South Dakota Lawmakers Navigate Funding Law Loopholes for Schools

South Dakota lawmakers are finding ways to circumvent a law that mandates annual increases in education funding. During his budget address in December, Republican Governor Larry Rhoden stated that state law “dictates” a minimum increase in funding for schools. Yet, he simultaneously proposed flat funding for the upcoming fiscal year, raising questions about the state’s commitment to education.

In a subsequent press conference, Rhoden explained the apparent contradiction, stating, “The same people that made the laws can suspend them, if you will. And there’s times that it’s been necessary to do so.” This statement highlights the flexibility lawmakers have in interpreting funding requirements.

The mandatory funding increase law, established in 1995 and effective from 1997, requires annual increases of either 3% or inflation, whichever is lower. For the first 13 years, state legislators adhered to this requirement. However, since 2010, they have failed to meet the index factor on four occasions, with Rhoden’s proposed budget marking the fifth time.

Understanding Legislative Workarounds

To navigate the mandatory funding requirement, lawmakers have amended the education funding law. Rather than applying the mandatory increase to the previous year’s funding baseline, they reset the baseline each year, making the index factor more of a guideline than a binding law. Tony Venhuizen, South Dakota’s Lieutenant Governor, remarked, “One Legislature can’t bind a future Legislature by statute.”

Dave Knudson, who served as chief of staff to former Governor Bill Janklow when the law was enacted, expressed concern over the diminishing commitment to education funding. He stated, “It seems like education isn’t as high of a priority in these last few years as it was the prior 25 or so.”

The changes made in the 1990s shifted the funding responsibility to the state, creating a reliance on state support that many districts now depend on. Lee Schoenbeck, a former lawmaker, noted that the index factor was expected to ensure school districts received adequate funding for their operations, putting pressure on lawmakers to fulfill their obligations.

Funding History and Future Implications

During the nearly 30-year history of the index factor law, lawmakers have adhered to the mandated funding increases exactly ten times and exceeded it 15 times. In contrast, they provided increases smaller than the index factor on four occasions, including one year marked by widespread budget cuts that reduced education funding.

Rhoden emphasized during his budget address that education funding has generally remained above the index factor over the long term. Since former Governor Kristi Noem took office in 2019, state education funding has grown by 27.9%, while the index factor for that period has been 21.7%.

The impact of recent sales tax reductions has also raised concerns among educators. Sandra Waltman, director of government relations and communications for the South Dakota Education Association, stated that school districts often set their budgets based on the index factor. Some districts even enter multi-year contracts with teachers, relying on the anticipated funding increases. Waltman expressed worry about the potential long-term consequences of consistently ignoring the index factor, stating, “To ignore it consistently and have schools fall behind inflation is where we’d become concerned.”

Schoenbeck suggested that reinstating the state’s sales tax to 4.5%, from its temporary reduction to 4.2% in 2023, could resolve current funding challenges. The reduction has cost the state more than $100 million in annual revenue. Although the tax is scheduled to return to 4.5% in 2027, immediate action could provide much-needed support for education funding.

As legislators prepare to navigate these complex funding issues, the decisions they make will have lasting implications for South Dakota’s schools and the students they serve.