The first meeting of the interim School Finance Committee was called to order by Chair Richard "Dick" Brown at 10:13 a.m., June 9, 1999, in LCR 1&2 of the State Capitol, Pierre, South Dakota.

A quorum was determined with the following members answering the roll call: Senators Don Brosz, H. Paul Dennert, Jim Hutmacher, and John J. Reedy; and Representatives Richard "Dick" Brown, Jerry Apa, Jay L. Duenwald, Scott Eccarius, Ted Klaudt, John Koskan, Larry Lucas, Alice McCoy, John McIntyre, Bill Napoli, Willard Pummel, and Kenneth Wetz.

Staff members present included Dale Bertsch, Chief Analyst for Fiscal Research and Budget Analysis, and Rhonda Purkapile, Senior Legislative Secretary.

A list of guests present during all or part of the meeting is on file with the master minutes.

(NOTE: For sake of continuity, the following minutes are not necessarily in chronological order. Also, all referenced documents are on file with the Master Minutes.)

Mr. Bertsch presented the committee with a copy of the report he had prepared on school transportation for the 1998 interim Committee on Education (Document #1). Mr. Bertsch reported that the state aid formula in place from 1959 through 1986 included a transportation component. In 1986, a new formula was enacted and transportation aid was directly absorbed into the formula. Monies from fines still went to the school districts but was counted as revenue and redistributed through the formula. Categorical aid was also created with the 1986 formula; however, the current formula, enacted in 1995, eliminated most elements of categorical aid.

Mr. Bertsch reported that there is no state statute that says a school district must bus its students. If a school district does not bus students, however, the school district is obligated to reimburse parents and guardians for transporting their children to school if the distance is farther than five miles from school. Some schools incur large transportation costs per student and some schools incur very small transportation costs per student. Mr. Bertsch noted that the data in Document #1 supports two observations: 1) smaller schools tend to have greater transportation costs; and 2) on a statewide basis, transportation costs constitute a relatively small portion of the overall expenditures for a school district.

Mr. Bertsch reported that the small school break is based on the assumption that there is a relationship between school size and cost per ADM (Average Daily Membership), with smaller schools having a greater cost per ADM. However, the relationship between ADM and cost per ADM is very weak; school district size, as measured by ADM, has very little to do with the cost per ADM. However, small school districts do tend to have larger transportation costs per ADM, Mr. Bertsch noted, which leads to the question of whether the small school break serves as an offset to school districts with higher transportation costs per ADM. In conclusion, Mr. Bertsch noted that there is a reason why some school districts spend more than others on transportation, but he noted that there is something else besides school district size that is the driving factor.

Mr. Gene Enck, Associated School Boards of South Dakota (ASBSD), testified that there are too many variables in transportation to reach any conclusions at this point. There are no standards in South Dakota on how to meet transportation needs in each school district. This causes variations in transportation costs. Perhaps a possible standard would be a certain number of students per square mile.

Representative Koskan asked Mr. Enck about the possibility of simply eliminating the state requirement on transportation reimbursement. Mr. Enck replied that there are children that definitely need transportation to and from school and this would then become an inequity situation.

Mr. Brad Caldwell, Superintendent, Faulkton School, testified that Faultkon is a large agriculture district and their transportation costs are quite high. About one-half of their students are bused. Transportation costs will amount to eight percent of their general fund budget next year, and they will have to dip into their reserve fund this year for about $160,000.

Mr. Rick Herbel, Administrator, Lemmon Schools, presented the committee with transportation information from the Lemmon School District (Document #2). Mr. Herbel testified that the district has been moving away from busing students to paying mileage reimbursement because it is cheaper for the school district. He noted that if their rural population continues to decline, the district can discontinue busing and reimburse the parents for transportation at quite a cost savings to the district. However, he did feel that this does place quite a burden on those families that are farthest out in the district. Mr. Herbel stated that if transportation is going to be mandated by the state, then state funding should be provided or a transportation levy should be allowed.

Ms. Nita O?Donnell, Keldron, presented the committee with letters from other citizens of Keldron with regard to busing in the Lemmon School District (Document #3). Ms. O?Donnell testified that the Lemmon School District has recently eliminated the feeder bus which transports her children and others to the main bus route. Without this feeder bus, Ms. O?Donnell noted that she will have to take time out of her work day to transport her children to and from the main bus route to attend school. She requested that the Legislature help the school districts fund transportation so districts will not have to start eliminating buses.

Mr. James Vogel, Business Manager, Parker School District, testified that one variation in the cost of transportation could be attributed to whether or not a school district owns its buses or contracts for busing.

Mr. Frank Seiler, Superintendent, Timber Lake, testified that he feels it is the state?s responsibility to transport these children to school.

Chair Brown commented that the state aid formula is not necessarily the solution to the transportation question because this is more of a local and school board control issue.

Chair Brown recessed the committee at 12:05 p.m. for lunch and reconvened the committee at 1:17 p.m.

Mr. Bertsch presented the committee with a summary of school district other revenues (Document #4) and with a data printout of other revenues reported by school district (Document #5). Mr. Bertsch reported that there are many revenues to school districts and not all of them are counted as earnings for state aid purposes. It was proposed during session that one pool of revenues be incorporated into the state aid formula for redistribution (Revenue A). Those that are not being proposed for inclusion are designated as Revenue B in the information presented. He noted that the largest element in the Revenue B category is federal revenues.

