South Dakota will continue to provide additional aid and consolidation protection for districts serving sparsely populated areas, according to a legislative compromise awaiting the governor's approval.

The agreement comes after a session-long debate that was ultimately settled by providing $1.7 million to the state's most rural schools.

Lawmakers reacted differently to the deal.

Some legislators called the compromise a funding cut, saying the legislation amounts to $600,000 less than qualifying districts would have received if current law was extended. The agreement reduced the maximum amount any district could receive from $165,000 to $123,750 – a change some lawmakers criticized as an attack on the state's rural schools.

But backers of the plan, found in an amended SB 106, say that the proposal represents an increase of $1.7 million above the governor's proposed budget, which eliminated the additional aid entirely.

Sparsity funding was one of the last sticking points in a proposed school funding compromise package that restored a number of the cuts initially suggested by Gov. Rounds.

After the passage of the federal stimulus act, the governor told media outlets that he would back off his proposal to eliminate sparsity aid. But the governor stood his ground at $1.7 million, pushing back legislative attempts to fully fund sparsity.

The negotiations came to a head after the Senate failed to agree with a House's decision to offer $1.7 million. In an attempt to restore the full $2.3 million, Senators pushed the issue into conference committee

During House-Senate negotiations, lawmakers proposed an amendment to restore full funding for sparse schools. The amendment failed. The House and Senate both strongly endorsed the amended version.

The compromise represents the third time sparsity funding caps have been lowered. Originally passed with a $250,000 limit, the cap was lowered to $165,000 and now to $123,750.

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The state's strategy to use stimulus funds to prevent cuts and balance the state's budget became a clearer Tuesday, as members of House Appropriations approved nearly $40 million in cuts to education for the current year.

The cuts, which will be replaced with federal stimulus dollars, ensure the state will not go through with the governor's plan to spend nearly $60 million in state reserves to balance the state's budget.

The action came during a House Appropriations Committee hearing on SB 50, legislation that will revise the state's appropriation act from the 2008 legislative session. Lawmakers adopted a budget amendment, labeled 50bc, that reduces the current year state aid to education spending by nearly $21 million.

The legislation is part of a broader effort to use more than $55 million in federal stimulus dollars, in place of state general funds, to support the state's budget for FY09.

State budget chief Jason Dilges explained the process to members of the Appropriations committee, saying that the concept had to be discussed carefully.

“It's $55 million in general funds we never had,” Dilges said, referring to falling state revenues. “It will be an expense we don't have to find reserves for.”

According to Dilges, the stimulus package will allow the state to eliminate the state's structural deficit and maintain state reserves through FY11.

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The South Dakota Senate has put an end to a two-year program that provides additional money to South Dakota teachers, voting along party lines Monday to pass HB 1252.

The legislation transfers tobacco tax revenue to the state's general fund, where it will be used to fund the state's ongoing expenses.

In 2007, lawmakers created the education enhancement tobacco tax fund by setting aside $9 million from a voter-initiated tobacco tax increase. Legislators used the new revenue source to fund TCAP, ESAs and $1.5 million in career and tech education.

In response to the state's declining revenue, Gov. Rounds proposed eliminating the special fund and using the money for state aid to general education. Lawmakers went along with that plan Monday.

There may be some money in the final budget for Education Service Agencies, lawmakers said.

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Facing a threat of a governor's veto to any legislation that would fully fund sparsity, lawmakers passed compromise legislation Monday that legislators said will push the issue into conference committee.

Two days after 55 state representatives endorsed a plan to continue sparsity funding according to current law, legislators passed a hog-housed version of SB 106 that lowers the maximum amount of sparsity funding any district can receive to $123,750. The current maximum is $165,000.

The legislation promises $1.7 million in state sparsity aid next year, $600,000 short of the $2.3 million that state officials estimate would be needed to fully fund the program.

House Majority Bob Fahen, R-Watertown, asked lawmakers to vote for the compromise, saying any amount above $1.7 million took the issue into “veto-land.”

Rep. Tom Brunner, R-Nisland, tried again Monday to ensure full funding, but this time his amendment narrowly failed.

Stay with Open Forum for more updates.

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The House Education Committee voted down a proposal Monday that would establish a framework to evaluate the state's interest in pre-k education.

Lawmakers voted 9-6 to send SB 191 to the 41st Legislative Day, calling state-supported pre-kindergarten an intrusion into family lives and private business.

Supporters say the issue isn't settled and pre-k advocates are working to secure a House floor vote through the Legislature's “smoke-out” process.

Before voting, committee members heard testimony for more than an hour.

