Once upon a time the Legislature created a special property-tax levy for school districts known as the capital outlay fund. It began for “the acquisition or lease of or additions to real property, plant, or equipment.” It gradually expanded to where it now occupies 474 words of space (but who’s counting) in South Dakota’s legal code. Basically it is a levy for a school district to use in addition to its general-education levy. But it applies on a straight basis regardless of property type, unlike the three separate levy amounts for general education on agricultural property, owner-occupied housing and other property that includes businesses, second homes and assorted other uses.
The use of capital outlay expanded because the Legislature doesn’t have to match it, whereas the state-aid formula involving the general-education levy does. State aid is based on a per-pupil amount set each year by the Legislature; what local property can’t provide for that per-pupil amount through the general-education levy, the Legislature supplements to reach the per-pupil amount. So the amount of state aid varies widely among school districts. Capital outlay is controlled locally by each school board and decides upon its uses. The Legislature has allowed broader and broader uses of capital outlay in recent years as the Legislature’s ability to provide sufficient state aid has become more strained.
In 2009, led by then-Sen. Russ Olson, R-Wentworth, the Legislature broadly expanded capital outlay’s uses to include routine expenses such as “the purchase of property insurance and casualty insurance, for payments for energy costs and the cost of utilities, and for motor fuel or for any portion of a contract providing transportation to students or for any mileage reimbursements.” This provision was supposed to expire June 30, 2012. But Olson came back with a renewer in 2011 that extended the expiration to 2014. And then in 2013, another renewer came, this time from Sen. Bill Van Gerpen, R-Tyndall; his measure took the expiration all the way out to June 30, 2018. So a three-year bandage suddenly became a 10-year fixture.
A year ago, Gov. Dennis Daugaard attempted to find a corrective, but his panel didn’t locate the sweet spot. Likewise for the Legislature’s agriculture assessment oversight task force. Capital outlay had the attention of the governor’s current Blue Ribbon task force on K-12 education at its meeting Wednesday. Tami Darnall, the finance director for the state Department of Education, presented data on the use of the 2009 flexibility provisions. She said 45 school districts have used capital outlay flexibility all five years while 29 haven’t used it at all; the remainder of the 151 districts used it at some point in the past five years. Her data showed many things, including information about districts that have opted out — that is, raised their general-education levy higher than the statewide standard set by the Legislature, and therefore putting more tax responsibility on their local property owners. Darnall’s data showed a cluster of districts that have used capital outlay flexibility all five years and have been in opt-out for all five years. Those “5 and 5” districts are Woonsocket, White Lake, Wessington Springs, Tripp-Delmont, Stickney, Scotland, Rutland, Arlington, Bison, Bon Homme, Bowdle, Dakota Valley, DeSmet, Grant-Deuel, Herreid, Irene-Wakonda, Lake Preston, McCook Central and Oldham-Ramona.
Task force members didn’t make any judgements, at least not publicly, yesterday about the capital outlay. The message from the data seemed to be that the capital outlay flexibility has become very important to the financial plans of many school districts and especially to those “5 and 5” districts that are taxing their property owners at additional levels through opt-outs. Making assumptions at the broad level would be difficult, said one of the task force co-chairs, Sen. Deb Soholt, R-Sioux Falls. “We wouldn’t even begin to understand all the nuances that went into that decision,” Soholt said. “We would really have to understand that at the very local level.” The governor’s chief of staff, Tony Venhuizen, said the importance of the information is to look ahead regarding what happens with the flexibility. Another member, Rep. Justin Cronin, R-Gettysburg, noted the 2018 expiration for the additional uses of capital outlay. As Cronin put it, the flexibility could be gone shortly.
What the task force might recommend regarding capital outlay isn’t clear. The panel meets again Sept. 9 and Oct. 1 to set goals and begin making recommendations. The scope is much, much broader than capital outlay. But the future of capital outlay will be an important piece of whatever the task force recommends to the governor and, in turn, whatever he recommends to the Legislature for consideration in the 2016 session.