Teacher Salary Transparency: 2026 Audit

The issue of teacher compensation in South Dakota has been a perennial battleground, a flashpoint where fiscal conservatism collides with the undeniable necessity of retaining a qualified workforce. For decades, South Dakota languished at the absolute bottom of national rankings for teacher pay. The historic half-penny sales tax increase passed years ago was meant to be the definitive corrective measure, a legislative "moonshot" designed to propel the state into regional competitiveness. Now, in 2026, it is time to audit the results. Has the promise been kept, or has the influx of revenue been diluted by administrative bloat and district-level obfuscation?

This audit is not merely a recitation of averages. Averages can be deceptive; they can smooth over the jagged inequalities that exist between the prosperous Sioux Falls metro area and the struggling, sparsely populated districts west of the river. To truly understand the state of educator compensation in 2026, we must peel back the layers of aggregated data and examine the granular realities of district budgets, accountability targets, and the actual take-home pay of the professionals tasked with educating our youth.

The 2026 Salary Landscape: A Fragmented Reality

At a macro level, the state has seen nominal increases in average teacher salaries. The legislative target set during the initial reform—a moving target adjusted for inflation—has technically been met by the statewide average. However, this statistical victory masks a fragmented reality. The distribution of these funds has been uneven, creating a two-tiered system of education employment within the state borders.

Urban vs. Rural Disparities

The most glaring finding of our 2026 audit is the widening chasm between urban and rural compensation packages. Districts along the I-29 corridor, buoyed by robust property tax valuations and steady enrollment growth, have managed to outpace inflation. Teachers in these districts are seeing salary schedules that, while not lavish, offer a path to a middle-class existence. In contrast, rural districts are facing an existential crisis.

Many small districts are reliant entirely on state aid, with little local property tax base to fall back on. When state aid increases fail to keep pace with the specific inflationary pressures of rural living—such as higher fuel costs and housing shortages—the real wages of rural teachers decline. We are seeing a "hollow middle" in rural faculty rooms; districts are staffed by new graduates who leave after two years and retirees who return out of loyalty or financial necessity. The mid-career professional, the backbone of any school system, is becoming an endangered species in towns with populations under 1,000.

The Impact of Benefits Erosion

Salary is only one component of compensation. A disturbing trend identified in the 2026 data is the erosion of benefits packages to subsidize salary increases. In an effort to hit the state-mandated salary targets, several districts have quietly increased the employee share of health insurance premiums or reduced contributions to retirement health savings accounts.

This "robbing Peter to pay Paul" approach allows superintendents to report higher average salaries to the Department of Education, technically complying with accountability rules, while the net financial position of the teacher remains stagnant or even worsens. This is a subtle form of fiscal sleight-of-hand that requires rigorous scrutiny. When a teacher receives a $1,000 raise but sees their insurance premium deductible rise by $1,200, they have effectively taken a pay cut. Our monitoring indicates this practice is becoming systemic across mid-sized districts.

Accountability Mechanisms: The 97% Rule

The core of the state's accountability framework is the "97% Rule," which mandates that districts must spend at least 97% of the state aid increase designated for teacher salaries on actual teacher salaries. The intent was clear: to prevent districts from siphoning off money meant for the classroom into capital outlay projects, administrative raises, or reserve funds.

Compliance and Creative Accounting

While compliance rates are officially high, the definition of "teacher compensation" has proven elastic. We have observed districts reclassifying administrative roles as "instructional coaches" or "curriculum directors" to include their higher salaries in the teacher aggregate, artificially boosting the district's average. This dilutes the impact of the funding on the classroom teacher.

Furthermore, the mechanism for enforcing the 97% rule remains reactive rather than proactive. Penalties for non-compliance are often waived or reduced if a district can show "good cause," a term that has been interpreted broadly by the School Finance Accountability Board. "Declining enrollment" is frequently cited as a justification for failing to meet targets, yet rarely do we see a corresponding reduction in central office staffing. The administrative overhead in declining districts often remains static, creating a top-heavy structure that consumes an ever-growing percentage of the general fund.

The Role of Opt-Outs

An increasing number of districts are turning to "opt-outs"—referendums to exceed the state property tax cap—simply to meet basic operational costs, including salaries. This shifts the burden back to local property taxpayers, undoing the logic of the state-level sales tax increase which was intended to provide property tax relief. The reliance on opt-outs creates equity issues; wealthy districts can easily pass an opt-out, while poor districts cannot. This reinforces the geographic inequality mentioned earlier. In 2026, we saw a record number of opt-out attempts, with a mixed success rate, signaling taxpayer fatigue.

Future Projections and Recommendations

Looking ahead to 2027 and beyond, the trajectory is concerning. If the state aid formula continues to increase only at the rate of CPI-W or 3% (whichever is less), while the actual cost of living and health insurance rises at 5-7%, the gains made by the sales tax increase will be entirely erased within three years. We are already seeing the "salary cliff" approaching.

Policy Recommendations

To avert a return to the bottom of the national rankings, three structural changes are necessary. First, the accountability metrics must be tightened to exclude administrative-adjacent roles from the teacher salary calculation. Second, a "rural differential" should be introduced into the funding formula to account for the lack of economies of scale in small districts. Third, the state must address the rising cost of health insurance, perhaps by creating a statewide risk pool for school employees to lower premiums.

Without these interventions, the 2026 audit will serve as a tombstone for the era of teacher salary reform—a brief period of progress followed by a slow, inevitable slide back into mediocrity. For parents and community members, the call to action is clear: attend your school board budget hearings. Ask specific questions about the benefits package, the ratio of administrators to teachers, and the long-term solvency of the general fund. Transparency is not given; it is demanded.

For more information on school governance, read our School Board Governance Guide. To understand how these budget issues affect infrastructure, see our report on The Rural Infrastructure Gap.