Opt Out – FAQ

At the January 11, 2016 board meeting, the Garretson School Board passed a resolution to opt out of the property tax limitations, with a public vote to be held on March 22, 2016.  We have put together a list of frequently asked questions to help the public  to have accurate information to make an informed decision.  Here’s the list:


GF = General Fund: This is one of two major funds that schools use.  The General Fund is how the school district pays most of the “operational” costs incurred as the school district provides education for our students.  Eighty percent of this fund is used for paying salaries and benefits to employees.  It is funded through a combination of state and local money.  The levy for this fund is set by the legislature.  Different property types are taxed at different levels.  Main source of revenue for this fund is the “Per Student Allocation.”

General Fund Reserve: This is the “cash on hand” in the General Fund.  Any part of the budget that is unspent stays in “the reserve,” which is carried over from year to year.  The reserve is often times reported out as a percentage of the expenditures budgeted for the year.  Because local taxes are collected twice per year, schools see two large spikes in revenues when property taxes are paid.  We need to have approximately 18% in our reserve in order to pay all of our bills between those two revenue spikes due to the local property tax collection.

CO = Capital Outlay Fund: This is the second major fund that schools use.  The CO fund is used for buildings, large pieces of equipment, technology and infrastructure, and textbooks.  This fund is designed for the purchase of those things that will last for some time.  This is funded through local property taxes.  The levy is set by the Board of Education in July each year.  The levy is applied equally to all property types.

PSA = Per Student Allocation: This is the amount of money that the State of South Dakota pays school districts to educate each child.  In 2009-10, that amount was $4,805.  In 2010-2011, the PSA was cut by 8.6%, and has been creeping up slowly since then.  State law requires that the PSA increases by 3% or the rate of inflation, whichever is less.  In the 15-16 school year, the PSA rose back up to 09-10 levels, $4,877.

CO Flexibility: Money in the GF and CO funds generally can only be used to pay certain expenses that are outlined in state law.  In response to the freeze and then the reduction to the PSA in the 09-10 and 10-11 school years, the legislature eased some restrictions on the CO fund, allowing some expenses that were traditionally paid for in the GF to be paid out of the CO fund. This flexibility is set to expire in 2018.

BRTF = Blue Ribbon Task Force: This was a group that Governor Daugaard put together in the summer of 2015 to study the teacher shortage in SD.  The Group made recommendations to the Governor, who will propose legislation based on the task force’s final report.  In essence, the task force set a target of raising the average teacher salary in SD from $40,000 to $48,000.  Indications are that any legislation will have “strings attached” that will require school districts use any money from this group to increase salaries of present staff.  According to the Governor’s Chief of staff, this funding increase is not intended to “close holes in local budgets.”  link toBRTF final report here

  1.  What is an “opt out?”

In South Dakota, the taxing authority for local governments (school board, city, county) is spelled out in state law.  There are limits defined in state law that sets maximum tax levies for these local governments.  There is  a provision in the law that allows those local governments, with the consent of the people, to “opt out” of the tax limits.  After the Governor and legislature froze and then cut school funds in the 09-10 and 10-11 school years, our elected leaders have stated that schools could adjust to the “new normal” by opting out if local communities want to preserve programming in their schools.  Currently, 45% of school districts have had to opt out in order to preserve programs provided to students in South Dakota schools.  Sometimes, people think that this is only a “small school” issue.  Several districts in our region have been forced to opt out in order to preserve programs.  The list includes: Harrisburg, Sioux Falls, Tri-Valley, Beresford, Brookings, Canistota, Madison and Sioux Valley.  Some are large and some are not, and each community has programming that local taxpayers have committed to saving. 

2.  What about the bus barn and the athletic complex – doesn’t that mean that the District has plenty of money?

This opt out is about the money from the General Fund – money that is used to pay for the operational program of the school district.  General Fund money pays for people and programs.  In our budget, approximately 80% of the GF budget is spent on employee wages and benefits.  The Capital Outlay (CO) fund is used for facilities and more permanent fixtures in the district (buildings, textbooks, large pieces of equipment, technology).  With a few exceptions, money from the two cannot be interchanged.  The money for both of those projects came from the CO fund, which cannot be used to pay employees.

Even though the District was able to legally borrow money to complete these projects, the money in the CO fund is not able to be used for day-to-day operations, including salaries.  They are two completely separate funds.