Representative Koskan noted that the intent would be that there would not be any new dollars needed in taxes with the inclusion of Revenue A in the formula. The same dollars would be raised but there would be a change in how those monies are distributed.

In response to committee questions, Mr. Todd Vik, Department of Education and Cultural Affairs, stated that the current formula does not qualify under current law for federal impact aid.

Mr. Ray Christensen, Secretary, Department of Education and Cultural Affairs, reported that there is a huge difference among school districts with regard to local effort. State aid per student at $3,355 is only a portion of the dollars available to all students. A partial reason for adopting the new formula in 1995 was a fairness issue. Other funds available to a particular district is a luck of the draw. There is fear among the school districts that the state will take away "A" revenues and not give them back. Any change to this distribution should be made revenue and expenditure neutral, Secretary Christensen noted, which would require additional funding.

Senator Hutmacher questioned that if the Legislature is concerned with equalizing other revenues across the state, why it is not equally concerned with equalizing everything such as teacher salaries, course offerings, etc. Secretary Christensen replied that a decision was made to shift some of the responsibility to the local school districts and whenever this is done, differences occur. He felt that technology and wiring of the schools should somewhat equalize this.

In response to committee questions, Secretary Christensen stated that it would be fair to say that the current formula would be more difficult to challenge in a lawsuit.

Ms. Janet Varejcka, Superintendent, Andes Central School District, testified that the Andes Central School District receives help from the federal government to fund the school budget. Local revenues are low and impact aid is important to the school district. She reported that 26 school districts in South Dakota qualify as Indian land school districts. A problem with impact aid is that it has never been fully funded. The school district never knows from one year to the next what portion of the budget it will receive in impact aid. Ms. Varejcka testified that she is not sure that the state aid to education formula can ever truly be equalized because school districts are too diverse.

Representative Koskan commented that his goal is to provide equal educational opportunity, and how each school district provides that is up to local control. The state should help with the money aspect of the issue.

Mr. Frank Seiler, Superintendent, Timber Lake School, testified that the schools would lose a lot of money if the state tries to redistribute impact aid money. Mr. Bertsch noted that impact aid is considered a Revenue B fund and is not being considered for redistribution. Representative Eccarius asked Mr. Seiler if he would favor equalizing Revenue A monies. Mr. Seiler replied that he would favor this if it is considered fair.

Mr. James Vogel, Parker School District, testified that "A" revenues are considered "local" revenues and he did not feel that many school districts would be supportive of redistribution of these revenues. He did not feel there is a push from the school districts to redistribute these funds. Mr. Vogel stated that the current formula seems to be working fine and should be left alone.

Chair Brown commented that if Revenue A is included in the formula for redistribution without additional funding from the state to make up the revenue in the school districts from which it is taken, the only option for the local school districts to keep the proposal revenue neutral will be to increase property taxes.

Mr. Kevin Kaufman, Business Manager, Sioux Falls Public Schools, suggested that the committee consider moving other state revenues from A to B. He felt that over the years, there will eventually be some reductions in this revenue that school districts receive. He noted that statewide ADM is decreasing by 1,500 students per year, which means that much less that the state would have to pay each year. Other revenues can be fickle from year to year. He expressed his main concern that his school district will lose money in the end.

Secretary Christensen commented that this issue is based on how the state uses its resources for the purposes of education. Is it okay for one school district to have over $1,100 per student over another that has $130 per student? The formula will probably never be totally equalized, but Secretary Christensen felt that the money the state disburses under the current formula and the "A" revenues should all be combined and divided per ADM. This would be a more fair distribution of "A" revenues. He suggested a phase-in or forward notice to those school districts that might lose money under this plan.

Representative Lucas commented that the only fine money he felt the Legislature could make a strong argument for including in the formula would be those derived from weigh stations. He suggested that perhaps this could then be distributed for transportation purposes.

Senator Brosz questioned whether the Legislature can do anything to address school transportation on a statewide level because this is really a local issue.

Representative Wetz asked for information on what surrounding states do with regard to school transportation. Senator Hutmacher suggested that the committee look into the school districts absorbing a portion of the transportation costs and the state making up the remainder. Representative Wetz commented that he does not agree that the small school factor in the formula is used to make up for transportation costs. Chair Brown suggested that the committee examine Representative Jarvis Brown?s proposal from the 1999 Legislative Session. Representative Koskan asked for information to be provided on the rules and regulations pertaining to transportation of students, the exact number of students being transported, and the reimbursements being paid for transportation.

Representative Koskan suggested the option of keeping "A" revenues separate and disbursing them as a separate category. Secretary Christensen noted that his preference would be to include those revenues in the formula, thereby increasing the base dollar amount per ADM.

Representative Wetz commented that he would like to see Revenue A broken down into separate categories with numbers for each district.

Senator Reedy commented that he would like to hear from the school business managers or superintendents that think it is time for a change with regard to these revenues.

Representative Napoli suggested that at its next meeting the committee examine printouts of various options of including Revenue A in the formula. Representative Wetz suggested examining how South Dakota funds education compared to surrounding states.

Chair Brown directed staff to develop various printouts with Revenue A in the formula so the committee can examine the economic impact. He suggested that a holdharmless option could be included to make the proposal revenue neutral. He also requested a printout with mobile homes excluded and suggested that revenue #3900 be moved from A to B.

Chair Brown set the next meeting for July 14 and 15 in Pierre.

Chair Brown adjourned the meeting at 4:40 p.m.