CFO: State-aid formula, enrollment decline likely to shrink district's general fund despite legislative increases

Chief Financial Officer Sasse told the Rapid City Area School District 51-4 board on Jan. 20 that a mix of falling enrollment and rising local property valuations could shrink the district's state aid next year, leaving the district with less general fund revenue despite a legislatively proposed increase in the state's target teacher salary.

Sasse said the district's current general fund budget for fiscal year 2025 is about $106,300,000 and that state aid accounted for roughly $37,800,000, or about 35% of that fund. He warned that under current assumptions the district would receive about $35,600,000 in state aid next year'a roughly $2.2 million year-over-year decrease.

"When you hear the message that state aid is increasing by x, that is not accurate," Sasse said. "The target teacher salary is what is increasing." He described how the formula's four major variables'enrollment, target teacher salary, an overhead rate and local effort (property tax-related revenues)'interact and can produce outcomes that seem counterintuitive to the public.

Why it matters

Sasse said the formula treats enrollment as the largest driver of state aid. The district's counted enrollment fell from 12,420 ADM to 12,197 in the 2024 fall state-aid count (about a 1.8% decline). The district submitted a fall 2025 estimate of 12,195 ADM, a 1.2% decrease from 2024.

At the same time, assessed property valuations that underpin local effort rose, producing roughly a 1.59% increase in property-tax revenue for the general fund. Because local effort is removed from the formula'reducing the state's share as local tax revenue increases'the net effect in Sasse's presented scenario was a smaller state aid payment.

Sasse walked the board through sample calculations that apply the governor's recommended 1.25% increase to the formula's target teacher salary (moving the target from $62,045.62 to $62,821.19 in his example). But after the formula's other calculations and local-effort removal, the district's state aid projection declined by the $2.2 million figure.

Budget trade-offs and legal requirements

Sasse emphasized the district's cost structure: roughly 85% of general fund expenditures are salaries and benefits (about $90 million). The district's teacher-pay roll is roughly $55.4 million, of which about 81% (approximately $44.9 million) is paid from the general fund.

He also explained a statutory requirement embedded in the state's teacher-compensation law: average teacher compensation must rise by a set fraction of any increase in the target teacher salary. Under the 1.25% target increase example, that created a mandatory approximate 1.21% average pay increase for the district. Sasse presented a rough cost of roughly $543,000 in salary plus $74,000 in payroll-related benefits (about $617,000 total) to meet that required minimum, while the district simultaneously would face lower state aid under the modeled scenario.

Sasse framed the result with a "cup" analogy: "That is what dictates the size of the cup," he said, describing the formula-determined cap on state-funded resources. He said the cup will not grow unless the formula's computed "need" number grows (through enrollment stabilization/increase, a larger target teacher salary increase or an overhead-rate increase).

Board questions and clarification

Board members asked whether the district controls property valuation (it does not; valuations are set by the county) and whether lowering the district levy would increase state aid (it would not; the formula treats the maximum levy as the baseline). Several members urged legislative fixes, such as enrollment averaging or a "hold harmless" provision, to reduce year-to-year volatility.

Sasse said alternative scenarios are possible (higher target-salary increases, overhead-rate changes, enrollment shifts, or major statutory changes to how local effort is counted), and he recommended the district continue monitoring legislative proposals closely as the budget process proceeds.

Ending

Sasse and other staff said they would model multiple scenarios and report back to the board during the budget process. Board members asked staff to bring possible legislative approaches to the February meeting so the board could consider positions the district might advocate to state lawmakers.