Makenzie Huber/South Dakota Searchlight
South Dakota Republican Gov. Larry Rhoden reminded lawmakers during his December budget address that state law “dictates” a minimum increase in education funding each year.
But in the next breath, he recommended flat funding for South Dakota schools.
During a press conference two days later, South Dakota Searchlight asked Rhoden to explain the contradiction.
“The same people that made the laws can suspend them, if you will,” he said. “And there’s times that it’s been necessary to do so.”
Lawmakers created the mandatory increase law in 1995, with an effective date in 1997. It required annual increases of 3% or inflation, whichever is less — an amount described as the “index factor.”
Legislators and governors followed or exceeded that requirement for 13 years. Since 2010, however, they’ve provided less than the index factor four times. Rhoden’s proposed budget would be the fifth.
How lawmakers get around the index factor
To get around mandatory funding increases, lawmakers amend the state education funding law. Instead of applying the mandatory increase to the prior year’s baseline funding, they reset the baseline.
The mandatory increase remains in the law, but only as a requirement for the next year. When the next year arrives, if legislators want to go below or above the minimum increase, they reset the baseline again as needed.
Lt. Gov. Tony Venhuizen said the index factor now serves more as a “guideline or a goal.”
“One Legislature can’t bind a future Legislature by statute,” Venhuizen said.
Dave Knudson was chief of staff to Gov. Bill Janklow when Janklow signed the mandatory minimum increase into law three decades ago. Knudson, who later served as a lawmaker, said the Legislature’s recent treatment of the law signifies a declining commitment to schools.
“It seems like education isn’t as high of a priority in these last few years as it was the prior 25 or so,” Knudson said.
1990s law changes made schools ‘very dependent on the state’
Janklow convinced lawmakers in 1995 to take more responsibility for school funding in an effort to reduce local property taxes.
Knudson said the index factor was established because Janklow’s administration “knew state funding would have to be adjusted on an annual basis.” Three percent was close to the annual rate of inflation around that time, he said.
Former lawmaker Lee Schoenbeck served in the Legislature then. He said there was an expectation that the index factor would provide what school districts “needed to have to operate.”
The changes implemented in the 1990s made schools “very dependent on the state,” Schoenbeck said, and put the onus on lawmakers to follow through with required funding increases.
“It ought to be a big deal to decide you won’t do that,” Schoenbeck said.
During the roughly 30-year history of the index factor law, lawmakers have increased education funding by exactly the index factor 10 times and gone above it 15 times. They provided increases smaller than the index factor four times, including one year of widespread budget cuts when education funding was reduced.
Rhoden said during his budget address that education funding has stayed above the index factor over the long term. Since his predecessor Kristi Noem became governor in 2019, state education funding has grown by 27.9%, Rhoden said, while the index factor over that time has been 21.7%
Impact of sales tax reduction
Sandra Waltman, the South Dakota Education Association’s director of government relations and communications, said school districts set their budgets with the index factor as a guideline. Some enter into multi-year contracts with teachers based on the expectation.
Yet school leaders recognize it can be difficult to meet the index factor “in extreme times,” Waltman said.
“To ignore it consistently and have schools fall behind inflation is where we’d become concerned,” she said.
Schoenbeck said the state could live up to the index factor this year by immediately returning the state’s sales tax to 4.5%. The Legislature and then-Gov. Noem temporarily reduced the rate to 4.2% in 2023, costing the state more than $100 million in annual revenue. The tax is scheduled to go back up to 4.5%, but not until 2027.
“Put that back to where we had it and you’d have your problem solved,” Schoenbeck said. “Now these people in the Legislature will have to decide if they have the courage to pay their bills.”