Proponents of the plan sang the praises of pre-k education, noting the differences early childhood education can have on student achievement. Supporters also stressed the voluntary nature of the legislation, attempting to beat-back fears that pre-k would become mandatory.

Critics decried the measure, arguing that the bill would take away parental responsibility and infringe on private businesses.

Rep. Tom Brunner, R-Nisland, said he was “very much opposed” to any plan that would allow the government to compete with private businesses. He also expressed concern about funding a program when the state can't afford to property fund K-12 education currently.

Rep. Mitch Fargen, D-Flandreau, asked committee members to vote based on the legislation in front of them, not the legislation opponents are making it out to be. The bill doesn't ask for funding, he said.

For more information on the legislation, click here.

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A veto-proof majority of the South Dakota House of Representatives voted Thursday to fully restore Gov. Rounds' proposed cuts in aid to districts serving sparsely populated areas, departing slightly from a rumored school funding compromise agreed upon by the governor and legislative leaders.

The action came during SB 88, a measure that was intended to repeal the sunset on two sparsity laws enacted in 2006.

Rep. Kent Juhnke, R-Vivian, introduced an amendment shortly after the House started debate on the issue. The proposed language limited the amount any district can receive from the measure. The cap, which was lowered from $165,000 to $123,000, was instrumental in bringing the cost of the legislation down to the $1.7 million that was rumored to be available for the program. According to the governor, $2.3 million is needed to fully fund the program.

Lawmakers resisted the amendment, calling the funding cut unfair to rural schools. Funding cuts have been restored for other programs, and supporters of full funding argued the resources are greatly needed by those schools that are “small by necessity.”

Rep. Tom Brunner, R-Nisland, said the compromise was an attack on rural schools and he shamed the governor for proposing the cut in the first place.

After defeating the amendment, lawmakers endorsed the original bill on a 55-15 vote. The Senate endorsed the legislation by a 32-vote margin.

The bill now moves to the governor's desk. Since sparsity funding is typically a special appropriation – and not formula aid – it's likely the funds will have to be added to the general appropriations bill, meaning the debate to fully fund sparsity may not be over.

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It appears the final decisions on school funding will not be put on hold until the final days of Legislative session.

Two converging forces – depleted state revenues and the passage of the federal stimulus package – created a unique situation. State funding must be at a certain level to obtain stimulus funds, but lawmakers and state officials are budgeting cautiously to ensure the state can come out of the recession on solid financial footing.

Further complicating the picture is South Dakota's short legislative session, which is set to conclude on March 13, with one day reserved for the consideration of the governor's vetoes. The United States Department of Education has yet to publish official guidance for the stimulus, meaning the state's budget must be prepared with the limited information available now.

Gov. Rounds' revised budget, presented in January, called for a nearly $20 million net cut to state K-12 education aid, programs and services after including the 3 percent increase to the per-student allocation that the governor asked lawmakers to maintain.

The FY10 school funding proposal, which is not official but is the subject of considerable conversation, would restore a significant portion of the governor's proposed cuts. The details of the proposed school finance package are:

• A 3% increase ($139.94) to the per-student allocation;
• Increasing and decreasing enrollment aid, structured according to current law;
• Restoration of funding for schools serving sparsely populated areas, with a $100,000 maximum cap (decreased from $165,000);
• A reduction in local general fund property tax levies to comply with the Cutler/Gabriel amendment;
• Restoration of full funding for the birth-to-three program;
• A total of $500,000 in funding for Education Service Agencies, down from $2.2 million (DOE officials maintain that Title funds provided directly to schools from the stimulus may be a source of funding that districts could use to purchase service either from ESAs or for services similar to those provided by ESAs.);
• Flat funding for per-student state aid to special education;
• Elimination of the Teacher Compensation Assistance Program, Career and Technical Education grants, Alternative Education program funding and a suspension of grants paid to national board certified teachers.

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Members of Senate Education voted Thursday to transfer funds from an education enhancement fund to the state's general fund – an action that legislators said will set off a “domino effect” of other education funding proposals.

Legislators passed HB 1252 on a 6-1 vote. Legislators said the move effectively ends the state's short-lived Teacher Compensation Assistance Program and clips $1.5 million in career and tech education grants.

“I think we're kind of painted into a corner right now,” said Sen. Ben Nesselhuf, D-Vermillion. “It's my understanding that a lot of dominos will be falling once we place this vote.”

Sen. Nesselhuf's comments underscore the notion that administration officials regarded HB 1252 as an essential piece of legislation. Any attempt to block the legislation or to save the programs would have been considered a deal-breaker, jeopardizing the broader funding package being circulated.

