Is it time to thaw tax freeze? by David Lias Citizens residing within the Vermillion School District have a major decision to make Tuesday, Sept. 23.
They may choose to either opt-out of South Dakota's property tax freeze so the district can collect an additional $600,000 annually for the next five years.
Or they may choose to leave tax rates locked at their present rates, a move that school board members and administrators fear will threaten the quality of education offered by the local school district.
The Vermillion School Board unanimously agreed last June to opt-out of the state property tax freeze.
They also agreed, unanimously, to not force the patrons in the school district to bring the matter to a public vote.
The board itself referred the issue, scheduling the election for Sept. 23.
A simple majority vote will decide if the measure succeeds or fails.
Since June, Superintendent Bob Mayer has been writing articles and making presentations in the community, describing why the school board has decided an opt-out is necessary.
"My job is not to really twist your arm to vote for this," he said at a public meeting Monday night in the VHS auditorium. "You'll have to decide that on your own. Rather, what I want to do is explain why the decision was made to do it. Hopefully you will have a better understanding when you go vote on Sept. 23, and you will have the information that you need."
Mayer noted that former Gov. William Janklow was prompted by the narrow defeat of Dakota Proposition, a tax-limiting measure, in 1994.
"Gov. Janklow and some members of the Legislature felt they had a mandate to do something about the rising property taxes in this state," Mayer said. "The method they used to try to reduce those property taxes was to re-write the school funding formula."
Before the formula was re-written, school districts could raise additional revenues for their general funds by raising property taxes within certain limits.
"After this new school funding formula came out in 1996, you couldn't raise property taxes at all," Mayer said. "A complete new system of funding schools took place."
He noted that even though local property owners pay real estate taxes to support schools and other entities of local government, school districts don't have the ability to decide how to spend those tax dollars.
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"That's all decided for us," Mayer noted, stating that the property tax revenue to schools is spread among five funds: the general fund, the capital outlay fund, the special education fund, a pension fund and a bond fund.
"We do not have the choice as to how much goes into each fund," he said. "That's all set by the laws and the mil levies."
Approximately three fourths of the funds received by the Vermillion School District � $6.9 million � is placed in the general fund.
"That's the fund that has the trouble," Mayer said. "That's the fund to which the opt-out applies."
The school district is unable to opt-out of its other funds, which together make up approximately one-fourth of the school's total $9.1 million operating budget.
The $6.9 million in the general fund is achieved through 30 revenue sources and is spent in 560 different categorized expenditures.
"It pays the salaries of almost all the employees, it pays the utilities costs, it pays the transportation costs and all the supplies in the district," Mayer said.
The funding formula
The superintendent also described how the state's school funding formula works, or in the case of many public school districts in South Dakota, doesn't work.
"You take your average daily membership, (in Vermillion it's 1,335 students) multiply it by a per student allotment figure that's set by state government, ($4,026), and you get what is called your need. Ours comes out to be about $5.4 million. That is 80 percent of the money that is the general fund.
"That is the amount of money that comes to us from property taxes and state aid," Mayer said.
There are only two ways a school district can increase the amount of money it receives from the school funding formula. It can experience a population growth which would push up the district's average daily membership, which in turn would bring in more funds through the per student allotment.
Or, Mayer said, the state could increase the per student allotment figure. "It has done that, but it's been done in meager amounts over the years, in our opinion."
Per student allotment figures have increased from $3,540 in 1998-99 to $4,026 for the 2003-04 school year.
In that same time period, the Vermillion School District has lost 108 students. Fewer students means $1.45 million in state aid revenue has been lost since 1998-99.
From 1998 to this school year, the net increase in state aid monies received by the district is $263,000.
"Averaging that out each of those years, it's a seven-tenths of 1 percent increase," Mayer said. "It causes a revenue shortfall. We have less money coming in that we have going out, and you can't do that in South Dakota. You can't operate in the red under state law."
For four years, he said, the Vermillion School Board has been keeping the district in the black by reducing expenditures and spending reserve accounts.
The board finally decided to opt-out of the property tax freeze, Mayer said, "because the fund balance is no longer going to be adequate beginning July 1, 2004 to carry us another year, and because the cuts that would have to be made from this point on will be significant to the educational system."
The school board has cut school programs in the last three years to save $563,000. It has also made revenue enhancements, which include paying some teachers' salaries with grant funds, purchasing some textbooks using capital outlay funds, and hiring new teachers to replace retiring educators at lower salaries.
Those enhancements have saved the district another $456,500.
The school board also froze the salaries of all staff in 2002-03, Mayer said. That saved the district approximately $115,000.
The board hopes the opt-out is successful, in part, because it wants to maintain its present fives sections in each grade level from kindergarten through eighth grade.
With five sections, class sizes in each grade are at about 20 students per teacher.
Without additional revenue, future grade levels likely would have to be taught in four sections to reduce expenditures. It's estimated that class sizes in many grades could grow to nearly 30 students.
Van Pierce of Vermillion expressed fear that the opt-out could lead to a permanent increase in property taxes in the school district.
"I'm 85 years old, and I've yet to see one (a tax increase) go back," he said.
An unidentified member of the audience told the school board that perhaps more could be done locally to fix the district's fiscal problems without a tax increase.
"The board chose to go with five years because we're optimistic that Pierre realizes there is a problem," Tom Craig, president of the school board, said. "It's not unique to Vermillion. There are about 80 districts that have already opted-out in the state of South Dakota out of a total of 176."
He said he feels Gov. Mike Rounds is more sympathetic to public education's plight, and is more concerned about properly funding it.
"How they (the state legislature) will address the problem, we don't know," Craig said.
"If this passes, does everybody get a raise in pay?" Pierce asked.
"I would assume that, yes, accordingly, there would be a raise in pay," Mayer said.
"If it doesn't pass," Pierce added, "does everybody get a raise in pay?"
"I can't answer that," Mayer said. "You'll have to ask the school board."
"We froze the salaries a year ago," Craig said. "We'd prefer not to do that in the future. If the opt-out passes, we would certainly look at giving everyone an annual increase like we have in the past.
"If it doesn't, the cuts that we're looking at, we're probably not looking at not giving an increase in salaries, but that decision hasn't been made," he said.
Pierce said he isn't against giving teachers annual raises. But, in uncertain fiscal times, he said, greater efficiencies need to be found.
"This is a business, really, it's actually like a small corporation," he said, "and he (Mayer) is the CEO. And if our student numbers go down each year, then our salaries shouldn't go up, because you just don't have the money unless you tax somebody.
"But the government, the state has an omnipotent resource in taxing people, so I think there has to be a ceiling," Pierce said.
He said that ceiling especially needs to be considered for educators and administrators who have reached the district's highest pay levels.
"The administrative people � with all respect to Bob (Mayer) who does a hell of a good job as far as I know, $92,000 a year is a hell of a lot of money," Pierce said. "It's big pay. You can live in Vermillion for $92,000 a year comfortably."
"The district salaries are market driven," Nick Merrigan, school board member, said. "They are driven by our neighboring states."
"I have nothing against Mr. Mayer at all," Pierce said. "It's the level of compensation that's being paid. You've got principals at $61,000. You've got teachers at $35,000.
"There's a limit to what you can do, and if we opt-out, I think we're dreaming if we say it's going to quit in five years," he said.