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Mark Davis and Bonnie Davis v. the State of South Dakota; South

August 31, 2011

MARK DAVIS AND BONNIE DAVIS, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF CHARLIE DAVIS, CARL DAVIS, JOEY DAVIS, AND SELENA DAVIS; KAY EBEN, AS AN INDIVIDUAL AND AS PARENT AND NATURAL GUARDIAN OF GRACE EBEN AND KENDRA EBEN; DAN GRANT AND JANE GRANT, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF DYLAN BAMBAS AND ALEXIS BAMBAS; DEBRA BUCHHOLZ AND CALVIN BUCHHOLZ, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF HANNAH BUCHHOLZ AND JARED BUCHHOLZ; JULIA ORROCK, AS AN INDIVIDUAL AND AS PARENT AND NATURAL GUARDIAN OF LUCIUS ORROCK AND DOMINIC ORROCK; JULIE SCHENKEL, AS AN INDIVIDUAL AND AS PARENT AND NATURAL GUARDIAN OF NATHAN SCHENKEL AND NOAH SCHENKEL; ANITA BACH AND TODD BACH, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF TAYLOR BACH, TYRA BACH, AND SETH BACH; MIKE HINTZ AND JULIE HINTZ, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF KAITLIN HINTZ AND HANNAH HINTZ; BRAD NELSON AND RITA NELSON, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF CHANTEL NELSON AND SHAINA MARESH; SHANE MCINTOSH AND TAMARA MCINTOSH, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF LANDRY MCINTOSH AND BENNETT MCINTOSH; JIM AKRE AND KAY AKRE, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF TAYLOR AKRE; DAWN BIALAS AND KURT BIALAS, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF MORGAN BIALAS, CONNOR BIALAS, AND KEELAN BIALAS; AND RON SCHOENFELDER AND RENEA SCHOENFELDER, AS INDIVIDUALS AND AS PARENTS AND NATURAL GUARDIANS OF TAYLOR SCHOENFELDER, SADIE SCHOENFELDER, AND MOLLY SCHOENFELDER
PLAINTIFFS AND APPELLANTS,
v.
THE STATE OF SOUTH DAKOTA; SOUTH DAKOTA DEPARTMENT OF EDUCATION; SOUTH DAKOTA BOARD OF EDUCATION; HONORABLE M. MICHAEL ROUNDS, IN HIS OFFICIAL CAPACITY AS THE GOVERNOR OF THE STATE OF SOUTH DAKOTA; RICK MELMER, IN HIS OFFICIAL CAPACITY AS THE SECRETARY OF EDUCATION OF THE STATE OF SOUTH DAKOTA; VERNON L. LARSON, IN HIS OFFICIAL CAPACITY AS THE TREASURER OF THE STATE OF SOUTH DAKOTA, DEFENDANTS AND APPELLEES.



APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT HUGHES COUNTY, SOUTH DAKOTA HONORABLE LORI S. WILBUR Judge

The opinion of the court was delivered by: Meierhenry, Retired Justice

ARGUED JANUARY 11, 2011

[¶1.] When our state founders laid the cornerstone for our state capitol building in 1908, the distinguished leader and Dakota Territorial Superintendent of Public Instruction, Gen. W.H.H. Beadle, addressed the crowd. He spoke of the importance of education to the future of the state:

The advance of every free state depends upon the broad intelligence of its citizens. Because we are a state, republican in form, education of all the people becomes the highest duty of the state. Nothing can be so important except the struggle for the very existence of the republic. The genius of the poorest must have equal chance with the opportunity of the rich. The true state will not disregard the welfare of the humblest orphan. Our resources of farm, orchard, and mine, our soils and our water supply, our rocks, our clays, must be scientifically studied and mastered; our livestock, our entire productive possibilities require a scientifically trained and educated people. As our population doubles and crowds our area, this need increases. This training should be masterly and broad and prepare as fully also for all civic and social duties. Not for wage earning alone, nor for money making alone, must we educate. All skill, all technical training, all science, all the industries, can not together, but unaided, save and develop all that human society and government have in charge for our permanent welfare. Technology is required for the world's progress, but it is not all the story of man's advancement.

The mastery of history, government, literature, philosophy; the knowledge of all the world and its mutual and conflicting interests, of the origin and nature of human society and "the grand results of time" must be the possession of those who are to lead us in the profound questions bound up in the state and national and international interests.

