School Capital Outlay Funding

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Nearly half of all sales taxes paid in South Dakota, plus over half of all property taxes, are used to help fund education in the state.  One area where the Legislature is still trying to find good answers deals with school capital outlay funding.  With nearly 150 school districts in the state, one size does not fit all.  This year, a number of bills have been introduced to address how school districts can fund capital outlay purposes.

Current law limits the capital outlay levy to $3 per $1,000 of taxable valuation.  School districts are further restricted by a statute that limits a school district to $2,800 per student, starting with taxes payable in 2021.  The $2,800 amount was set four years ago when the education funding formula was revised.  It was slightly more than two times the statewide per-student average at the time and is, arguably, an arbitrary number.

Current law also limits annual tax increases to three percent or inflation, whichever is less.  In effect, there is a three-part test which limits capital outlay taxes.  The smallest number rules.

While the three-part formula might work for most school districts, there are some school districts where the capital outlay formula doesn’t work.  For example, the Agar-Blunt-Onida school district has a relatively large tax base and few students.  At the other end of the spectrum, the Tea school district has a relatively small tax base and large number of students.

SB 170 would increase the per-student cap to $3,000.    Schools could go above that cap by doing a tax opt-out, which is referable to the voters.  The opt-out amount could not be used to augment the school’s general fund, under the provision that allows up to 45% of capital outlay revenue to be transferred.  The bill would also allow the capital outlay levy to increase to $3.50 for schools that are limited to revenue of $1,000 or less per student and have a capital outlay balance of $400,000 or less as of June 30, 2019.

HB 1198 repeals the $2,800 per student cap and repeals the provision that limits the growth of capital outlay taxes.  The only limitation would be $3.00 per $1,000 of valuation.  SB 67, which has been killed, would have allowed sparse school districts to collect the maximum allowable under any of the tests.  SB 94 sets the minimum capital outlay levy at $2.75 per $1,000 of taxable valuation or $3,800 per student.

Comprehensive data about school capital outlay certificates can be found on the Department of Education website at https://doe.sd.gov/legislature/2020.aspx

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