Watertown Schools Mitigate Cuts with Strategic Budgeting in $116.6 Million Proposal

Northeast Radio SD News – Watertown, SD - Facing the dual challenges of a statewide “wobbly” tax structure and declining local enrollment, the Watertown School Board met Monday night to review a $116,617,894 preliminary budget for the 2026-27 fiscal year. The proposal reflects a 3.66% decrease across all funds from the previous year, driven largely by proactive staffing adjustments and strategic fund management.

Superintendent Dr. Jeff Danielsen applauded the board for a “measured path” that avoids the massive mid-year cuts currently making headlines in other South Dakota districts.

Navigating a “Fiscal Forecast” of Declining Enrollment

The defining theme of the FY27 budget is the district’s “Fiscal Forecast,” a long-term planning tool implemented following the closure of Roosevelt Elementary and the transition of McKinley into an Early Childhood Center.

The district is projecting an enrollment of 3,304 students, a continued decline that presents significant funding hurdles. Because South Dakota’s state aid is distributed on a per-student basis, Watertown is not seeing the full benefit of the state’s 1.4% per-student allocation increase.

“When you have a decline in enrollment, you’re not actually receiving a 1.4% increase,” explained Business Manager Heidi Clausen. “It equates to a negative—your revenue goes down because your enrollment has gone down”.

To offset this, the district has relied on “attrition”—managing staff numbers through retirements and resignations rather than a Reduction in Force (RIF). For FY27, this includes the reduction of several sections, including second, third, fifth, and sixth grades, as well as a foreign language position and a bus route.

“We’ve tried to maintain that even as we come through with the smaller class sizes, we remain a Double-A school district,” Danielsen said. “We need programming and offerings commensurate with what our Double-A peers have in the state”.

The General Fund: $30.6 Million

The General Fund, which covers day-to-day operations and salaries, is proposed at $30,654,675, a 3.31% decrease from the prior year. Salaries and benefits remain the largest expenditure, accounting for 84% of the fund.

One major change for taxpayers is a substantial decrease in the owner-occupied property tax levy, which dropped from 2.518 to 0.669 per thousand. While this provides relief to homeowners, it shifts the funding burden heavily to the state.

“The state is making up that difference,” Clausen noted. “Where I do have a concern is that state aid is making up that difference... now they’re looking at the fact that you have less local revenue statewide... we are way more susceptible to cuts at the state level than ever before”.

Superintendent Danielsen likened the state’s tax structure to a “three-legged stool” that has become increasingly unstable. “We already are down one, so if you take away or limit the other... you’ve got a pretty wobbly tax structure,” he said.

Special Education and the Challenge of Staffing

The Special Education budget is set at $10,119,220. Unlike the General Fund, this area is seeing targeted expansion to meet student needs, including adding a preschool teacher to accommodate high turnout during recent screenings.

However, the district continues to struggle to find in-person specialists. The budget includes professional service contracts with firms such as Presence Learning and Teachwell to provide virtual speech therapy.

“It’s the tough part of finding people to cover those services for us,” said Assistant Superintendent Derek Barrios. “It’s a little bit of a blessing and a curse. If you had one FTE (Full-Time Equivalent), they can only be in one place at one time. For scheduling purposes... you’re now able to go at 10 o’clock at three different places because you have this Presence Learning”.

Capital Outlay: Buildings, Buses, and the Archway

The $10,163,610 Capital Outlay budget covers long-term assets, building maintenance, and debt service. Key projects for FY27 include:

1.     Building Improvements by School 

The district has shifted its focus toward “proactive” maintenance to avoid the costly emergency repairs seen in other districts. The $3,370,750 allocated for buildings in FY27 is broken down across the district:

·         High School ($276,000): Major projects include repairing the auditorium roof, concrete work, and beginning a phased replacement of student lockers. It also includes an upgrade to the projection system in the DD Miller auditorium.

·         Jefferson and Lincoln Elementary Schools: A major portion of the “Central Services” budget ($2.54 million) is earmarked for installing air conditioning at both Lincoln and Jefferson elementary schools.

