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A legislative subcommittee believes the state's economy is set to rebound next year.

Members of the Joint Appropriations Committee approved a $1.14 billion FY11 state budget revenue estimate Monday. The estimate is up from $1.107 in FY10, which amounts to a 3 percent increase.

In essence, the action means lawmakers have enough confidence in the state economy for state revenue to increase by more than $33 million next year. The change is accounted for by projected increases in sales tax revenue and contributions from the state’s trust funds, which are projected to regain enough principle to contribute to the state’s general fund next year.

The estimate adopted by legislators is approximately $10 million less than the revenue estimates the governor proposed in December. Gov. Rounds’ initial budget was based on $1.150 billion in revenue, but actual collections have caused the governor to revise the estimates. 

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The House continues to stall action on school funding decisions, but will likely take action tomorrow. Lawmakers continue to hold their intentions close, so House votes tomorrow on SB 124 and SB 22 will provide the first formal direction we’ve had from the House this session. At this point in the session, the two issues on the table are per-student funding and changes to the index factor.

Per-student funding:

Both pieces of legislation the House will consider tomorrow contain a per-student funding freeze for FY11. The governor’s plan to freeze per-student funding is alive in SB 22. The bill, which originally had to due with the birth-to-three program, was changed completely by the House Appropriations Committee and approved to be a “bargaining chip” for ongoing negotiations with the Senate. Senate Bill 124 also contains a per-student funding freeze, but also includes changes to the index factor. We know there are several legislators from both parties who are committed to reinstating the 1.2 percent increase, but the idea has not caught on with the legislative leadership and has been voted down twice in the Senate.

Index factor:

Senate Bill 124 seeks to change the index factor, the law that determines annual increases in per-student funding. The measure the House will consider tomorrow was changed in the House Education committee earlier in February – in its current form, it changes the “3 percent or the CPI-W, whichever is less” language in state law to “2 percent or the CPI-W, whichever is greater.” In its Senate-approved form, it changed the index factor language to “4 percent or CPI-W, whichever is greater” with some limitations that tie per-student increases to state continuing receipts.

ASBSD will continue to advocate for the Senate-passed SB 124, which contains “4 percent or greater” language. We will also support amendments to restore the 1.2 percent for FY11.

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He has tried for several years to revise part of the school funding formula that generates annual per-student increases in state aid to education. His plans have typically met their demise during final-hour negotiations with the House.

During his weekly press conference, the majority leader indicated he doesn’t intend to compromise on the index factor plan this year.

Sen. Knudson told reporters that it appears as though there is a “fairly strong divide” in between the House and Senate regarding an index factor language.

“I don’t personally expect the Senate to have much give from the way SB 124 passed,” he said. “I think the possibility of passing anything that has a zero percent increase in K-12 education, without having SB 124 in its Senate form, is close to zero.”

The Senate’s version of SB 124 aims to change the index factor to give schools less in difficult budget times but more when the economy rebounds. In most years, per-student funding will increase by 4 percent or the rate of inflation, whichever is greater. In a tight economy, aid will go up at the same rate as the state budget.

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Shortly after his political party’s legislative leadership announced their plans to significantly scale back the governor’s recommended budget, Gov. Mike Rounds pushed back against the plan.

Open Forum wasn’t around to cover the governor’s comments, so we’ll give you a small sentiment from today’s news reports. Here's a hint: Gov. Rounds isn't a fan.

From the Pierre Capitol Journal:

And from the Rapid City Journal:

But Rounds said the proposed cuts are irresponsible, in part because they include across-the-board reductions that leave the difficult duty of deciding who and what to cut to department and agency heads. The cuts could be especially harmful to programs, services and employees who are struggling in a difficult recession, Rounds said.

Using a portion of the state's reserves, often called "rainy day" funds, makes more sense, he said.

"At a time when we still have a national recession, we should be doing everything we can not to inflict pain on citizens, but rather reduce the amount of pain they're suffering," Rounds said. "I think this qualifies as a rainy day."

Knudson said the economic weather will be much worse next year if something isn't done now.

"I kind of like the rainy day analogy, and there's no question it's raining outside," he said. "The problem is we've got a hurricane heading toward us next year, with a deficit of $100 million to $120 million."

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The revelation came Thursday as Senate Majority Leader Dave Knudson and House Majority Leader Bob Faehn revealed their long-awaited plan to cut the governor’s recommended budget by more than $43 million. The cuts, which are intended to be ongoing, are part of an effort to eliminate a $40 million budget deficit without dipping into state reserves.

Schools won’t escape completely unharmed. The proposal eliminates funding for Education Service Agencies and the South Dakota School for the Deaf.

The plan calls for a 2 percent across-the-board reduction in state general fund spending, excluding dollars that flow to K-12 education or Medicaid. Legislators also targeted phantom employees and travel expenses, trimming an additional $8 million from the state agencies.