The great, final, single, comprehensive aim of education and of the highest education is the equipment of men for moral leadership. I believe that all this should be done inside the state, that all scholars, all teachers and all trained citizens should be made by institutions within our own state. Within our borders, under our laws and institutions, under the discipline of our own conditions and inspired by our state pride, all this can best be done. All the elements of, and inspiration for it, should be thoroughly given in our common schools, from our libraries and at our firesides.*fn1

General Beadle's convictions are embedded in the language of South Dakota's Constitution.

[¶2.] Article VIII, Section 1 of the South Dakota Constitution emphasizes the importance of a "general and uniform system of public schools" and places the duty to establish the system on the State Legislature:

The stability of a republican form of government depending on the morality and intelligence of the people, it shall be the duty of the Legislature to establish and maintain a general and uniform system of public schools wherein tuition shall be without charge, and equally open to all; and to adopt all suitable means to secure to the people the advantages and opportunities of education. (Emphasis added.) The Legislature also has the duty to fund education. Article VIII, Section 15 of the South Dakota Constitution directs the Legislature to provide through general and local taxation as follows:

The Legislature shall make such provision by general taxation and by authorizing the school corporations to levy such additional taxes as with the income from the permanent school fund shall secure a thorough and efficient system of common schools throughout the state.

[¶3.] Whether the Legislature has met the constitutional requirements of adequately funding education is the central question in this action. The plaintiffs-a group of children who attend public schools in South Dakota school districts and their parents and natural guardians-claim that the present system of funding education is unconstitutional because it does not provide all children with an adequate and quality education. Specifically, the plaintiffs ask for a declaratory ruling that Article VIII, Sections 1 and 15 mean (1) "that the South Dakota Constitution entitles all children to a free, adequate and quality public education," and (2) that the present system of funding is unconstitutional because it does not provide all children with an adequate and quality education.

[¶4.] Clearly, the language of the South Dakota Constitution guarantees every child a free public education to provide them with "the advantages and opportunities of education." What this means and its relationship to funding, however, is a trickier question.*fn2

To answer that question, we look at the plain meaning of the language and the intent of its drafters. See Brendtro v. Nelson , 2006 S.D. 71, ¶ 34, 720 N.W.2d 670, 681-82. The drafters used key words in defining the Legislature's duty. They required the Legislature to "establish and maintain a general and uniform system of public schools, . . . adopt all suitable means to secure to the people the advantages and opportunities of education," and provide funding to "secure a thorough and efficient system of common schools throughout the state." S.D. Const. art. VIII, §§ 1, 15 (emphasis added). The plain and ordinary meaning of these key words appears unchanged since 1889 when South Dakota's Constitution was ratified.*fn3 General means "[p]ertaining to, affecting, or applicable to, each and all of the members of a class, kind, or order"; uniform is "[h]aving always the same form, manner, or degree"; and system is "[a]n aggregation or assemblage of objects united by some form of regular interaction or interdependence." Webster's New International Dictionary of the English Language 1043, 2777, 2562 (2nd ed. 1937). Suitable means "suited to . . . one's needs, wishes, or condition, the proprieties, etc., appropriate; fitting," and secure is "to make secure or certain; to ensure." Id. at 2522, 2263. Advantage and opportunity are similarly defined as "[a]ny condition, circumstance, . . . or means, particularly favorable to success, or to any desired end," or "juncture of circumstances favorable to some end." Id. at 38, 1709. Thorough means "so complete as to leave nothing unaffected or wanting"; and efficient signifies "[c]apable, competent, [and] able." Id. at 2631, 819.

[¶5.] Thus, the plain and ordinary meaning of the language of Article VIII, Section 1 requires the Legislature to establish a general system of free public schools, each of the same form, and to employ all appropriate and fitting means to ensure children in South Dakota are afforded the advantages and opportunities of education. Additionally, Article VIII, Section 15 directs the Legislature to provide a method of general and local taxation that, along with income from the permanent school fund, ensures the existence of a system of common schools throughout the state. The school system must be complete in all respects, as well as capable, competent, and able.

