Mitchell schools ponder budget options
EDITOR'S NOTE: This is the fourth story in a series examining the impact to the Mitchell School District budget resulting from a 6.6 percent reduction in state funding for K-12 education.
Question: If you have a tight budget and a $700,000 pile of cash available, do you use the money?
That's the choice the Mitchell School District has had since voters approved an opt-out of the state's property tax freeze in 2002. The optout was meant to help bail the district out of financial difficulties that included a brief and unsuccessful foray into trying to manage its own health insurance.
An opt-out is an excess levy, beyond the state's limitations on tax increases, that taxpayers can choose when a school district wants more money than it receives from local tax levies and state aid. Mitchell's $700,000 opt-out, since it was voted on prior to July 1, 2002, is permanent. Opt-outs enacted after that date are time-limited.
In the coming budget year, because of large cuts in state aid to education, the question of how much opt-out money to use is especially important.
In 2003, the district took its entire $700,000 opt-out amount -- which is required by law the first year -- but it lowered tax levies by $100,000 for a net opt-out of $600,000. Subsequent opt-outs were $550,000 in 2004; $350,000 in 2005; $250,000 in 2006; $150,000 in 2007; zero in 2008, 2009 and 2010; and $200,000 in 2011. Superintendent Joe Graves has recommended using $400,000 in 2012 to help the district cope with a $792,000 reduction in state funding.
Graves doesn't want to dip too deeply in the opt-out pot. When the district received voter approval for its $700,000 opt-out in 2002, Graves and the Mitchell school board pledged to use the money only to maintain programs.
Graves has resisted promptings from parents and teachers to use more opt-out funds.
"You've got to leave something there," he said.
The cut to state funding for education next year is 6.6 percent. It could have been larger, but the Legislature took two steps to lower the impact of Gov. Dennis Daugaard's proposed 10 percent cut. First, instead of lowering property tax levies, the levies will stay at 2011 levels. That move dropped the cut to 8 percent for schools. Second, the state found an additional $12.2 million and added that to the school funding formula, dropping the cuts to 6.6 percent.
"If that $12.2 million can't be replaced next year and if they give us another budget cut, then our backs will be against the wall, and I'm probably going to have to jack up the opt-out to the full amount," Graves said.
Until then, he said, he plans to keep some opt-out funds in reserve.
Board of Education member Theresa Kriese, who works as vice president of business and finance at Dakota Wesleyan University, is also conservative in her outlook.
"It's my opinion that we don't want to use any more of the opt-out than we have to. ... I think our taxpayers are already going to feel a burden. It wouldn't be very responsible of us if we didn't try to be as frugal as possible."
Kriese said she's cautious about using one-time money for recurring expenses like teacher salaries.
"If I give teachers a raise this year using that money, I'll also have to pay that money next year, too."
She believes teachers have had good increases in recent years, "but with our present economy there are a lot of people besides teachers who are not going to be able to get a raise."
Board member Eric Christensen -- who is employed as the vice president of finance and administration for Trussbilt in Huron -- believes the district can be too cautious.
While he doesn't want to use the entire opt-out, he does favor using more opt-out or more reserves to erase the need to cut employee compensation further, he said.
"When using reserves and/or opt-out dollars, you want to be sure you are always getting the most out of those dollars," he said. "If you are using those funds to maintain or improve education and the educational experience, I feel that is what is important. No one wants to see you taking additional dollars and then spending them foolishly on things that do not maintain or improve the educational experience."
The district, Christensen believes, needs to approach
teacher compensation cautiously. The initial budget proposal for next year includes a reduction of $217,164 in overall employee compensation.
"When these dollars represent 85 percent of our budget, (that expense) is a likely candidate for cutting; however, you are also cutting the compensation for the single most important tool to improve education -- teachers," he said. "These are the people educating our future."
Use of money debated
Retired Mitchell resident Ed Potzler has been an outspoken opponent of the opt-out.
"Taxes are quite high enough already," he said in a recent telephone interview.
The fact that voters passed Mitchell's opt-out back in 2002 means its current use doesn't necessarily represent the wishes of taxpayers, he said.
"The fact that the district has an unlimited-time opt-out that will never be voted on again is bad," said Potzler, who came to live in Mitchell about five years ago. "That means the people who voted on it are not me."
State Department of Revenue Property Tax Specialist Colleen Skinner said all opt-outs passed after July 1, 2002, must specify the opt-out amount and the length of time it will be in operation.
"It can be one year or 99 years," she said. "The only exception is when schools are including an opt-out as part of a reorganization vote." In such a case, the school districts involved are limited to a fiveyear opt-out.
But opt-outs passed prior to July 1, 2002, like Mitchell's, can remain in place indefinitely. The opt-out does not have to be used every year.
Potzler also complained that the public concern at an April board meeting focused on extracurricular activities, and not academic excellence.
"That burned me," he said, adding he's convinced the optout investment is not creating a better-educated student.
Potzler has said participants involved in extracurricular activities should fund those activities themselves.
"An argument could be made that next year's $400,000 optout is going to support extracurricular activities," he said.
According to state law, when taxpayers opt out of school property tax limits, they can do so only for general fund expenses -- that is, for funds that are used for operating expenses. That means opt-out money can't be used to pay for any capital outlay expenses, such as new buildings or renovations; for pension or retirement plans; or for special education, all of which have their own operating funds.
District Business Manager Steve Culhane said about 5 percent of the general fund budget typically goes to fund various extracurricular activities.
That means an estimated $700,000 will be available for extracurricular budget items next year. Those funds cover school sports, musicals, band, debate and student groups such as FBLA and FCCLA. Club sports are not supported, so items like hockey and swimming receive no direct financial support.
Hard to get money back
Charging participation fees for extracurricular activities such as sports is against state law, said Graves, who feels the activities are an important part of the educational experience.
"We know that any kid who totally commits to one activity in school will graduate --- period. The only kids who we don't graduate from our school are those who commit to absolutely nothing outside the classroom. We've taken ($31,498) in cuts to those programs, but there's no way we're going to cut them."
Graves admits that paying for everything will become more difficult as state cutbacks and anticipated inflation start tightening the financial screws in the coming years.
The general fund, which pays for all school district operational expenses, was about $14.8 million this year. The 2012 budget cuts will chop it to $14 million.
That means the opt-out will become an increasingly important component of the budget.
Culhane said the owner of a $100,000 home in Mitchell paid about $89 more in school taxes in 2003, the first year of the district's opt-out, than in 2002.
The district's current $200,000 opt-out costs the owner of a similar property about $16 more than that owner would pay without the opt-out.
Board member Eric Christensen explained that the area's growing tax base is helping taxpayers. As the total value of all the property in the district rises, the burden to each taxpayer lessens.
"Back in 2003, if you had a home with an assessed value of $100,000, your tax for a $100,000 opt-out would have been $14.83," Christensen said. "In 2011, the tax amount on a house with an assessed value of $100,000 and a $100,000 optout would be $8.15. This is about a 45 percent reduction."
But, he points out, as valuations increase, levies typically decrease to stay within the taxation limits prescribed by state law, and that continues to pinch schools and puts pressure on school districts to opt out of the tax limits.
"If the state would have just stopped lowering the general fund levy in 2003 and kept those additional revenues in education, we would not be seeing these continued issues with funding," Christensen said.
"This is an item that has probably had the single greatest impact on school funding. Once you give the (tax) money back, it is hard to ever get it back."