3.  I didn’t get to vote on the athletic complex and I didn’t get to vote on the bus garage.  Why didn’t I get to vote?

School boards are a great example of representative democracy.  This means that the public votes for someone to represent them in the decision making body.  The decision making power of local boards (and city councils and other forms of local government) is spelled out in the laws of the state of South Dakota.  The decision to move forward with those building projects was made by the board at that time, within the context of the community at that time period.  The people who represent the community on the board saw a need in the district, and they took steps that were within their legal power and authority to fulfill that need.  Essentially, the public did vote on the projects – by electing the board members who served on the board at that time and saw a need to build those facilities.

Part of the reason that we have this representative democracy rather than direct democracy is the need to get things done in the community.  If the school had to put every decision up to a vote in the community, nothing would get done.  Instead, communities select their representatives through a democratic process.  Those representatives serve on the board and make important decisions for the community.  The law in South Dakota also requires local governing boards to be open with the public about their discussions.  As per state law, the agenda is always posted at the school at least 24 hours (and usually 72 hours) before the meeting to ensure that the public has a chance to find out what the board will be discussing.  We also post the agenda on our website prior to the meeting for those who cannot come up to the school to see what the board has on the agenda.  After the meeting, we try to keep the public informed by posting the minutes of the meeting on our website and we also publish the minutes in the Garretson Gazette.  Our school board members are interested in what the public has to say, and we invite anyone who is interested to come to our meetings.  They are held the second Monday of the month in the school’s library.  Meetings begin at 5:45.

4.  Why is it that all of a sudden, our school is in bad shape financially?

This situation has been a long time in the making.  The revenue for the General Fund in SD is primarily determined through the PSA (defined above) or the amount of money schools are paid to educate each child in the district.  There are some other local sources of revenue as well, but the majority of the funding is through the PSA times the number of students served in the district.  The roots of our financial situation can be traced back to three major causes: 

  • The Legislature and Governor have created part of our local crisis.  In 2009-10, the legislature froze the PSA, and the following year, the PSA was cut by 8.6%.  The impact on schools was disastrous.  Across the entire State, schools laid off staff, consolidated and opted out.  A this point, over 45% of schools in the state have been required to opt out in order to maintain programs.  Other schools were forced to consolidate to preserve programs.  After those cuts were made, the PSA has been creeping back up.  Just this year, the PSA rebounded to the level that it was in 09-10.  
  • Garretson School District did not cut staff at this time, but did all they could to maintain programming and small class sizes.  After the State decreased their support of education through funding cuts, the Board and Administration started spending money out of the General Fund reserve and paying for some GF expenses through the CO fund, as allowed by law.  After making cuts to education funding, the legislature authorized “flexibility” in the CO fund as a way to “soften the blow” of the cuts to education funding. The reserves have steadily gone down over the past 7 years – a little at first, and as funding has not kept up with the school’s expenses, it has gone down by a lot in the past three years.  Likewise, we have used more and more of that flexibility in the CO fund.  Last year we spent $85,000 on GF expenses and this year, that number was increased to $125,000.  
  • The last major reason for our current situation is that our student enrollment has gone from a high of 535 (2002-2003) students down to approximately 475 students (today).  Because the GF in schools is funded based on the number of students served in the school, this has led to a decrease in GF revenue.  One way to increase revenue for the school is to increase the number of students, but that is something that is not likely to happen in the short term. 

The best long term solution to increase revenues in our district is through growth in the number of students our district serves and growth in our community.  One of our goals in the school is to be warm, friendly and open to everyone who might be interested in coming to school in our district.  We share with parents what we believe are the greatest things about going to school in Garretson.  We hope that our community is also open, warm and helpful to those who may want to move to Garretson or start a business in town.  As the number of students increase, so does the revenue for our school.  As the community tax base grows, the need to fund our school and community projects can be shared more broadly.  