[¶6.] We check this interpretation against the historical context and intent of the framers of the South Dakota Constitution. See Campbell Cnty I. , 907 P.2d at 1259. See also Doe v. Nelson , 2004 S.D. 62, ¶ 10, 680 N.W.2d 302, 306. The importance of education to those early leaders is unmistakable. [¶7.] As early as 1861, the organizers of the Territory of Dakota set aside land for schools. Comm. on Territories, 49th Congr., 1st Sess., Rep. to Accompany Bill S. 967 at 18, 20 (1886). Section 14 of the Organic Act organizing the Territory directed that sections sixteen and thirty-six of each township should be reserved for schools. Organic Act of March 2, 1861, ch. 86, § 14, 12 Stat. 239, 243 (1863). Thus, "[z]eal for learning has characterized the South Dakotan from the earliest period." 1 Doane Robinson, History of South Dakota 470 (B.F. Bowen & Co. 1904). "From the earliest beginning of the Dakota Territory, the [citizens] have been vitally interested in educating their children."*fn4 As described by Pattinson F. McClure, Dakota Territorial Commissioner of Immigration: "No matter how recent the settlement, how ambitious the strife for worldly possessions, the church and school are there, the site and foundations for which occupy the first cares of every new community."*fn5 General Beadle reflected later in his life that: "[P]eople in territorial days . . . would have a school, if it met in a log or sod shanty or in a room in a private home, or in the first little church."*fn6

[¶8.] In his message to the First Territorial Legislature in 1862, newly appointed Governor William Jayne gave voice to the settlers' zeal for education, observing:

There is no subject more vital to the prosperity and general welfare of the territory than the subject of education. The virtue, intelligence, and public happiness of a people, and all that conduces to the advancement of the prosperity, wealth, and power of a country, is intimately associated with, and dependent upon, the development of the educational interest of the state. In communities where truth, virtue, intelligence and knowledge prevail, there crime is rare, and poverty almost unknown. Every dollar of taxes levied for the support of schools lessens, by many dollars, the taxes which would be assessed for the support of prisons and poor houses.*fn7

[¶9.] The Territorial Legislature authorized General Beadle, who became the Territorial Superintendent of Public Instruction in 1878, to visit the capitals of five other states to study their laws and experiences in utilizing their public school lands.*fn8 Based on his observations, he was to draft constitutional provisions and statutes to obtain the best returns from Dakota's school lands.*fn9 General Beadle visited the capitals of Iowa, Minnesota, Wisconsin, Illinois, Indiana and Michigan.*fn10

He later issued a report recommending that:

The great body of common schools of the state should be so organized as to work in harmony under one general plan, and enable every person to prepare for admission from the lowest grade to the highest education the state can give by successive stages of study and qualification. The common schools can be supported by the grant of school lands if managed with wisdom and integrity[.]*fn11

[¶10.] General Beadle wanted to secure permanent funding for public education. He was afraid that territorial school lands (totaling in the millions of acres) would be sold to land speculators at low prices to meet the short term needs of public education.*fn12 General Beadle and other founders were determined to preserve the school lands until their value increased so that they could be sold for higher prices and provide maximum support for public education into the future.*fn13

General Beadle's plan was that all money from the sale of school lands (for not less than $10 per acre) would be safely invested in a school fund to permanently endow education.*fn14 Clearly, ardent support of public education motivated the founders of our state.

[¶11.] Public education and desire for permanent funding prominently took their place in the state's draft constitutions. The draft constitution, prepared at the constitutional convention in Sioux Falls in 1883, incorporated provisions that would later become Article VIII of the South Dakota Constitution.*fn15 Article VII, Section 1 of the draft constitution provided: "The stability of a republican form of government depending mainly upon the intelligence of the people, it shall be the duty of the Legislature to establish [a] general and uniform system of public schools."*fn16 Per General Beadle's plan, Article VII, Sections 2, 3, and 4 of the draft required creation of a permanent trust fund largely from the proceeds of the sale of school lands for the maintenance of public schools in the state.*fn17 Section 4 of the draft prohibited the sale of school lands for less than $10 per acre.*fn18 Section 5 of the draft provided: "The Legislature shall make such provision by taxation or otherwise, as, with the revenue from the permanent school fund, shall secure a thorough and efficient system of common schools throughout the State." 1 Dakota Constitutional Convention, supra note 15, at 30.

