Foreword
 
Introduction
 
State Context
 
Higher Education in South Dakota
 
Two New Processes for Policy-Driven Change
 
Changes Initiated in Higher Education
 
Conclusions
 
Endnotes
 
About the Author
 
About the National Center

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South Dakota
Page 3 of 10

State Context

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 Figure 1).

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.

POLITICAL CLIMATE

The Legislature
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.

The Governor
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 projects.

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."

STATE FINANCES
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 state agencies."

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.

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