That proposed package, which isn't final, includes restoration of the lion's share of Gov. Rounds' proposed cuts while maintaining the governor's proposed 3 percent increase to the per-student allocation. The final package reportedly involves maintaining aid for districts with fluctuating enrollments and restoring funding for districts serving sparsely populated areas.

Sen. Dave Knudson, R-Sioux Falls, said the education community shouldn't focus on the elimination of two programs. Local schools should consider the entire package, he said.

“When you look at the totality, it seems reasonable to me to eliminate the earmarks,” Sen. Knudson said, referring to TCAP and CTE grants.

Education Service Agencies will survive, but with reduced state funding, Knudson said, adding that schools should purchase service from the agencies and that schools should not be forced to use them.

The Senate Majority Leader also offered forward-thinking advice to school districts. The CPI-W, an inflationary factor currently used to calculate state aid, is dropping, which means schools will likely go without an increase next year, he said.

“I think the education community needs to budget on that assumption,” Knudson said.

The Senate will take up the measure on Monday.

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Lawmakers approved SB 91 with just one vote to spare, voting 37-30 to give schools the option to spend up to 45 percent of capital outlay revenue to pay for property insurance, casualty insurance, fuel, utilities, energy cots and contract bus services. The local option ends in three years.

The measure now returns to the Senate, where lawmakers in the upper chamber must agree to House amendments. The Senate approved an earlier version of the legislation on 25-9 vote. It's unclear whether Gov. Rounds will sign the bill if lawmakers send it to the governor's desk.

The evolution of SB 91 has been one of the most closely watched legislative issues of the session. Small and mid-sized schools worked with legislators to craft and introduce the legislation, but the plan has met opposition from the state's larger school districts, whose lobbyist has argued against the expansion of capital outlay.

The policy debate played out on the House floor Wednesday.

Rep. Ryan Olson, R-Onida, led the charge against the measure. Rep. Olson, who chairs the House Taxation Committee, told lawmakers that the legislation would essentially give schools two general fund levies.

“If we pass this bill, we may have to amend the title of the fund to the Capital, Transportation, Insurance and Energy Fund,” said Rep. Olson. “Or we could simply say, ‘Let's add three mils to the general school fund levy.'”

He also said the legislation has implications for local property tax payers.

“This bill is a tax increase. If you don't need the levy for capital expenses, the levy would be going down,” said Rep. Olson, adding later that the plan allows local districts to increase taxes for general operations without referring the issue to voters through the opt-out process.

Supporters of the measure challenged those claims, arguing that schools need flexibility to make it through tough economic times and that local school boards and administrators are in the best position to make the decision.

Rep. Quinten Burg, D-Wessington Springs, said the state doesn't have any problems changing rules on funding sources to balance the state budget. He cautioned legislators against telling local school districts how to manage finances.

“Frankly, maybe, sometimes they know how to [manage finances] much better than we do,” Rep. Burg said.

House Education Vice Chair Bill Van Gerpen, R-Tyndall, said lawmakers create problems when they tell school leaders how to spend district resources.

“This Legislature, and prior Legislatures, has consistently and consistently told our schools to spend your reserves down,” said Rep. Van Gerpen, a former school board member, suggesting that the legislation wouldn't be needed if lawmakers hadn't enacted fund balance restrictions. Schools need spending flexibility during the economic recession, he added.

Another former school board member, Rep. Charles Hoffman, R-Eureka, said he trusts local school boards and administrators to protect facility funds. He also likened Senate Bill 91 to the economic stimulus package.

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The measure, filed as SB 140, grants local school boards more authority to improve academic course offerings and realize financial efficiencies by working through local cooperative agreements. The bill has been touted as the academic equivalent to athletic sports co-ops.

Sen. Julie Bartling, D-Burke, worked with ASBSD and the Department of Education to develop legislation that she told lawmakers was “another tool for school districts to offer a well-rounded education for students in their districts.”

ASBSD Executive Director Wayne Lueders testified in support of the legislation, telling lawmakers that the concept provides more flexibility to school districts and has wide support within the education community.

“It's one of the top three priorities for associated school boards this year,” Lueders said, referring to legislative priorities adopted by the ASBSD Delegate Assembly.

Representatives from the Department of Education, School Administrators of South Dakota, the South Dakota Coalition of Schools and the South Dakota Education Association also supported the legislation.

Committee members praised the legislation, calling it a “good step forward” an effort to “do what's best for kids" and "a win-win."

The measure will be debated by the full House this week.

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Members of House Education endorsed a change in the state's graduation pathways that supporters say will eliminate confusion and give students more options to pursue career and technical education courses.