[¶12.] Although Congress refused to recognize the draft constitution of 1883, its education provisions survived largely intact through two later constitutional conventions in 1885 and 1889. See id . at 44 - 48.*fn19 Those provisions formed the foundation for current Article VIII of the South Dakota Constitution, adopted by the voters in 1889-the same year South Dakota formally became a state.*fn20 [¶13.] The constitutional framers' zealous efforts to preserve school lands as a permanent school funding source demonstrate their strong commitment to education and its significance to the citizenry and the economic and institutional development of this state. This historical context gives insight into the intent and meaning of the constitutional provisions. The Wyoming Supreme Court, interpreting a similar constitutional provision, also found historical context instructive. The court wrote:

From this history, we can conclude the framers intended the education article as a mandate to the state legislature to provide an education system of a character which provides [state] students with a uniform opportunity to become equipped for their future roles as citizens, participants in the political system, and competitors both economically and intellectually. Campbell Cnty. I , 907 P.2d at 1259 (citing Kukor v. Grover , 436 N.W.2d 568, 589-90 (Wis. 1989)). Other courts have interpreted educational mandates in their constitutions comparably.*fn21 We believe the framers of South Dakota's constitutional provision intended a similar mandate to our State Legislature. [¶14.] We agree with the plaintiffs that the language of South Dakota's Constitution means that all children are entitled to a free, adequate, and quality public education. The constitutional language and intent of the framers guarantee the children of South Dakota a constitutional right to an education that provides them with the opportunity to prepare for their future roles as citizens, participants in the political system, and competitors both economically and intellectually.

The constitutional mandate does not contemplate a system that fails to educate all children or leaves pockets of inadequate conditions and achievement as a result of insufficient funding. As General Beadle so eloquently stated, "The genius of the poorest must have equal chance with the opportunity of the rich." Coursey, supra note 1, at 87. The question before us is whether the legislative scheme for funding education meets the constitutional requirements.

BURDEN OF PROOF AND STANDARD OF REVIEW

[¶15.] For the plaintiffs to prevail, they must show that the public school funding system is unconstitutional because it fails to provide students with an education that gives them the opportunity to prepare for their future roles as citizens, participants in the political system, and competitors both economically and intellectually. Our review is de novo. See People in Interest of Z.B. , 2008 S.D. 108, ¶ 5, 757 N.W.2d 595, 598; Green v. Siegel, Barnett & Schutz , 1996 S.D. 146, ¶ 7, 557 N.W.2d 396, 398.

[¶16.] We have consistently considered the constitutionality of legislative acts according to "well-known principles": "Any legislative act is accorded a presumption in favor of constitutionality and that presumption is not overcome until the unconstitutionality of the act is clearly and unmistakably shown and there is no reasonable doubt that it violates fundamental constitutional principles." South Dakota Ass'n of Tobacco & Candy Dist. v. State By & Through Dept. of Revenue ,280 N.W.2d 662, 664-65 (S.D. 1979) (citations omitted). The "presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption . . . ." SDCL 19-11-1. See also Hubbard v. City of Pierre , 2010 S.D. 55, ¶ 16, 784 N.W.2d 499, 506 (citing Estate of Dimond , 2008 S.D. 131, ¶ 9, 759 N.W.2d 534, 538). A presumption is rebutted "[w]hen substantial, credible evidence has been introduced . . . ." Id.

A presumption of constitutionality requires weighty evidence to overcome it. See Dimond, 2008 S.D. 131, ¶ 9, 759 N.W.2d at 538. Challengers also have the burden of persuading the court that "there is no reasonable doubt that it violates fundamental constitutional principles." South Dakota Ass'n, 280 N.W.2d at 664-65.*fn22 [¶17.] In the present case, the plaintiffs have the burden of persuading the Court beyond a reasonable doubt that the public school system fails to provide students with an education that gives them the opportunity to prepare for their future roles as citizens, participants in the political system, and competitors both economically and intellectually, and that this failure is related to an inadequate funding system.

ANALYSIS

Current Funding Sources and Funding Formula [¶18.] We begin with an overview of the state funding system. The two main sources of revenue for the 161 public school districts are state aid and local property taxes. See S.D. Const. art. VIII, § 15. The districts also depend on other revenue sources, such as borrowed funds through bond issues; funds from federal, state, or other political subdivisions; and funds received from fines and penalties. SDCL 13-16-1.*fn23

