, and many districts would have to consolidate. It seems the capital outlay cap puts small districts in a vise. The cap prevents them from even doing that. The Republicans want small town education to die.

  3. Greg 2018-10-02

    It looks like Eureka will have a tax cut of $800,000.00 tax cut on their Capitol Outlay request from property owners. The school board should have no problem requesting a $300,000.00 opt and passing a bond issue for their new school building that they have already built. People always want local control, here it is. If you believe in your school you can take your local funds and keep them right in your local school district and let those funds work for you.

  4. Wayne B. 2018-10-02

    Cory,

    The state put the control firmly in the hands of Eureka School District’s residents. Eureka must first request permission to opt out. The citizenry has spoken. Just because we don’t like the answer doesn’t mean the system isn’t doing what it’s supposed to.

  5. Cory Allen Heidelberger Post author | 2018-10-02

    O, Eureka’s business manager provides this explanation:

    The law says we can transfer 45% of our CO fund tax revenues to the General Fund. That would leave us with a transfer of 45% of $420,000.00 or approximately $189,000.00 to be able to transfer to the General Fund to meet expenditures. Last year we transferred $350,000.00 from the CO fund and this next year we are budgeting to transfer $460,000.00 to the General Fund to meet expenditures.

    So yes, Eureka is using a big chunk of capital outlay to cover general fund expenses, as allowd under state law. Capping their capital outlay caps the amount they can transfer to meet those general expenses.

  6. Cory Allen Heidelberger Post author | 2018-10-02

    Wayne, why has the state taken it upon itself to check the power of a local elected board in favor of the direct votes of citizens? And how does that position cohere with the Legislature’s view, as expressed by Rep. Haugaard on SDPB this noon, that we are a republic and not a democracy and that elected officials should have more power to make decisions like these for the people who elect them?

  7. Donald Pay 2018-10-03

    Ok, the law regarding fund transfers must have changed since I was in SD.

  8. Wayne B. 2018-10-03

    Cory, I do seem to recall the check on school districts came about during the early 90s as part of the “tax revolt” where South Dakotans were concerned about how much their property taxes were climbing year after year. If memory serves, the State, under severe pressure from its electorate, passed that legislation.

  9. Cory Allen Heidelberger Post author | 2018-10-03

    So why are voters not able to check that taxation with the power of their votes in school board elections, without Legislatively mandated caps on local decisions?

  10. Donald Pay 2018-10-04

    Wayne B. is mostly correct, as far as he goes, but there’s quite a lot of history to what happened in the 1990s.

    There were at least four separate threads in bringing together these decisions. (1) a property tax revolt in South Dakota and in other states (Wisconsin and Oregon, in particular), (2) a similar multi-state effort by parents and educators to sue states for not having uniform or adequate system of education, as required by their state constitutions, (3) new increases in education costs brought on by the introduction of technology (computers, etc.) into education, by new state and federal requirements to increase the “rigor” of education, and by increasing identification of and requirements for education of special needs students and (4) and effort by states to put education costs on a “per student” basis in order to blunt lawsuits and make state aid formulas seem more fair.

    The result of all of this was that states were talking amongst each other about how to deal with all these challenges. I believe Wisconsin dipped first into the change in school aid formulas that happened over one or two years in many states during this period. At any rate Wisconsin, Oregon and South Dakota would adopt very similar state funding formula changes during the early to mid-1990s. The formula in South Dakota that was attributed to Janklow was actually just a variation on Wisconsin and Oregon formulas.

    They all have many things in common: some sort of cap or restriction on revenue that goes up far less fast than education cost inflation (the mechanism differs a bit in each state), increased funding from the state through some mechanism that moves the funds through education into property tax relief, and an opt out (in Wisconsin it is called “going to referendum”).

    In 2001 Janklow and I had a running and mostly polite discussion on this. After several years of this funding formula change it was clear what was happening. Money that was supposedly appropriated by the Legislature for education was actually going straight through to property tax relief. Janklow took credit for increasing the money the state was providing to education, but the majority of that money never ended up in teacher salaries or student programs. That formula was actually a gimmick to provide millions of dollars in direct relief of property tax payers.

    Yes, property taxes did level off, but education funding did, too. The state aid formula took away the ability of districts to increase property taxes above a state set minimum. The opt outs were thrown in to provide a safety valve if districts could convince patrons to increase their own property taxes. What that has caused, however, is a vast difference in education across the districts, depending on how district voters have voted on opt outs over the years. Thus, we are back with the question of whether the state’s funding formula is providing an adequate and uniform system of education. I would think a lawsuit might be in the offing.

  11. James McPherson 2019-06-04

    The Eureka situation is two bird in a bush situation. The school district lack transparency with its patrons’ in truly showing the financials of the school. Building under a certain amount that would not require a vote, which I personally would take it to vote and made sure it was a bond issue. This has nothing to do with teacher pay of $75000 being overbudgeted. The blue ribbon task force which occurred before the building of the new school would have made them think about where their budget it and plan out for the next five to ten years the financial status and the changes in capital outlay law. Yes, that capital outlay at Eureka School District can be requested over a million dollars in Capital Outlay, which many districts to do not go to the full value, which would be an uproar with patrons.

    I know that they raised their capital outlay to the max from the previous year, but here is my question. I have read the Eureka paper and have not seen the administration or board make that transfer of $400K from Capital Outlay to General Fund to show patrons that they are in a world of hurt. The Eureka school is still open today and tomorrow but forgot to plan for the future. Schools in that area and size have one administrator, a couple of kitchen staff and janitors. How to resolve the issue is that you have downsized the program you are supporting, but also you need to educate patron not at just one meeting but most meetings. If you believe the state going to give you money then think again, that why you have opt-outs. States put the crunch on local control to make that decision of an opt-out. However, if the public says no, then that means it time to cut back staffing, which I know we are too afraid to fire or release. You can not live in paradise anymore. You might say we’re going to fight but what gain have you made and the senate and house on vetoing the reversal of the Capital Outlay limits.

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