School Finance in Iowa

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School Finance in Iowa

• Iowa Association of School Boards

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School Finance - Background

• Dillons rule
• School districts only have those powers expressly
  authorized by the Code of Iowa.
• Home rule
• Cities and counties can do anything not expressly
  prohibited.

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School Finance - Background

• The school foundation formula relies on two
  sources of revenue
• State General Fund appropriations
• Locally raised property taxes
• Before discussing the school foundation formula,
  it is important to have a basic understanding of
  property taxes.

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School Finance - Background

• Property Tax Background
• Assessed v. taxable valuations
• Rollbacks
• Tie between residential and agricultural property
• Assessment growth limitation
• Taxing Districts, Taxing Authorities
• Tax Rate x Taxable Value Taxes Levied
• Lag between assessments and district budgets.

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School Finance - Background

• Property Tax Credits
• Residential - Homestead and Military Service
  Credits reduce the taxable value by 4,850 and
  1,850, respectively.
• Elderly and Disabled tax credit based on
  percentage of income.
• Agricultural - Family Farm and Ag Land Tax
  Credits - difference between regular program tax
  levy and 5.40 uniform levy.

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School Finance - Background

• Agricultural Property
• Different than other classes of property
• Taxed based on productivity value
• Value in relationship to all other agricultural
  property in county
• Roughly 30 of market value

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School Finance - Background

• Examples-
• Property tax on three different properties - a
  home, a business and a farm. All utilize the
  same levy rate.
• Residential property - 1.34 levy on 100,000
  home. (.459660 x 100,000) - 4,850 x 1.34 /
  1,000 55.10
• Commercial property 1.34 levy on 100,000
  business. (.991509 x 100,000) x 1.34 / 1,000
  132.86
• Agricultural property 1.34 levy on 250,000
  farm. (.3 x 250,000) x 1.34 / 1,000 100.50

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School Aid - Basics

• Purpose of foundation formula
• Code of Iowa, 257.31
• equalize educational opportunity, to provide
  good education for all children of Iowa, to
  provide property tax relief, decrease the
  percentage of school costs paid from property
  taxes, and to provide reasonable control of
  school costs.

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School Aid - Basics

• The Bright Line in School Finance
• Educational program expenditures are funded and
  equalized by the state foundation formula.
• Facility expenditures are funded locally (with
  some state assistance) and are not under the
  finance formula.

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School Aid - Basics

• Foundation formula - ceiling v. floor
• The foundation formula results in a maximum
  expenditure per pupil and therefore a maximum
  amount a district can raise and spend (note not
  every district has the same ceiling).
• Other states school aid formulas have created a
  minimum spending per pupil.
• This has led to a number of lawsuits nationwide.
• Iowas Constitution does not guarantee
  educational equity.

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School Aid - Basics

• Basic Principles
• The school aid formula is a child-based formula.
• The formula provides funding on a per child
  basis.
• The total amount of foundation formula revenue is
  the number of children times a cost per child.

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Operation of Foundation Formula

• Three components
• Uniform Levy - Property tax levy of 5.40 per
  thousand of taxable valuation.
• State Foundation Percentage - Amount the state
  pays in excess of 5.40 - varies by district
  (87.5 of cost per pupil).
• Additional Levy - Property tax levy which funds
  the difference between the Combined District Cost
  and the sum of the Uniform Levy and the State
  Foundation Percentage.

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Operation of Foundation Formula
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What is the Purpose of the Foundation Percentage?

• Determines how much the state is going to
  equalize local property tax rates.
• If no state foundation percentage, tax rates for
  highest district would look like

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Purpose of Foundation Percentage

• If foundation percentage set at 100 percent, the
  tax rate would look like

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Purpose of Foundation Percentage

• Regardless of the state foundation percentage,
  total funding to the district is exactly the same
  (just who pays is changed).