5.  What steps have been taken to keep the district financially strong?

The School Board and Administration have known that the reserve would eventually run out of money if our student count did not increase and the State did not take steps to fix the shortfall created by cutting the PSA.  Every year since the Governor and Legislature cut the PSA, we have been optimistic that the State would come up with a viable solution, and every year, a plan from the state just does not materialize.  The board and administration took steps to ensure that the reserve lasted as long as possible before asking the community to support the school and maintain our programming through an opt out. The following steps have been taken in the past few years to extend the lifetime of the reserve:  

  • One of the options that the legislature provided for schools when they cut funding in 09-10 was to allow certain General Fund expenses to be paid out of the Capital Outlay fund (insurance, fuel, etc), and our district has done so.  Each year, since those cuts, some GF expenses have been shifted to the CO fund.  Last year, we budgeted $125,000 of these allowable GF expenses to be paid out of the CO fund.  By law, the option to do this expires in 2018, and those expenses will move back into the General Fund.  
  • Pre-school programming is offered at our school, but starting in August 2015, there is a cost to parents for the service, unless their child qualifies for a program that will pay the tuition.  This has saved the district $15,000.  
  • When we have had staff members leave the district, we have done our best to look at our programs to determine if there is any way to offer the services while not filling the position.  Last year, we did not replace two full time teaching staff members, and also after two aides retired, we did not fill those positions.  This saved the district nearly $130,000.
  • Starting in 2015-16, the employment of food service employees was transferred to Lunch Time Solutions, the company that manages our school lunch program.  In our district, the food service program operates at a loss, and we have decreased the estimated loss from $50,000 to what is projected to be $15,000.

The district’s financial position is improved by each of these changes, but we still face a shortfall of over $500,000 in the General Fund.  

6.  We tried an opt out before, and it failed –  will this district ever support a tax increase?

The Garretson School District did propose an opt out in 2006, and it did not pass.  There were two votes on the opt out.  The first one failed by only 9 votes. The second time, it failed by 20.  Both elections were close.

7.  Why do we have so many sports?  If the district just focused on academic programming, the district would be ok. 

When we consider this question, we must consider the impact that cutting activities programming would have on our student body, our school and our community.  If we choose not to offer any sports, FFA, music and fine arts activities, but neighboring districts continue to offer those programs, will students choose to continue their education in our school district, or would many of our students be likely to transfer to a neighboring school where they have the opportunity to participate in activities that many people consider to be a part of the complete educational experience?  

The extra curricular programming in the Garretson School District makes up only 5% of the school’s budget.  Cutting any one program would save the district around $10,000 in coaching stipends and expenses.  Overall, the activities portion of the budget is only around $160,000.  When considering this cut, we would also need to think of the impact of the cut in terms of the loss of students who would open enroll to a community whose school could support extra-curricular programming.

The impact of cutting activity programs would also be felt throughout the entire Garretson community.  The spirit of the community is embodied in our school, and seen in our school activities.  We’ve all felt the excitement when “our team” does something great, and “we” earn a hard-fought victory on the field, the course, the court or the mat.  We get excited when our marching band comes down the street in our community celebrations and parades.  We take pride in our FFA program, a program that is known as one of the very best programs in South Dakota and recognized as one of the best in the entire nation.  What is the impact of losing these programs?  The “WE” of Garretson isn’t’ just for high schoolers.  The “WE” of Garretson isn’t just “the school.”  The “WE” of Garretson is our entire community – built through camaraderie developed by being part of “us” at our school events. We believe that these programs, as much as the academic programs shape who we are, as people and as a community.  We will do what we can to preserve them.  

8.  If the Blue Ribbon Task Force’s proposal comes through, we should be good, right?

Even if the Blue Ribbon Task Force is successful in finding a source of new revenue to pay teachers more, that money will not be allowed to to used to cover an existing shortfall of revenue for the schools.  We will be required to use that money to increase the salaries of existing teachers, with the goal to increase the average salary of staff in each school district by $8,000.  Unless we cut even more significantly into our programming, we will still have a structural shortfall in our budget.

9.  I’ve heard our taxes are the highest around.  Where are our taxes compared to other school districts?

Total property taxes depend on where your property is located.  The county has a general levy of $3.424 per thousand in taxable valuation.  Cities and Townships also levy property taxes to maintain services that those entities have deemed important.  School levies for the districts around the Sioux Falls Metro area depend on a number of different factors like whether or how much bonding has been done, if an opt out of the tax limits is in place.  

Of 14 SF-metro area schools(2014 taxes payable in 2015), only 5 have a lower rate for taxes paid on Ag land (we are lower than Baltic, Brandon-Valley and Dell Rapids).  Four of area districts have a lower rate for owner-occupied property (we are lower than Baltic, Brandon, Dell Rapids, and Tri-Valley).  Only 3 out of 14 area schools have a lower tax for all other property classifications. (Source: City of Brandon)

 10.  Does our school have too many administrators?

We can look at our school and compare with others to see if we spend too much money on administration.  When we look at our student enrollment and look at the next ten larger school districts and the ten next smaller districts (according to the most recent data available from the SD DOE), Sixteen of those 21 schools spend more money on administration than our district.  Most schools of similar size spend more general fund money on administrators than the GSD.  (Source: SD Department of Education – profile data.)

