Aker:School funding formula mugs the Black Hills

By Alan Aker | Sunday, January 21, 2007

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South Dakota spends five times more to educate a kid in Gettysburg than it spends to educate a kid in Custer. It spends half as much on a Rapid City kid as on a Chamberlain kid. Lead kids get about one-fifth as much as Redfield kids. Spearfish kids get two-thirds as much as Huron kids.

Hill City kids don’t get any state aid.

I’m not referring to total per-pupil spending in these districts. The school funding formula evens that out. I’m referring to how much the state gives to each district to help local property taxpayers pay for basic K-12 education.

Our state aid formula was never meant to provide the same amount of aid to every student, but neither was it meant to be so stingy to districts like Hill City, Custer and Lead, in comparison to Gettysburg, Chamberlain and Redfield.

The formula specifies uniform statewide tax rates for three classes of property: agricultural, residential and everything else, then gives each school district enough state aid to even out per-pupil spending. Small schools get enough state aid to spend as much as 20 percent more per student.

From the beginning, the formula had a bias against the Black Hills and any other area with a relatively low percentage of agricultural land.

That’s because it sets a tax rate for agricultural land that’s only 30 percent of the rate for commercial real estate and 64 percent of the residential rate.

Compounding the problem is the subjectivity of assessing real estate in smaller towns. A newly built home is fairly easy to assess. The sale price is the assessed value. But in a town where no new homes are being built, you have to base assessments on sales of older homes, and in a small town, those sales are infrequent and could involve homes in widely different states of repair.

It’s also more difficult to assess businesses in small towns. Again, there usually aren’t many recent sales on which to base assessments, and if those sales involve a working business, assessors will have difficulty determining what part of the sale price was for real estate and what part was for inventory, equipment, relationships with customers, etc.

There’s yet another factor that drives down assessments in our less-populated counties. In these places, assessors and officials serving on assessment appeal boards are much more likely to have personal relationships with the property owner. It’s more tempting to give them a break. Under the old formula, there was a check on this. If you gave your high school buddy a lowball assessment, it would either lower the budget of your local school or raise taxes for everyone else.

But under the current formula, giving your buddy a lowball assessment has almost no effect on any local budget or on other taxpayers. It actually benefits your community because it increases state school aid.

Finally, the 150 percent rule has done a lot to unravel property tax equity. Under this rule, if a property sells for more than 150 percent of its assessed value, assessors can exclude it from their calculations of what everyone else’s property is worth. When property sells for more than 150 percent of the assessed value, it’s a clue that there’s been under-assessment. This rule not only delays correction of under-assessments, it rewards them.The increasing disparity in state aid to school districts is beating the tar out of Black Hills taxpayers. The formula should set a floor beneath which state aid will not sink, no matter what happens to assessments. It should be somewhere between 30 and 40 percent of spending.

Alan Aker lives in Piedmont. Write to him at livefree@akerwoods.com