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Operation of Foundation Formula

• Two factors affecting district Regular Program
  budgets
• 1. Enrollment - increases or decreases in
  enrollment affect district budgets.
• 2. Combined district cost changes (Allowable
  Growth).
• Changes in growth in valuations - uniform levy
  rate (5.40) or foundation percentage have no
  effect on Regular Program.

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School Aid - Basics

• Basic Calculations - District Costs
• Regular Program District Cost - budget enrollment
  times district cost per pupil. 608.4 students x
  5,128 3,119,875
• Combined District Cost - sum of Regular Program
  plus special education, ELL, media services.
• What happens if less is spent? Carries forward
  as unspent budget authority - can be used in
  future (one-time).

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School Aid - Basics

• Basic Calculations - Allowable Growth
• Last years minimum District Cost Per Pupil
  (e.g., 4,931)
• Allowable Growth Rate 4.0
• This years district cost per pupil growth .04
  x 4,931 197.24 - rounds to 197
• 4,931 197 5,128
• If District Cost Per Pupil is higher than
  minimum, only get the fixed dollar - not 4.0.
  For example, 5,072 197 5,269
• Not 5,072 x 4 5,275

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School Aid - Basics

• Basic Calculations (cont.)
• Differing District Costs Per Pupil
• Slightly over 50 of districts have a cost per
  pupil above the minimum although the deviation is
  less than 4.5.
• Differences will be reduced over time.
• When is 4 allowed growth not 4?
• Common perception is all districts receive 2
  increase in budgets.
• In FY 2004, 2 allowed growth resulted in 32.4
  million new money (1.4) of which 27.5 million
  was due to the budget guarantee.
• In FY 2005, 2 allowed growth resulted in 39.2
  million of new money (1.7), of which 31.1
  million was due to the budget guarantee.
• In FY 2006, 4 allowed growth resulted in 71.7
  million of new money (3.0), of which 18.8
  million was due to the budget guarantee.
• In FY 2007, 4 allowed growth resulted in 88.3
  million of new money (3.7), of which 18.8
  million was due to the budget guarantee.

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School Aid - Basics

• Basic Calculations - Budget Guarantee
• Principle Districts receive what they received
  in the prior year for the Regular Program Budget
  regardless of enrollment changes.
• Fact The budget guarantee is being phased out.
• Base Calculation (the way it was)

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School Aid - Basics

• Set two separate calculations
• Calculation 1 Scale down option
• Declining percentage of FY 04 Regular Program
  District Cost (with adjustment) as follows

FY 2004 100 FY 2008 60 FY 2012 20
FY 2005 90 FY 2009 50 FY 2013 10
FY 2006 80 FY 2010 40 FY 2014 0
FY 2007 70 FY 2011 30
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Scale down (continued)
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101 Option

• Calculation 2 101 Option
• District would be eligible to receive 101 of
  prior years regular program district cost.
• Does NOT include any accumulated guarantee (any
  amount in excess of headcount times cost per
  pupil for FY 2004)

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101 (continued)
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Implications of the Phase-Out

• Districts with declining enrollment will see a
  reduction in their budget authority (and
  revenues).
• The reduction in authority will accelerate for
  those districts under the scale down option.
• Districts on the 101 option will have one year
  to react to significant reductions in
  enrollments.
• Use tools available on the IASB website to
  estimate the impact and plan now.

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School Aid - Basics

• Basic Calculations - On Time Funding
• -Principle - Districts with increasing enrollment
  have a way of capturing growth. Due to year
  delay in enrollment count in funding formula -
  districts with increasing enrollment have
  shortfalls.
• -Calculation

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School Aid - Basics

• On-Time Funding (Cont.)
• Senate File 203 makes permanent the on-time
  funding.
• Districts requesting the authority must adopt a
  resolution and notify the SBRC by November 1 each
  year.

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School Finance - Weightings

• Why Weight?
• Some populations have higher costs than others.
  Two choices pay more per student or count
  students at value greater than 1.
• Special education has three weightings .72,
  1.21, 2.74 depending on severity.
• These are in addition to the 1.0 weight.