In addition to broad-based cuts, lawmakers targeted specific programs within several state departments, including the Board of Regents, corrections, agriculture, tourism and health.

On top of cuts to the FY11 budget, GOP leadership outlined an additional $9 million in savings they expect to capture next budget year. Consolidation incentives and aid to growing enrollment districts are counted as ongoing reductions, but the items don’t come as a surprise.

Legislation to eliminate consolidation incentives has already passed the House and Senate. The bill strikes incentives going into the future, but honors commitments to recently completed mergers. The proposal won’t have much effect next year, considering the lack of consolidation planning currently going on across South Dakota.

The deficit reduction blueprint also claims $3.5 million by eliminating payments to growing districts. That item is also related to recently passed legislation that allows for on-time funding for districts with increasing enrollment, and will not result in financial hardship for schools.

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The Senate gave a unanimous endorsement Wednesday to HB 1248. The upper chamber modified the legislation slightly, opting to make the legislation effective next year instead of delaying until the 2013-14 school year.

Sen. Sandy Jerstad, D-Sioux Falls, praised the Senate’s vote. She has attempted to move the legislation in previous years, but support for the idea never materialized.

The sudden change in sentiment is a credit to the bill’s supporters, who were able to convince lawmakers that the bill would save the state $3.5 million per year while meeting the needs of rapidly growing districts.

Education Secretary Tom Oster lobbied diligently for the change. He persuaded lawmakers that the measure eliminates a hiccup in state law that makes the state pay for a semester of education that students don’t receive.

Harrisburg Superintendent Jim Holbeck also gave reasoned supporting testimony. He pointed out that the change would bring fairness into the school funding process and allow Harrisburg to hire staff necessary to handle booming enrollment.

If approved, a growing district’s state aid would be based on the current year’s fall enrollment. If a district is losing students, formula revenue is determined by averaging the previous two year’s fall enrollment.

Because the Senate changed the bill, the House must concur with the change before it can move onto the governor.

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A proposed law aiming to trim the amount of small school funding that follows students who open-enroll from larger to smaller districts was dismissed Tuesday by the Senate Education Committee. Lawmakers rejected the bill on a 6-1 vote.

House Bill 1150 creates a new mechanism to calculate state aid for students who open enroll, basing per-student funding on the fall enrollment of the larger of two schools involved in the transfer.

The bill has been one of the more controversial measures of the legislative session.

It has been characterized as a battle between large schools and small schools and has drawn fierce opposition from Education Secretary Tom Oster. Lawmakers even ramped up the rhetoric during debate – supporters tagged it as taxpayer abuse and opponents characterized it as the end of small schools.

Superintendents from both large and small school districts traveled to Pierre to air their respective opinions on HB 1150.

Joe Graves, superintendent of Mitchell School District, told lawmakers that debate over the legislation had drifted off course. He said the legislation was about fairness and equity, not about limiting choice or ending small school aid. Graves also challenged the notion that the bill had driven a wedge between small and large districts.

“We can have a civil discussion about legislation without it splitting up schools in the state,” he said.

Other supporters, including superintendents from Huron and Madison, told lawmakers that it is difficult for taxpayers to understand why buses from several districts travel into their district to pick up students.

Britton-Helca Superintendent Don Kirkegaard testified against the legislation. He said approving the legislation would limit choice, particularly for low-income students whose parents may not have resources to transport their children.

“You can't have open enrollment for minorities, for the economically depressed, unless you have transportation,” he said.

Administrators from Florence, Elkton and Gayville-Volin joined lobbyists and education department officials in opposition to the bill. They called the measure bad public policy and said it would represent a financial double-hit against the state's smaller schools.

Nearly every member of the committee voted against the legislation. But several lawmakers only did so after issuing a word of caution for the future.

Sen. Dave Knudson, R-Sioux Falls, suggested the issue will persist as long as schools don't work out busing issues at the local level.

“As long as we have districts running busses into a neighboring district, this is going to be a source of significant irritation,” he said. “We're going to be back year after year after year with this issue.”

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After suffering defeat earlier this week, pre-k supporters turned to legislative procedure Wednesday to resurrect a bill designed to expand voluntary access to high quality pre-k programs.

The move sets SB 191 up for a series of votes next week. Because the bill was defeated Monday in House Education, a majority must vote to overturn the committee’s recommendation before the bill can be debated on the House floor. The vote, likely to occur Monday, will be close.

The House of Representatives has rejected pre-k bills in each of the past two legislative sessions. Following Monday’s hearing in House Education, it appeared as the bill was destined for a third defeat. But for the first time ever, pre-k advocates are taking the fight to the next level.

Rep. Shantel Krebs, R-Sioux Falls, made the motion to revive the bill. She was supported by a handful of her fellow Republicans and nearly the entire Democratic caucus. The number of lawmakers who voted for the smoke out is close to the 36 votes needed to pass Monday's procedural test.

