Most like fund separation
Published: Thursday, February 27th, 2014
This is the third in a series looking at how education funding works in South Dakota, how the current system came about, and how it affects local school districts.
While the Custer School District is seemingly in a constant struggle to keep its head above water where its general fund is concerned, one area with no such problems is its capital outlay fund.
Capital outlay funds, which are collected entirely through local revenue through mil levies requested by the Custer School District Board of Education and collected by the county, are used for building new schools, maintaining those schools and equipment, such as computers.
And although, over the years, the state legislature has allowed some capital outlay money to be spent on items normally paid for through general fund dollars, state law is explicit that the two funds generally cannot be intermingled.
Those laws beg a question, however. Why not?
School districts such as Custer’s, which brings in millions upon millions of tax dollars in property taxes each year, thanks to high property valuations, has no trouble with its capital outlay fund.
Many question why a school district that has made well over $1 million in cuts out of its general budget over the past decade can build over $12 million in new school facilities during that same time, as well as the wisdom of constructing new facilities when the district’s student population is declining.
Why not give school districts all the tax money in one pool and allow them to spend it however they see fit? Wouldn’t that be better for all involved?
As it turns out, most school administrators don’t see it that way. The general consensus is that if the general fund and capital outlay funds were merged, it would be great for teachers and programs, but bad news for the buildings those teachers and programs operate in.
Tim Mitchell, superintendent of schools for the Rapid City School System, said in states with just a general levy and no separation of funds begin to prioritize teachers and programs to the point that buildings within the district fall into disrepair, as there is never enough money to build new buildings or in some cases, maintain current facilities.
“New buildings and maintenance is always down the road,”â��he said.â��“Then, when you don’t have money, your buildings are falling in on top themselves.”
Mitchell said in his school district, he and his board have taken an adamant stance against the minimal co-mingling of general funds and capital outlay funds that is allowed, saying it is merely “robbing Peter to pay Paul.”
John Pedersen, interim superintendent for the Custer School District, is also a supporter of the separate funds.
“If you merge everything into one, Iâ��would worry there would be less of an emphasis on safety within our buildings,”â��he said.â��“Are we going to put off purchasing computers? Are we going to put off repairing a roof? Iâ��have some concerns about merging them all together.”
Former state legislator and current Custer County Commissioner Jim Lintz said a court decision in the late ’80s—a case spawned in Custer County—changed the game when it came to school district funding.
Prior to that decision, school boards were required to submit a budget to their local county commissions, since the state was not involved in funding education at the time, and the school district budget was made up entirely of property tax dollars (and ironically 30 years later that is again the case for the Custer School District, but for different reasons previously discussed).
If the commission believed the budget request was higher than it should be, the commission would order the school board to make cuts. Lintz said the local school board took the issue to court and won, meaning the commission, of which his father was a member at the time, was ordered to give the district the money requested.
“The judge ruled not only would the county give them the money requested, but they would be personally jailed if they didn’t,” he said.â��“We lost the check and balance on the spending there.”
Lintz argues it is that loss of check and balance and irresponsible spending that leads to problems, not a separation of funds for education.
“The reason they are kept separate is because if the state paid for the building of the schools, every district would have new schools,” he said. “Most (school boards) are responsible enough they don’t build schools they don’t need. Custer wasn’t responsible. They didn’t need the schools they built.”
The Custer School District opened the new high school in 2005 and followed that by building the new elementary school that opened in 2011.
The high school cost the district $7.1 million to build, while the elementary school cost $7.5 million. Both schools were constructed through capital outlay certificates to finance the debt, although the district did have enough funds in its capital outlay account saved up for both projects. The balance of the project costs for both schools were funded by issuing the capital outlay certificates.
Capital outlay certificates are a debt instrument much like a general obligation bond. However, the board of education can issue them without any public vote. It requires only public notice and a public hearing prior to the board issuing the certificates.
At the time the new high school was built, some on the school board touted the new facility as an “if you build it, they will come”â��scenario, saying the new building would attract additional students to the district.
That scenario hasn’t panned out and former school board member Mike Tennyson said he was not among those who had that expectation with either the new high school or elementary school.
“Iâ��must admit that the Spring Creek School, Fairburn School and Hermosa School additions were all built with that logic and expectation and it has never materialized,” he said.
Despite the school district’s declining enrollment, Tennyson said he doesn’t feel it was a mistake to build the new schools.
“Declining enrollments aren’t new news. It’s a trend that most districts are experiencing because of the changing demographics,” he said. “Just because there may be fewer students doesn’t mean they should be forced to attend classes in outdated classrooms in 100-year-old buildings.”
Dick Brown of Custer, a former state legislator who helped author the state’s current funding formula for schools, said the two separate funds are for different purposes and finding a balance in both areas is key.
“Iâ��don’t see them as conflicting,” he said. “You need both. You need outstanding teachers and commitment to pay for K through 12 education. It’s a responsibility for all people, whether they have children or not.”
Brown said teachers and programs work in concert with adequate facilities to provide the best possible education for all students within the district. He said it’s a mistake to believe that because a district can build new facilities it can’t provide or doesn’t provide the best opportunities possible with the money it has in its general fund, or vice versa.
“It’s never as simple as it might look at first glance,” he said.
Next week we will look at how the financial pinch affects education, both locally and in regionally.
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