[¶19.] Prior to 1995, the Legislature funded school districts through an expenditure driven funding formula. The more a school district spent, the more state funding it received. The constitutionality of the formula was unsuccessfully challenged on equal protection grounds in state circuit court in 1994. See Bezdichek v. State , 1994 S.D.C.C. 34, Hughes County Civ. No. 91-209 (S.D. 6th Jud. Cir. 1994). The circuit court decision was not appealed. The South Dakota Legislature, however, revised the formula in the 1995 legislative session to take effect January 1, 1997. The revised formula funded districts based on an established per student allocation (PSA), a district's enrollment, and the amount of local property tax levied. [¶20.] The revised formula requires a multi-step calculation starting with the legislatively designated PSA. SDCL 13-13-10.1(4). The 1995 Legislature set the PSA at $3,350 beginning in fiscal year (FY) 1998 to be increased annually by the rate of inflation according to the Consumer Price Index (CPI) or by 3%, whichever was less. See 1995 S.D. Sess. Laws ch. 77, § 3. See also SDCL 13-13-10.1(3) - (4). Accordingly, the Legislature annually increased the PSA and, in some years, by more than the inflation rate. By the time of trial, the PSA was $4,642. [¶21.] Next, the formula establishes a school district's "local need." Local need is the product of the PSA multiplied by a school district's K-12 enrollment determined on a specified date in the fall. It may also include a "small school adjustment" if the enrollment is less than 600 students. SDCL 13-13-10.1(2A), (2C),

(5). The small school adjustment increases the PSA by a fixed per pupil amount according to a statutory sliding scale maximizing at $847.54. SDCL 13-13-10.1(2C).*fn24

[¶22.] Finally, the formula determines a school district's "local effort," which is the total amount of local property tax levied. The local effort is then subtracted from the district's local need to arrive at the amount of state aid allocated to the district. SDCL 13-13-10.1(6), -73.

[¶23.] In addition to revising the funding formula, the 1995 Legislature capped the local property tax levy. The levy caps effectively limit the amount a school district can raise locally. See 1995 S.D. Sess. Laws ch. 57, § 37; 1995 S.D. Sess. Laws ch. 77, § 6. The 1995 Legislature originally capped levies at the following amounts based upon three different classifications of local property: $16.75 per thousand dollars of taxable valuation for non-agricultural land; $6.25 per thousand dollars of taxable valuation for agricultural land; and $10 per thousand dollars of taxable valuation for owner-occupied single family dwellings. Id. After 1995, the Legislature steadily lowered these caps during every subsequent annual legislative session.*fn25 By the time of trial, the following caps were in effect for taxes payable in 2009: $8.78 per thousand dollars of taxable valuation for non-agricultural land; $2.61 per thousand dollars of taxable valuation for agricultural land; and $4.10 per thousand dollars of taxable valuation for owner-occupied single family dwellings. 2008 S.D. Sess. Laws ch. 48, § 1.

[¶24.] The Legislature allows school districts to tax at less than the statutory maximum levies, but the state aid formula imputes the maximum to the local district in calculating its local effort. SDCL 10-12-42, 13-13-10.1(6). School districts may also "opt out" of the maximum levies and tax at higher rates. SDCL 10-12-43. If a school district opts out, the funds go into the school district's general fund in addition to the funds received under the state aid formula. Id .

[¶25.] State funding based on the formula is the largest source of revenue for local districts. Local property taxes are usually the next major source of revenue. Other lesser sources of revenue include state educational trust funds, county fines, federal grants, school district gross receipts, and bank franchise taxes. See S.D. Const. art. VIII, § 3. School districts also receive other funds for education-related purposes such as capital outlay and pension funds collected through local revenue and special education funds from federal, state, and local sources. A district may also be eligible for a sparsity benefit based on enrollment, size, and distance criteria. See SDCL 13-13-78 to -79.*fn26

Alleged Funding System Flaws and Inadequacies

[¶26.] The plaintiffs identify problems with the school funding system that they claim make it structurally flawed and inadequate. They claim that the system is arbitrary and irrational because funding is not based on actual costs of providing students with a constitutionally adequate education and does not align funding with need.

[¶27.] Other jurisdictions have found school funding systems unconstitutional because funding was not based on actual costs. The Montana Supreme Court in Columbia Falls Elementary School District No. 6 v. State , held that, "[u]nless funding relates to needs such as academic standards, teacher pay, fixed costs, costs of special education, and performance standards, then the funding is not related to the cornerstones of a quality education." 109 P.3d 257, 262 (Mont. 2005). The Wyoming Supreme Court determined that Wyoming's school funding system was unconstitutional because the distribution formula was not based upon the actual costs of providing a basic education package to each student. Campbell Cnty . I , 907 P.2d at 1277.