Melody Schopp, a representative of the Department of Educaiton, asked lawmakers to approve the SB 185, telling lawmakers that the four-year-old graduation requirements have created confusion. The law outlines two pathways, the Department of Education outlines a third and local school districts often add a fourth, Schopp said.

She also told legislators that, though the department felt the three-tiered plan was a good idea four years ago, it has had unintended consequences of labeling children as low-achievers. Having are more responsive recommended program is a better solution, Schopp said.

The bill's House sponsor, Rep. Jason Frerichs, D-Wilmot, said that the measure also provides students with greater flexibility under the state's recommended graduation path by allowing the state department to include career and tech education courses within the state's recommended program.

The committee voted 13-1 to approve the measure.

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Members of Senate Education stalled an effort Tuesday to prevent a transfer of education-specific tobacco tax revenues to the state's general fund – a maneuver that one lawmaker says would be the “death knell” for the Teacher Compensation Assistance Program and technical education grants.

The measure, proposed by Gov. Rounds, eliminates the Education Enhancement Tobacco Tax Fund, a special account established in 2007 following passage of an initiated measure that raised per-pack taxes on cigarettes by $1.

During the 2007 Legislative session, legislators diverted $9 million of the increased tobacco tax revenue to the education fund to pay for the Teacher Compensation Assistance Program, Education Service Agencies and $1.5 million in career and technical education grants.

Jim Terwilliger, a representative of the state bureau of finance and management, told lawmakers that the change is needed to balance the states budget.

Regardless of the budget situation, Terwilliger says the change should be made because the increased tax isn't generating as much as legislators originally anticipated. Less revenue will come into the fund in the future because the federal government has increased cigarette taxes, he said.

ASBSD Executive Director Wayne Lueders testified in opposition to the measure.

“We're concerned that in talking about transferring funds, we're actually talking about ending programs,” Lueders said, making a final pitch for lawmakers to continue TCAP and ESAs, two programs that provide professional development for school staff.

Dick Tieszen, a lobbyist representing the Sioux Falls School District, also opposed the legislation, reminding legislators that voters wanted the tobacco money dedicated for education enhancement.

While lawmakers acknowledged the fund transfer will impact the programs, they said that the state's tight budget situation means some cuts will have to be made.

“There's a reasonable chance that [HB 1252] represents a death knell for TCAP, CTE grants and a very substantial portion of ESA funding,” said Sen. Dave Knudson, R-Sioux Falls.

Sen. Knudson said the Legislature will preserve the “most important” cuts proposed by Gov. Rounds, including aid for districts with fluctuating enrollments, sparsity funding, and the birth-to-three program. Lawmakers can't preserve all cuts while at the same time approving a 3 percent increase to the per-student allocation, he said.

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Two pieces of legislation aimed at changing the index factor have stalled in response to fears that changing the state's funding formula would jeopardize access to federal stimulus dollars.

Lawmakers have stripped SB 106 and HB 1254 of their original content, leaving the simple phrase “education shall be enhanced” remaining. In each case, lawmakers were responding to Department of Education requests to kill legislation which they say will prevent South Dakota from accessing more than $100 million in state stabilization funds.

The bills were amended Monday and Tuesday during education committee meetings in the House and Senate, clearing the way for possible House-Senate negotiations in the final day of session.

Department of Education officials cautioned lawmakers against making changes to the law, telling legislators that their informal conversations with advocacy groups suggest no changes can be made to the formula. Other states are trying to attempt formula changes, but have been told they can't, they said.

“Everything we have gotten form the feds say that the existing formula is king,” said Education Secretary Tom Oster. “I know that we're fine if we spend money through the existing formula.”

Not all lawmakers are convinced that changes can't be made. Rep. Ed McLaughlin, R-Rapid City, and Sen. Dave Knudson, R-Sioux Falls, both challenged the department's interpretation of the law and said more information is needed before the state can proceed.

Sen. Knudson, whose effort to change the index factor fizzled Monday in House Education, admitted that index factor language had come down with a case of “stimulitus” – a condition that he said has impacted several bills this year.

Worried that changing the index factor would hurt South Dakota's chances of gaining stimulus funding, Sen. Knudson asked committee members to amend SB 106 to implement the index factor change for FY12, one year after stimulus money runs out.

Lawmakers resisted that notion, arguing that the state can't afford to offer school districts additional dollars than what is currently permitted. Members of House Education then stripped the bill of its contents before passing the legislation to the House floor.

Sen. Knudson returned the favor Tuesday in Senate Education, hogging House Education Chair Rep. Ed McLaughlin's index factor legislation, HB 1254.

Both pieces of legislation will likely head to conference committee, but it's unclear whether the issues can or will be resurrected this session.

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