11.  Is this “forever,” or is there a time limit?

Since 2002, school districts can opt out for a specified period of time.  Our board is looking at five years.  If things change after the opt out is approved and the district does not need the full amount, the Board could request a smaller amount be collected by the County Auditor.  After the five year period, the board can decide whether to proceed with another opt out, or if it should just be allowed to expire.

12.  Will all property classes be taxed equally?

South Dakota law requires that different property types are not taxed at the same rates in an opt out.  Based on 2015 property valuation, the rates for each 100,000 requested in the opt out is taxed at 0.17 per thousand for Ag property, 0.44 per thousand for Owner-Occupied property and 0.94 per thousand for all other property types. 

13.  How much does the district need?

This year, the District plans to spend approximately $380,000 from our General Fund reserve.  We also saw fewer students than we projected, resulting in approximately $30,000 less in revenue than we planned.  We have another $125,000 in General Fund expenses that are being paid out of the CO fund (and our ability to use this flexibility ends in 2018).  An opt out of $500,000 would allow us to maintain the current academic and co-curricular programs.  

It is important to note that this DOES NOT increase the size of our staff.  It does not add any programs (or reinstate any programs or positions that have been cut), and it does not allow for any staff members to receive a raise.  The ONLY thing that this opt out would do is preserve the present level of services and programming in the school.  Any increases in salary and benefits for employees would need to be realized through the increase to the PSA or through legislative action taken on recommendations from the BRTF.

 14.  How much will that $500,000 opt out cost me, individually?

The answer depends on what type of property you own.  Based on 2015 property valuations, we calculated some possible costs.   Ag land for which the taxable valuation is $1,000,000 will see annual taxes go up by $841.  A home owner whose home’s taxable valuation is $150,000 will see an annual tax increase of $350.74.  All other property owners (businesses) would see an increase as well – for every $100,000 in taxable valuation, those taxes would increase by $467.66 annually.  For the average homeowner in the city of Garretson, the cost would be less than a dollar a day.  

15.  Are we almost done paying down any of our debt?

The 2002 building and renovation project was funded through bonds.  We will be finished paying for those bonds in 2020, and at that time, the levy will be removed.  The bond levy generates approximately $315,000 per year to pay for the bonds.  Debt in the CO fund will continue to be paid over the next 10-15 years, as we have re-financed these CO certificates based on favorable interest rates, which will save the district thousands over the life of the repayment schedule.

16.  What happens if it doesn’t pass?

If the opt out doesn’t pass, we would need to make cuts to programs.   In schools, programs mean people.  The average cost per teacher in our district is right around $50,000.  We would expect that we would have to cut at least 8-10 teaching positions in order to balance the budget.  We would look for other ways to save money as well, but the lion’s share of those cuts would be to personnel.  We are certain that this kind of reduction in programming would result in:

  • Increased class sizes at both the elementary and secondary levels.  We would need to consider combining classes that had typically been split into two groups, possibly even as large as 32-33 kids would need to be in one section.
  • Reductions in the number of courses offered at the middle school and high school.  Our students would need to rely on distance learning technologies for classes that most schools are able to offer in a face-to-face manner.  A significant number of elective courses would need to be offered via the computer.
  • Fewer opportunities for our students with respect to activities

One of the three roots to the problem itself is that our student numbers have shrunk in recent years.  We do need to think of the reasons why families and students choose Garretson over schools like Brandon-Valley and Dell Rapids

  • Opportunities for small class sizes
  • Opportunities for teachers to know them well, and for our students to know our teachers well
  • Opportunities to participate in multiple activities and find success in those activities
  • Opportunities to participate in the arts and athletics without penalty
  • Opportunities to participate in a wide variety of both required and elective courses with REAL teachers in the classroom

If families and students do not experience the “small school benefits” or do not believe that our school is meeting their needs, parents will simply enroll their students in a neighboring district.  More parents open-enrolling their student to another district translates to fewer students, which leads to less revenues to work with, which results in more cuts, which may drive more students from our school.  One very real question is how long it will take the cycle of programmatic cuts and declining student enrollment before the district is no longer viable.


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