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District CFO warns state aid could fall $2.2 million despite proposed teacher-pay increase
Summary
The district's chief financial officer told the Rapid City Area School District 51-4 board that, under current assumptions, general state aid would fall about $2.2 million for FY26 even if the legislature raises the target teacher salary; board members asked questions but took no formal action.
The district's chief financial officer told the Rapid City Area School District 51-4 board that, if current legislative and local assumptions hold, the district would receive about $2.2 million less in general state aid next year.
The warning came during the finance report at a board meeting when the CFO walked through the state aid formula, how it interacts with enrollment and property valuation, and how a legislated increase to the formula's target teacher salary can produce the appearance of more state funding without enlarging the district's actual state aid payment.
The board heard that state aid accounted for about $37,800,000 of the district's roughly $106.3 million general fund this fiscal year (about 35%). The CFO said that, under the scenario shown to the board (including the governor's recommended 1.25% increase to the target teacher salary), the district would be paid about $35,600,000 in state aid for fiscal 2026 ' a year-over-year decline of roughly $2,200,000.
Why it matters: state aid in South Dakota is computed by a multi-variable formula that the CFO described as driven primarily by enrollment, the legislatively set target teacher salary, an overhead rate and the subtraction of local effort (property tax and related local revenue). "What's actually happening is the target teacher salary of the state aid formula is what is increasing," the CFO said, adding that movement in the other variables determines the final payment. The board was told that enrollment declines and rising local property valuation together produce a mix the formula treats unfavorably.
Key numbers and mechanics explained by the CFO: - District general fund budget (FY25): about $106,300,000. - State aid budgeted for FY25: about $37,800,000 (35% of general fund revenue). - Projected state aid under current assumptions for FY26: about $35,600,000 (approx. $2,200,000 less than FY25). - Fall 2024 state-aid enrollment count: 12,197 (about a 1.8% decrease from Dec 2020 counts cited). - District early FY26 fall enrollment estimate submitted: 12,1950 (listed by CFO as 12,1950 in the presentation; the CFO noted a 1.2% decrease built into the estimate). - Current target teacher salary listed by the CFO: $62,045.62; a 1.25% increase would set that number at $62,821.19. - The CFO used a "cup" analogy: the "total general state aid need" number is the size of the cup that limits how much general state aid can grow unless the formula's inputs change.
The CFO also explained a statutory/legislative constraint that affects district payroll decisions: the law requires average teacher compensation to increase proportionally when the state's target teacher salary increases. Under the CFO's scenario, a 1.25% target increase would produce a mandated 1.21% average compensation increase for the district. The CFO estimated the increased compensation cost (salary plus payroll-related benefits) at roughly $617,000, which the district would have to absorb while state aid declined under the presented assumptions.
Board members asked clarifying questions about who sets property valuation (county) and whether lowering the district levy would increase state aid (the CFO answered no, the formula uses a defined local-effort calculation so lowering the levy does not enlarge the state's share). Members pressed on the interaction between enrollment, property valuation and the formula's overhead rate, and several suggested legislative changes such as enrollment averaging or a hold-harmless mechanism, which the CFO described as options that would require action in Pierre.
The board did not take any formal action on the projections at the meeting. The CFO and acting superintendent said they would continue preparing scenarios and will follow the legislative process closely.
Ending: Board members said the material helped them better understand why a statewide increase to the target teacher salary can fail to translate into higher state aid for the district; no votes were taken and the presentation will inform the board's upcoming legislative conversations.