Pre-k advocates are hoping the bill’s fate will be different this year. But, if testimony and commentary during the committee hearing is any indication, the debate surrounding the bill hasn’t changed.

Opponents branded the bill as costly, unnecessary and anti-family before committee members voted 9-6 on Monday to defer the measure to the 41st legislative day. After suggesting achievement gaps can be eliminated with more active parenting, legislators called for a return to traditional American values.

Rep. Jim Bolin, R-Canton, told committee members they had a choice to follow one of two roads.

“The sign on the one road is Lyndon Johnson Boulevard,” he said. “It’s the road of bigger government, more programs, higher taxes, and more deficits.” Rep. Bolin went on to describe the second path as “Reagan Road” – a term he used to describe limited government and a values-oriented society.

Supporters of Senate Bill 191 pushed back against those claims, arguing that struggling families can’t afford quality pre-k and there isn’t enough room in existing federally subsidized head start programs.

“I challenge you to do something to help those parents that are really unable to help their children,” said Rep. Elaine Elliot, D-Aberdeen. “I challenge you to come up with something that’s going to fix society.”

Pre-k advocates also stressed the benefits pre-k has on early learning and emphasized that early education helps close achievement gaps, particularly for low income children.

Senate Bill 191 establishes academic standards for quality pre-k programs and establishes a community planning process to expand access to voluntary early education programs. The measure is targeted to only serve students at or below 130 percent of the federal poverty level, which is defined as a family of four living on less than $28,000 per year.

ASBSD testified in support of the legislation.

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• The annual "hog-cross" has started. Following House Education's hoghouse of SB 124, the Senate hoghoused HB 1051 into the original language of SB 124 and sent it back to the Senate. The two bills relate to changing the index factor. The hog-cross process typically comes just before lawmakers appoint conference committees.
• House retirement laws passed a group of bills that makes modifications to South Dakota Retirement System laws and practices, including changes to South Dakota's return-rehire process.
  
• House Education killed SB 191, legislation that would have established pre-k standards and a process for communities to establish voluntary pre-k for children from low income families.
• The Senate passed HB 1248, a measure designed to provide on-time funding for districts with growing enrollment. The body amended the legislation to make it effective for next year.
  

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• Senators killed HB 1150, a measure that would have limited per-student small school aid that follows students who open enroll from larger districts to smaller districts.
  
• Voted to eliminate consolidation incentives (HB 1181).

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Lawmakers have yet to bridge the partisan divide on school funding issues, but the House of Representatives showed Monday that Republicans and Democrats can work together on tough policy issues.

Facing opposition from a group of lawmakers concerned the proposal would lead to racial segregation, a bipartisan contingent coalesced to pass legislation allowing the state to create a pilot charter school designed to boost academic outcomes for American Indian students. The plan, found in Senate Bill 63, moved to the governor’s desk on a 49-20 vote.

The legislation allows the state to authorize and oversee a publicly funded private school, provided South Dakota is chosen from the pool of 41 states vying for a federal Race to the Top grants. Authorized by the American Recovery and Reinvestment Act, the competition allows the U.S. Department of Education to hand out more than $4 billion to states that initiate education reforms.

On Monday, all the typical policy issues related to charter schools – privatization, school choice, funding – took a back seat to race.

Rep. Noel Hammiel, R-Mitchell, referenced landmark U.S Supreme Court cases Plessy vs. Ferguson and Brown vs. Board of Education during his five-minute speech against SB 63. He told lawmakers that starting a charter school for American Indian students would amount to racial segregation.

“I don’t know if transporting American Indian kids from around the state to a central location is a good idea,” he said. “I have some concerns about that.”

Rep. Hammiel also cited a recent UCLA study that found that charter school enrollment lacks diversity and is split along economic lines. He cautioned lawmakers against endorsing legislation that he said may make it tougher to bridge the state’s racial divides.

The bill’s supporters acknowledged sharing concerns about segregation. But rather than using race as a reason to vote against the measure, proponents instead focused on the what they said were glaring achievement gaps between American Indian students and their peers.

“What we are doing now for our children on the reservations is not working,” said Rep. Oran Sorensen, D-Dell Rapids. “Maybe we need to have the courage to go one step further.”

The law enabling the creation of the state-run school is contingent upon receiving the federal grant. According to the federal education department, South Dakota can receive up to $75 million if the state’s plan is chosen. South Dakota submitted its application last February, and the U.S. Department of Education will likely announce its first round of selections sometime this week.

South Dakota Education Secretary Tom Oster has openly acknowledged that he doesn’t believe the state will receive the funding.

If the state is awarded the grant, the funds will be used to establish a secondary school that gives enrollment priority to students from federally recognized American Indian tribes. The facility will offer instruction focused on science, technology, engineering and mathematics. The campus will also feature dormitory housing and offer enough classes to allow students to complete two years of college.

The bill now moves onto the governor, who has already given his blessing to the project.

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