·         Intermediate School ($172,000): Updates include district-wide clock system upgrades, hallway carpeting, interior painting, and sidewalk repairs.

·         Jefferson Elementary ($119,600): Beyond the AC project, funds will cover a full parking lot rebuild, a water heater replacement, and new flooring for the stage and office bathrooms.

·         Mellette Elementary ($113,500): Focuses on outdoor student environments, including playground updates and new landscaping.

·         McKinley and Middle Schools: Smaller allocations cover interior painting and carpeting at McKinley ($51,300) and a water heater replacement at the Middle School ($13,000).

2. Modernizing the Bus Fleet 

The district has budgeted $440,000 for vehicle purchases in FY27, specifically targeting the aging transportation fleet.

·         Clean Diesel School Bus Grant: The district is leveraging federal support through this grant to purchase two new buses. This grant provides rebates to replace high-emission diesel buses with cleaner models.

·         Fleet Expansion: In addition to the buses, the budget covers the purchase of a new Suburban for smaller group transport and a food service truck to assist in the transfer of meals between facilities.

3. The Archway Complex (LATC)

While the K-12 district has a separate budget, it oversees Lake Area Technical College (LATC), where the “Archway Complex” is a cornerstone project.

·         Purpose and Progress: The Archway is a nearly $20 million project designed to connect the north and south sides of the campus with an enclosed pedestrian walkway over Arrow Avenue. It also includes two new classroom buildings to expand student capacity.

·         Funding Context: The project saw significant expenditures in FY26 (over $2.7 million), with the final stages of the Archway Complex and related building improvements integrated into the long-term capital plan to modernize the campus infrastructure.

4. Five-Year Capital Outlook

The district utilizes a Five-Year Plan to project these costs and avoid financial “cliffs”. Notable future projects in the pipeline include:

·         FY28: A major technology rotation for the High School and a $1.9 million investment in district-wide tech with computer purchases.

·         FY29: Targeted air conditioning for the Arena ($950,000).

·         NTHS Remodel: The district has already begun setting aside funds (approx. $115,000) for architect fees to establish a master plan for the remodel of the Northeast Technical High School (NTHS).

Lake Area Tech: $34.7 Million

Lake Area Technical College remains the largest single fund in the budget, though it is seeing an 8.03% decrease for FY27 to $34,733,999. The budget assumes a student FTE of 2,000.

Revenue Breakdown and Local Impact

A mix of local, state, and federal sources supports the budget. Key revenue highlights include:

·         Local Sources ($17.3M): Driven primarily by student tuition and fees.

·         State Aid ($13.3M): Funding tied directly to the state’s per-student allocation.

·         Tuition Freeze: While there is a $4 per credit increase at the state level, LATC has maintained no local increase, keeping the cost per credit at $178 to remain competitive.

Staffing and Programmatic Investments Salaries and benefits account for a significant portion of the expenditures. The budget recap for LATC shows:

·         Total Salaries: $16,487,502, supporting a staff of 218.55 FTEs.

·         Expansion: The budget includes targeted support for new and expanding programs, such as the newly established Dental Hygiene program and the region’s only two-year institution commodities lab, funded in part by a $229,000 CHS Foundation grant.

Superintendent Danielsen: “I want to plug this guy right here. Steve O’Brien has been our lead negotiator for how many years, Steve?” Steve O’Brien: “It’s been a couple of decades.” Superintendent Danielsen: “When we reference the Blue Ribbon Task Force and the change with the sales tax, Steve actually also represented South Dakota’s teachers on that task force... this is his last budget meeting as an educator in here”.

Community Perspective

Board President Jon Iverson took a moment to thank the business office for their diligence, contrasting Watertown’s position with that of the Robbinsdale district in Minnesota, which is facing massive cuts due to a $20 million accounting error.

“I’m thanking you guys for planning ahead and not putting us in a position like those other school boards,” Iverson said.

Clausen jokingly responded, “That is the most terrifying compliment I’ve ever heard. I’m not going to sleep tonight; I’m going to go back and double-check everything”.

The board will hold its formal budget hearing during the regular July board meeting on July 13 at 5:00 p.m..

2026-27-Preliminary-Budget.pdf

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