[¶28.] Whether South Dakota's funding formula is based upon actual costs is unclear. The parties offered no evidence of actual costs. Cf . Campbell Cnty. I , 907 P.2d at 1251 (where the plaintiffs presented a cost study as evidence). Several witnesses, including two legislators, testified that the funding formula only provides a certain amount of funding to each school district, regardless of need. An SDDOE employee testified that she provided data to the 1995 Legislature when the formula was being developed. The data included general fund expenditures, the old funding formula "inclusions," and school enrollment. The witness further indicated the formula's original 1997 PSA derived from the costs and expenditures of all the school districts in the 1993-94 school year increased by 3.3% per year for inflation.

We are unable to surmise from the evidence if the Legislature considered the actual cost of educating a student as part of the formula. Without evidence to the contrary, a court must presume the Legislature exercised its power to investigate and determine such facts. See State ex rel. Payne v. Reeves , 44 S.D. 568, 595, 184 N.W. 993, 999-1000 (1921). See also State ex rel. Kornmann v. Larson , 81 S.D. 540, 551, 138 N.W.2d 1, 7 (1965); Payne v. Jones , 47 S.D. 488, 491, 199 N.W. 472, 473 (1924).

[¶29.] Even if the Legislature used historical education costs instead of actual costs, the formula may still be valid. The Wyoming Supreme Court recognized that historical costs can be a starting point in State v. Campbell County School District (Campbell Cnty. II) , 19 P.3d 518 (Wyo. 2001). After determining that Wyoming's funding formula was unconstitutional in Campbell County I , the court directed the Wyoming Legislature to develop a school funding system based upon costs. 907 P.2d at 1279. The Wyoming Legislature retained a consulting firm for that purpose. See Campbell Cnty. II , 19 P.3d at 537. Rather than carrying out a study of actual costs, however, the consulting firm determined costs based upon statewide averages of past school district expenditures and "professional judgment." Id

. The Wyoming Supreme Court held that, while this was not an ideal approach, the Wyoming Legislature had to "start somewhere" and use of past statewide average expenditures to estimate costs was appropriate. Id . at 538. The court went on to hold, however, that "regular and timely inflation adjustments" would be essential to funding the real costs of education. Id . at 549.*fn27

[¶30.] When the 1995 South Dakota Legislature developed the current formula, it based the starting PSA for 1997 upon actual 1993-94 school district expenditures plus a 3.3% inflation factor. The Legislature then made provision in the new formula for continuing annual inflationary adjustments to the PSA according to the rate of inflation under the CPI or by 3%, whichever was less. 1995 S.D. Sess. Laws ch. 77, § 3. See also SDCL 13-13-10.1(3)-(4). The Legislature annually appropriated the required inflationary adjustment to the PSA for each year the formula was in place. In some years, the Legislature appropriated a higher rate of inflation than the formula required. Based on the evidence at trial, it appears that the school funding formula was originally designed in line with historical cost data as regularly adjusted for inflation.

[¶31.] The plaintiffs, however, find problems with the formula's inflation provision. They argue it is structurally defective because, in some years, annual inflation may exceed the 3% cap in the formula. See SDCL 13-13-10.1(3)-(4). In those years, education funding would fall behind actual costs. This argument has merit; however, the plaintiffs have not shown that this has occurred. At the time of trial, the Legislature had increased the PSA by more than the formula's required inflation rate in four of the years preceding trial.

[¶32.] The plaintiffs also criticize the formula's reliance on the CPI as a measure of inflation. They assert that the CPI does not capture inflationary increases related to salaries and benefits which typically constitute at least 75% of a school district's operating budget. The plaintiffs presented no evidence to support this claim, except for one legislator's general opinion voiced in a 2007 e-mail message to Dr. Melmer without any specifics. The CPI is a commonly used measure of inflation frequently relied upon in a number of legal contexts. See, e.g. , Enchanted World Doll Museum v. Buskohl , 398 N.W.2d 149, 150 (S.D. 1986) (CPI used as a basis for inflationary adjustments in a contract for deed); SDCL 62-4-7 (increases in workers' compensation benefits based upon the CPI); A.R.S.D. 74:07:01:07 (dollar amounts for environmental financial assurance adjustable based upon the CPI). See also Campbell Cnty. II , 19 P.3d at 549 n.32 (CPI used in a school funding case to document annual inflation rates and the erosion of purchasing power from 1995 to 2000). Absent more persuasive evidence of its inadequacy, using the CPI as a measure of inflation does not render the funding formula unconstitutional. On this record, the plaintiffs have not shown that inflationary conditions skewed the formula or that the funding formula is unrelated to actual costs.