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School Finance - Spending Authority

• Spending authority is the sum of
• Combined District Cost (property tax and state
  aid)
• Miscellaneous income anything not above
• Unspent balance from previous years
• Why important?
• Districts cannot exceed spending authority
• Not a measure of cash
• Why allow districts to carry forward unused
  spending authority?

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Building Blocks of Spending Authority
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Cash and Unspent Balance Pictorial
Representation
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School Aid - Funding Programs

• Educational Program Levies
• Instructional Support Levy (ISL)
• Only levy available to schools to increase
  General Fund budget.
• Maximum of 10 of Regular Program Budget.
• Can be either property taxes or income surtax, or
  combination.
• Can be board-approved (maximum five years -
  subject to petition) or voter-approved (maximum
  10 years).

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School Aid - Funding Programs

• ISL may be used for any General Fund purpose
  except
• Dropout prevention programs
• Talented and Gifted programs
• PPEL uses
• Management levy uses
• Special education deficits
• ISL generates nearly 140 million statewide
• 11 state / 36 income surtax / 52 property tax

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School Aid - Facilities

• Levies Outside General Fund
• Facility Related Levies
• Board-Approved Physical Plant and Equipment Levy
  (PPEL). Maximum 0.33 / thousand.
• Voter-Approved PPEL. Maximum 1.34 / thousand.
  Maximum 10 years. Caution - allowable uses
  slightly different (simple majority). Can use
  income surtax as well.
• Public Education and Recreation Levy (PERL).
  Maximum 0.135 / thousand. Public use
  playgrounds/recreation facilities.

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School Aid - Facilities

• Facility related levies (cont.)
• Library Levy (AKA Amana Library Levy). Maximum
  of 0.20 / thousand. Used for joint library
  facilities if no local public library available.
• Local option sales tax. Maximum of 0.01
  additional local option sales tax for school
  infrastructure.
• Can use for repair and renovation of buildings
  and facilities.
• Distributed based on number of students your
  district has attending school in the county in
  which passed.
• Maximum 10 years or less if ballot specifies.

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School Aid - Facilities

• Local Option Sales Tax Changes votes since
  7/1/04
• Expanded Purpose Changes the definition of
  infrastructure to include PPEL (e.g., buses,
  technology, repair) and Public Education and
  Recreation Levy (PERL) purposes.
• Revenue Purpose Statements Requires revenue
  purpose statements (how are you going to spend
  the funds). The statements are specific to each
  district in the county.

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Local Option Tax and Supplement Funds

• If want to change revenue purpose statements must
  have a district-wide election. Requires a 50
  majority to change purpose.
• Make sure statements are in harmony with ballot
  language and they should not state broader
  purposes than those contained in ballot language.

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Facility related levies (cont.)

• Supplement Funding
• Starting in FY 2005, supplement funding
  appropriated to bring districts up to 420 (or to
  a level the fund can support).
• The math
• If funds are available to bring everyone to 420

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School Aid - Facilities

• Facility related levies (cont.)
• Bonded Debt
• Requires 60 majority - onetime election to go up
  from 2.70 to 4.05
• Maximum of 4.05 / thousand
• Maximum 20 years
• Best time to vote is October, November and
  December.

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School Aid - Other Levies

• Management Levy-
• Used to pay unemployment benefits, insurance (not
  employee benefits), judgements against the
  district, early retirement benefits.
• Cash Reserve Levy
• Reserve for the General Fund of the school
  district.
• Generated by property tax via school board action
  annually.
• Used to fund spending authority but does not
  directly generate spending authority.

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School Aid - Contacts

• Iowa Association of School Boards,1-800-795-4272
  
• Department of Management,Lisa Oakley,
  515-281-8485

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School Aid - Web Resources

• IASB www.ia-sb.org
• Dept. of Education www.state.ia.us/educate/index.
  html
• Legislature - bills, amendments, etc.
  www.legis.state.ia.us
• Legislative Fiscal Bureau www.legis.state.ia.us/
  lfb/
• Dept. of Revenue www.state.ia.us/government/drf/
  index.html