School Comments by Dr. Robert Mayer The school funding formula used in South Dakota came to life as a result of a property taxpayer revolt. In the general election of 1994 a ballot initiative known as "Dakota Proposition" was narrowly defeated. The new governor, Bill Janklow, and the Legislature reacted to this close vote by restricting property tax increases for schools and local government units. A new funding formula was developed for schools that included a 30 percent property tax reduction.
The new formula did not allow schools to raise property taxes for the general fund. This new formula was based upon two factors: average daily membership (ADM) and a per student allotment figure determined by the state. These two factors are multiplied by each other and the product is called the need.
ADM X per student allotment = NEED
The need is the amount of money that comes from property taxes and state aid. The amount is equal to 84 percent of the school's general fund revenue. The remaining 16 percent of the general fund revenue comes from the 28 sources (refer to last week's article).
In order for the need to increase, there must be an increase in the number of students (ADM) and/or an increase in the per student allotment. According to state law, the per student allotment is to increase by 3 percent or the cost of living, whichever is less. The increases have only reached 3 percent on one occasion since implementation in 1996. Increases have been as low as 1.8 percent and 1.7 percent.
The small increases in funding coupled with declining enrollments have caused schools to have revenue shortfalls necessitating budget cuts, use of reserves, or opting out. From the 1998-99 school year through the 2001-02 school year, Vermillion received an increase in revenues of $76,000 or 1.5 percent increase. However, increased costs in salaries, utilities, transportation and health insurance equaled 25 percent over that same period of time. The school used its reserve funds to pay the revenue shortfall from the school funding formula.
The majority of school districts are using reserve funds to cover revenue shortfalls. These reserve funds do not last forever and eventually districts must make budget cuts and/or opt out.
The formula allows for an opt out which permits schools to raise property taxes in the general fund. Voters can refer the school board's opt out decision to a vote. A majority vote of the electorate is required to sustain the school board's decision.
Vermillion, like most schools, is suffering from revenue shortfalls. The actions taken by the school board to deal with the problem will be the subject of next week's article.