South Dakota is a sparsely populated state with 738,000 residents. Ninety percent
of the population is Caucasian and 8% is of American Indian descent. Over 50% of
the population live in rural towns with less than 2,500 people. Sioux Falls is the
largest city, with slightly more than 114,000 residents. The state's population will
grow at a slow rate over the next 15 years, but the number of South Dakota high school
graduates is projected to decline 3.3% over the same time period (see
South Dakota has experienced a strong economy over the last several years and,
according to a state economist, the state was not severely hit by the recession of
the early 1990s. State advertisements maintain that South Dakota offers one of the
best business climates in the nation, as one of five states with no corporate income
tax, as one of seven states with no personal income tax, and as a state with no business
inventory tax.2 Although many companies have relocated
to South Dakota in the last several years, the state's 1996 income per capita of
$20,749 remains well below the United States average of $24,436.
The state's three biggest employers by industry are wholesale/retail, services
and government. In addition, South Dakota's residents derive more income from farming
activity than the national average (6.2% in 1995 compared to 0.5% nationally), though
the agricultural industry is relatively small and in many areas is declining. The
recent additions of the computer company Gateway 2000 and of banking giant Citibank
have contributed to low unemployment rates, but primarily in lower paying occupations
such as manufacturing and shipping. In the next decade, employment is expected to
be strongest in the financial and manufacturing services areas.3
Policymakers and higher education representatives believe that there will be more
demand in all sectors of the economy for trained professionals, especially in areas
related to technology. Still, there is a sense among the leadership that the state
cannot supply enough opportunities to retain all of those who acquire a university
education. The state does produce a large number of baccalaureate degrees relative
to the number of high school graduates, but the number of adults with a college degree
in South Dakota is lower than the average of states in the region.
An explanation for this discrepancy is that college graduates are leaving
the state upon graduation, in search of better jobs.
Officials elected statewide are overwhelmingly Republican, reflecting voter registration
in the state. Both houses in the Legislature maintained a strong Republican majority
after the 1998 elections. Of the Senate's 35 members, 22 are Republicans and 13 are
Democrats; there are 51 Republicans and 19 Democrats in the House. The Legislature
meets part-time and has an average turnover rate of about 25%. All legislators are
elected to two-year terms, with a limit of four consecutive terms in either house.
In odd-numbered years the legislative session is limited to 40 days; in even-numbered
years it is limited to 35 days. (The budget is prepared annually.) Term limits were
approved by voters as an amendment to the state constitution in 1992.
Republican Governor Bill Janklow was re-elected to his fourth term in the November
1998 mid-term elections. He served two terms as governor from 1979 to 1987 and was
elected to a third term in 1994. In the interim, George Mickelson was elected to
two terms. (The state constitution prevents anyone from serving more than two consecutive
terms as governor.) South Dakota is classified as a strong governor state because
of the governor's veto and budgetary powers.5 Also
important to the governor's influence are the characteristics of a part-time Legislature
that has no staff, meets 35 to 40 days a year, and must sift through some 700 bills
on an annual basis, a fraction of which are related to higher education. Higher education
administrators and legislators suggested that any significant change in the state
would certainly require the governor's approval if it were to be successful. One
interviewee emphasized, "This is a very strong governor state. The Legislature
has no staff and no information, so the governor has a lot of information needed
to make decisions."
The current governor has enjoyed immense popularity in the state, with successful
initiatives that have included "Putting the Taxpayer First," making government
more efficient, reducing taxes, and giving special attention to Native American tribal
issues. In his most recent term (1994 to 1998), for example, Governor Janklow reduced
property taxes on agricultural land and owner-occupied homes by 20%. To limit large
property tax increases at the local level, Janklow's tax reduction plan restricts
local government and school spending to annual increases of only 3% or inflation,
whichever is lower.
Indeed, Governor Janklow's efforts to make the state more efficient read like
a textbook example of efforts across the nation to reinvent government. During his
tenure, the governor has: promoted joint ventures with city and county governments
to prevent local tax increases, consolidated state inspection programs, privatized
home health care, and put state prison inmates to work on several building and remodeling
The higher education leaders interviewed for this study believe that the governor
is committed to supporting higher education. As one board member said, "There
is not a concern with our base budget as long as Governor Janklow is in office."
South Dakota has no personal income tax and collects relatively little from corporate
net income. In terms of collection and allocation, property taxes are a local affair.
Governor Janklow has successfully pushed for cuts in property taxes by providing
dollar-for-dollar state subsidization to make up for local property tax declines
(such as the recent 20% reduction). A state budget respondent said that this is "property
tax relief provided by the state" and added, "Property taxes are local
taxes used for school systems, counties, and municipalities, not revenues used for
The state relies on various sales taxes and intergovernmental revenue (revenue
from other branches of government, such as federal grants) for its general revenue
fund. Figure 2 shows the four major revenue categories
for the 1996 state general revenue fund for South Dakota and the U.S. average. As
the figure shows, taxes comprised 54% of general revenue funds for the average state,
compared to just 38% for South Dakota.
Table 1 provides a breakdown of the tax category
from Figure 2 for South Dakota and the U.S. average.
As the table shows, South Dakota is much more dependent on a single source of taxes
(in this case, sales tax) than the average state. South Dakota's lower income per
capita, coupled with its dependency on general sales tax, means that consumers have
less money to spend on goods and services than those in other states. One regent
echoed a concern of many we spoke with, noting that "demographics constrain
our state revenue structure because it is so sales dependent, and we don't see great
population growth in the future."
Education is by far the largest general expenditure for the state (see
Table 2). The Education category includes K-12 education, vocational technical
education, adult and literacy services, and cultural affairs such as art, history,
and library services and expenditures. Public welfare and corrections have been the
fastest growing general expenditure categories during this same timeframe, though
corrections is still the smallest listed expenditure line-item in terms of dollars.
One legislator acknowledged that "higher education probably will become a
smaller portion of the state's budget" over the next several years, but he quickly
emphasized that the actual dollar amount will not decrease. Another policymaker added,
"K-12 education will probably take away some of the dollars [from higher education]
in terms of percent." Table 2 shows the major
expenditures, by function, for South Dakota for two selected years. Higher education's
actual appropriation has increased in real dollars, though it has become a smaller
portion of South Dakota's general expenditures overall.
Table 3 provides a comparison of South Dakota
to the national average on various higher education spending measures in terms of
students and state higher education appropriations. Higher education in South Dakota
has fared better than the national average for two of the three comparative indicators.
South Dakota's five-year growth rate in higher education spending for the time period
given in the table is well above the cumulative national spending growth figure.
South Dakota's spending rate per student also increased faster than most states,
though the actual dollar amount for this measure remained below the national average.
Finally, the percentage of tax revenue used for higher education has dropped in South
Dakota and the nation, even while state appropriations have increased.