[¶33.] The plaintiffs next assert that the replacement of the small school factor with the small school adjustment in 2007 eliminated an annual inflationary increase for smaller school districts. The small school factor and small school adjustment contemplate economies of scale; that is, smaller districts incur greater cost per student than larger districts. The small school factor utilized a schedule of multipliers to artificially increase the enrollment of school districts with fewer than 600 students. See SDCL 13-13-10.1(2). For example, school districts with fewer than 200 students multiplied their enrollments by 1.2. SDCL 13-13-10.1(2)(a). That product was then multiplied by the PSA, as annually adjusted for inflation, to arrive at local need. SDCL 13-13-10.1(5) (Supp. 1996). The 2007 amendments changed this calculation. Enrollments are no longer artificially increased; actual enrollment figures are used instead. See SDCL 13-13-10.1(2A), -10.1(5). Smaller school districts simply receive an additional fixed per pupil amount according to a statutory sliding scale maximizing at $847.54 and declining as enrollments grow to 600. SDCL 13-13-10.1(2C), -10.1(5). There is no provision for an annual inflation adjustment to this fixed per pupil amount. Thus, small school districts do lose the benefit of an inflationary increase in their special adjustment every year.*fn28

[¶34.] Finally, the plaintiffs contend that opt outs, intended as an education enhancement mechanism, have instead become a tool of survival for many school districts. Since a school board's decision to opt out can be referred (see SDCL 10-12-43), the plaintiffs claim the decision to adequately fund education defaults to a majority vote of local taxpayers in violation of the constitution. [¶35.] The constitution makes funding education both a state and local school district responsibility. S.D. Const. art. VIII, § 15. See also Olson v. Guindon , 2009 S.D. 63, 771 N.W.2d 318. It requires the Legislature to make provision "by general taxation and by authorizing the school corporations to levy such additional taxes as with income from the permanent school fund shall secure [the school system] . . . ." S.D. Const. art. VIII, § 15. Ultimately, however, the constitution imposes the duty on the Legislature alone to "maintain" the school system and to devise the state and local tax system that will "secure" it. S.D. Const. art. VIII, §§ 1, 15. Whatever system the Legislature devises, therefore, must be sufficient to ensure the funding of a constitutionally adequate school system in every school district. A referendum conflicts with this constitutional requirement if it permits the voters in a district to reject taxes or levies necessary to fund a constitutionally adequate school system in the district.

[¶36.] If an opt out is necessary to fund a constitutionally adequate school system, it may be problematic, especially if the opt out fails at the voting booth. Based upon the testimony provided, however, nearly all of the focus districts*fn29 attempting opt outs ultimately were able to pass them. The exception was the Bon Homme School District which, despite the rejection of two opt out attempts in 2000-2001, continued to operate until the time of trial, continued to provide the required curriculum, and produced academic results consistent with the other focus districts. We find this record insufficient to demonstrate a constitutional violation in the referral of any particular opt out.

Educational Results as a Factor in Constitutional Determination

[¶37.] Even if there are flaws and inadequacies in the school funding formula and opt out provision, the plaintiffs still must show the correlation between funding levels and a constitutionally adequate education. Thus, educational results are also a factor in determining constitutionality of the system. In other words, are the students receiving the education required by the constitution? The plaintiffs must prove that the system fails to provide South Dakota school children with an education that gives them the opportunity to prepare for their future roles as citizens, participants in the political system, and competitors both economically and intellectually. The plaintiffs focus on educational resources and academic results to prove their case.

Educational Resources

[¶38.] The plaintiffs concentrate on the conditions of their six focus school districts to support their contention of inadequate resources: Faith; Doland; Florence; Bon Homme; Willow Lake; and Rapid City.

[¶39.] Testimony as to conditions in these districts mainly came from their superintendents.*fn30 Common themes emerged: insufficient funding resources provided by the current school funding system; a resultant inability to meet ongoing funding obligations; and a lack of realistic options for increased funding. Due to low tax bases and rising costs for items such as insurance and fuel, the superintendents testified their districts were running out of funds and depleting their reserves. Some districts were surviving only with the benefit of successful opt outs while still others had been unable to pass opt outs and were facing future funding ...


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