With South Dakota considering property tax reform, some state officials are scrutinizing school districts' funding.
A legislative task force offered nearly 20 proposals for property tax relief, which could impact schools.
School districts face federal funding changes that may leave them more dependent on property and sales taxes and other local efforts, which make up schools' three main sources of funding, according to a
Last year, property tax revenue comprised around 57% of school district funding in the state, while state aid contributed 29%.
Because of the way assessed values interact with rules for school districts, "homeowners in housing markets with rapid price growth pay more school district property taxes than areas with slower price growth," the report noted. "The school district portion of the property tax bill is the only one that would be drastically different from year to year from housing market impacts."
South Dakota school districts do not have a revenue cap, unlike local counties and municipalities. But they do have a limit on cash reserves.
The School Finance Accountability Board met in Pierre last month to determine penalties for six school districts whose cash reserves surpassed the state limit.
Bureau of Finance and Management Commissioner Jim Terwilliger, a member of the accountability board, questioned whether property taxpayers in such districts are "overburdened," the
Terwilliger told The Bond Buyer the cash balance limitations in state law are one of two accountability measures that the board looks at and they've been in effect since 2016.
Some
"Local taxpayers should be aware of that because … in some cases there's an opportunity for school districts to ease the tax burden," he said.
"I voted to fine them," said state Sen. Ernie Otten, R-Lincoln, lead co-chair of the legislature's Joint Appropriations Committee, which can accept or reject the recommendations of the accountability board.
"I thought that the board had done their work, and … it wasn't what I'd consider an onerous fine," he added. "It was something where one could say: hey, the blue-ribbon task force, those things that you're supposed to do, you're not doing them. You need to watch things much more closely."
"If they're maxing the levy out, are they doing it at property taxpayers' expense?" Otten said. "With all the property tax issues ... we just need to take a firm look at this."
In South Dakota, "the values for single-family owner-occupied housing have gone up really significantly," Terwilliger said, but the problem is most acute in the Sioux Falls and Rapid City areas.
Of the property tax relief ideas under consideration, Terwilliger said he favors the governor's suggestion of an optional sales tax at the county level, of up to a half percent, that would be solely dedicated to lowering property taxes within the county.
"I'm convinced based on the data I've looked at that a targeted approach, the governor's approach, is a unique idea," he said. "There are a lot of pros; it can focus on areas where need is highest. Rural areas of the state really haven't been impacted that much."
The state ceiling on school district cash reserves depends on the district's size and it averages cash balance over time, said Sandra Waltman, director of public affairs for the South Dakota Education Association, a labor union for public school teachers and support staff. The smaller the school, the larger percentage it can have as a cash balance.
The board reviews each district's cash balance once a year and districts that exceed the statutory limit can apply for a waiver. This year, four of six schools were granted waivers.
"We do have concerns that if there's property tax reduction, that they hold schools harmless," Waltman said. "The state needs to be able to find the funds at the state level to replace those dollars."
She warned, "when you start to affect property taxes, you are affecting the funding formula for the whole state."
School districts' individual attributes, such as balance sheet, management decisions and local economic growth prospects all factor into credit decisions, Sarah Sullivant, managing director at S&P Global Ratings, said by email.
However, "significant limits on property tax flexibility without an offsetting source of funding could be a source of budgetary and credit pressure," she said. "To the extent they constrain local governments' ability to balance revenue and expenditures or affect policy and revenue predictability, such limits could impact our assessment of the institutional framework supporting credit for school districts and other property-tax dependent entities across a state."
The state is rated triple-A with a stable outlook by S&P, Fitch Ratings and Moody's Ratings.
Regarding school district credit ratings, Terwilliger pointed to
"Our state revenue has been a little bit challenging, but we don't expect that to have an adverse impact on our credit ratings," he said. "I think you're going to see a little more stress on state budgets in the next few years."
"From our perspective, school districts are already struggling," Waltman said. "Despite some increases (in funding in past years), school districts are looking at budget cuts for the coming school year, reducing staff. Now is not the time to be cutting state aid to education."
South Dakota ranks fourth nationally for state and local tax burden, according to the
The property tax reform problem in South Dakota is limited.
"Our problem lies in six counties" currently, Otten said. "When you look at all of the data, five years, 10 years into the future, it's going to boil down to Lincoln County and Pennington County."
Regarding the task force reforms, he said, they failed to address mechanisms for implementation. "We'll wait to see until session comes what seems to be able to gain some traction; I think we can do some smaller stuff. I would like to see something done for the elderly," he said.
"I just came back from Washington, D.C., (where) there were 75 of us, chairs of appropriations (committees)," he added. "And that was something that everyone was complaining about: how do we get property tax relief and make it sustainable relief?"
