While Mitchell builds capital outlay balance, other districts struggle to cover costs

After distributing capital outlay funds for two large projects in the past three years, the Mitchell School District is planning to spend at least a few years saving its funds, for the most part.


After distributing capital outlay funds for two large projects in the past three years, the Mitchell School District is planning to spend at least a few years saving its funds, for the most part.

Meanwhile, about 44 percent of districts in the state have passed tax opt-outs for the upcoming year to supplement funding and avoid spending up to 45 percent of their capital outlay balance on general fund expenses.

Mitchell's District Business Manager Steve Culhane said the state's revamped capital outlay funding formula, which went into effect in 2017, hasn't caused much trouble for the Mitchell School District.

"We're meeting our needs," Culhane told The Daily Republic on Wednesday.

In 2016, a law passed changing the way South Dakota districts can calculate how much of a levy they could ask for. In 2017, that law began affecting school districts' capital outlay, the fund designated as money to be used for improvements such as construction of new buildings, major renovations and pricier equipment.


"It used to be that the state allowed a levy to be at $3 per $1,000 of taxable valuation," Culhane said. "What they did two years ago is change that so that the schools could only ask for a dollar amount instead of the levy. And the state works with school districts, in that they tell the districts what's the maximum amount that they can ask for."

Using the old formula, based on the district's assessed valuation for the 2018-19 school year of about $1.46 billion, the district could have requested a maximum levy of about $4.37 million. With the new formula, which also determines how much that maximum can grow year over year, the maximum dollar request in 2018 was a little more than $3.9 million.

Saving for a new school

When the fiscal year ends on June 30, the Mitchell School District will have amassed about $2.5 million in the capital outlay fund balance. Culhane said that after its last two major projects - the Performing Arts Center, which was completed in 2017, and upgrades to Joe Quintal Field that were done last year - the next project the district will take on is the construction of a new high school.

"The high school was started in 1962, so it'll soon be coming up on a 60-year (anniversary)," Culhane said. "Usually schools have a 60-, 70-year lifespan, so it's going to be time to look at that."

While Superintendent Joe Graves has previously told the Mitchell Board of Education that he'd like to have a new high school well on its way by 2025, Culhane said the district's goal is to build up a $7 to $8 million fund balance first, so the district doesn't have to ask for quite as much when it asks taxpayers to pass a bond issue.

Culhane said having already built the Performing Arts Center will also be advantageous when budgeting for capital outlay at that point because the district will not have to build an auditorium in a new high school.

While the district doesn't have any multi-million-dollar projects planned until a new high school can be built, the capital outlay fund is still being used, although the amount used varies from year to year based on what's needed. For instance, Culhane said the upcoming school year's capital outlay budget will involve redoing parking lots at L.B. Williams and Gertie Belle Rogers elementary schools.


Alternative measures

While the Mitchell School District and others have been able to work within the levy limits set by the law, a number of school districts have had to pass tax opt-outs, with taxpayers within the district voting to opt out of the state's annual limits on property tax revenue increases.

Sixty-six of the state's 149 school districts have passed tax opt-outs for 2019 to date, including Freeman, Tripp-Delmont, Armour, Wagner, Burke and Scotland. In April, a request to increase Bridgewater-Emery's opt-out from $250,000 to $400,000 was defeated by nine votes.

More recently, on Tuesday night, Avon voters decided against a $300,000 tax opt-out for its school district, defeating the measure with a vote of 187-153.

Information prior to the vote indicated that the Avon district first transferred 45 percent of its capital outlay fund - the maximum amount allowed by law - into its general fund during the 2017-18 school year.

Avon School District Superintendent Tom Culver told The Daily Republic on Friday that while the legislation passed in 2016 helped at first with increasing teacher salaries, but since then, South Dakota's teachers have dropped back down to being nearly the lowest-paid in the country.

"Ideally, the funding would be more reliable from the state," Culver said. "That's the big thing. With this latest funding formula, there's some things that's changed with capital outlay. They changed how it was funded based on student-staff ratio and all this."

Those in favor of the opt-out made the argument that having to transfer that money from capital outlay to supplement the general fund (more than 75 percent of which goes toward salaries and benefits) keeps the district from being able to save up for projects such as a building addition, a new roof and upgraded curriculum and technology, which falls under the category of capital outlay.


Information provided by the school district indicates that because funding is now largely based on staff-to-student ratios and the state allocates the district about $5,000 per student, Avon's enrollment decrease of 24 students in a few years amounts to $120,000 fewer dollars the district has received from the state per year.

Culver said that the school board will discuss how to move forward at its June meeting, and there's potential the district may need to find new cost-saving measures, such as sharing staff with other districts.

"Either one of two things is going to have to happen," Culver said. "We need a bunch more students to show up, or we're going to need the opt-out to survive."

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