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Sen. Stephanie Sauter and school officials urge $1 million boost and CPI indexing for South Dakota's extraordinary cost fund
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Summary
At a joint Appropriations hearing, proponents of SB106 urged raising the extraordinary cost fund from $4 million to $5 million and indexing future increases to CPI to stabilize funding for high-cost special-education students; the committee deferred action until the next day after extensive questioning on rebasing, carryovers and fiscal impacts.
Sen. Stephanie Sauter, sponsor of Senate Bill 106, told the Joint Committee on Appropriations that South Dakota school districts need a larger, more predictable extraordinary cost fund to meet sharply rising special-education costs. "The cost associated with meeting student needs, particularly in the areas of behavioral and medical supports, continue to increase," Sauter said, asking the committee to raise the annual set-aside from $4,000,000 to $5,000,000 and to index future increases to the consumer price index.
The bill drew sustained support from district leaders and school groups who described acute budget pressure when the extraordinary cost fund falls short. Diana Miller, a registered lobbyist for the large school group, said the fund is "an integral part of our special education program" and proposed a compromise that would allow either the one-time $1 million increase or delayed indexing so legislators could see two years of data. "If you give us the $1,000,000 and you delay indexing till 2028," Miller told the committee, it would provide a runway for evaluation.
District officials gave concrete examples. Shannon Smith, Brookings director of special services, said Brookings serves roughly 700 students through special services and reported 696 students on the December 1 child count — nearly 20% of the district’s enrollment. She said the district applied for $1,030,000 for the 2026 cycle and received about $980,000, leaving a $50,000 shortfall that the district covered from its general fund. "When extraordinary cost funding falls short, districts must absorb those costs locally," Smith said.
Kathy Kaufman, a McCook Central business manager, testified that an individual student's placement and related services can cost districts hundreds of thousands of dollars a year — giving an example of a student whose out-of-district placement totaled $270,000 in a single fiscal year. Paul Coleman from Avon said the fund prevented his district from pursuing a tax opt-out in the past and reminded the committee of federal obligations under the Individuals with Disabilities Education Act: "public schools are legally obligated to provide all services outlined in a student's individualized education program," he said.
The Bureau of Finance and Management opposed raising the set-aside, arguing the historical data do not support the change. Grant Judson of BFM said that, since 2014, the legislature has set aside $4,000,000 annually with the capacity to carry over funds up to a statutory cap of $5,500,000 (appropriation plus carryover). "The data does not indicate increasing the amount for extraordinary costs is the right option," Judson said, noting that in most years the fund has been sufficient and that increasing the ongoing set-aside would raise maintenance-of-effort obligations and property-tax levies statewide.
Committee members pursued detailed fiscal and technical questions about rebasing the state aid formula, the carryover cap and maintenance-of-effort requirements. Joe Graves, South Dakota's secretary of education, explained the carryover mechanism and confirmed that prior-year funds can create a higher total in a subsequent year but cannot exceed the $5.5 million cap. Committee members also asked about the interaction between rebasing (the statute-driven rebasing of per-student allocations) and extraordinary cost requests.
After more than an hour of questioning and clarification from proponents and agency staff, the committee deferred action on SB106 until the following day. That delay gives members time to reconcile fiscal concerns raised by BFM with testimony from districts about immediate, sometimes large, costs that local budgets must absorb.
What happens next: The committee will take SB106 up again at its next scheduled hearing day. If advanced, the bill would change the statutory set-aside to $5,000,000 beginning July 1, 2026, and would, in its current form, begin indexing on July 1, 2027; precise statutory language and fiscal notes will be reviewed in follow-up work sessions.
