Transcript School Finance in Iowa - West Central Community School

School Finance in Iowa
Iowa Association of School Boards
1
School Finance - Background

Dillon’s 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.
2
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.
3
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.
4
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.
5
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
6
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
7
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.”
8
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.
9
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.
– Iowa’s Constitution does not guarantee
educational equity.
10
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.
11
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.
12
Operation of Foundation Formula
Property Poor District
Property Rich District
Additional Levy
Additional Levy
State Aid
State Aid
Total
Cost
Per
Pupil
87.5%
of Total
Cost
Per
Pupil
$4,487
$5,128
Total
Cost
Per
Pupil
87.5%
of Total
Cost
Per
Pupil
$4,487
$5,128
$5.40 Uniform Levy
$5.40 Uniform Levy
13
14
15
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:
Levy Rate Comparison
Levy Rate Per $1,000 of Taxable
Valuation

$10.9948
$44.7582
$50.0000
$40.0000
$30.0000
$39.3582
$20.0000
$10.0000
$0.0000
$5.5948
$5.4000
$5.4000
District 1
District 2
Uniform Levy
Additional Levy
16
Purpose of Foundation
Percentage
If foundation percentage set at 100
percent, the tax rate would look like:
Levy Rate Comparison
Levy Rate Per $1,000 of Taxable
Valuation

$10.9948
$5.4000
$12.0000
$10.0000
$8.0000
$5.5948
$6.0000
$-
$4.0000
$2.0000
$5.4000
$5.4000
District 1
District 2
$0.0000
Uniform Levy
Additional Levy
17
Purpose of Foundation
Percentage

Regardless of the state foundation
percentage, total funding to the district
is exactly the same (just who pays is
changed).
State School Funding Formula - Total District
Total Funding
$3,500,000
$3,000,000
$3,486,000
$3,486,000
$3,500,000
$435,750
$2,500,000
$2,000,000
$1,500,000
$2,629,670
$3,065,420
$1,000,000
$500,000
$0
$4,000,000
$420,580
$$420,580
District 1
District 2
Uniform Levy
State Foundation
Additional Levy
Total Funding
$4,000,000
State School Funding Formula - Total District
$3,486,000
$435,750
$3,486,000
$-
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$2,629,670
$3,065,420
$1,000,000
$500,000
$0
$420,580
$420,580
District 1
District 2
Uniform Levy
State Foundation
Additional Levy
18
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.
19
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).
20
School Aid - Basics

Basic Calculations - Allowable Growth
– Last year’s minimum District Cost Per Pupil (e.g.,
$4,931)
– Allowable Growth Rate = 4.0%
– This year’s 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
21
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.
22
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):
2003-04
Enrollment
450
Cost Per Pupil
$
4,648
Regular Program Budget $ 2,091,600
2004-05
410
$
4,741
$ 1,943,810
Difference
Buget Guarantee
Net Change in Budget
$ (147,790)
$ 147,790
$
-
23
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 2007 70%
FY 2011 30%
FY 2014 0%
24
Scale down (continued)
Calculation of Budget Guarantee Using Scale-Down Option
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Cost Per
FY04
Pupil (2%
Budget
Enroll. growth)
Guarantee
373.3 $ 4,648 $ 103,572
356.6 $ 4,741
338.3 $ 4,836
338.0 $ 4,932
380.0 $ 5,031
318.2 $ 5,132
315.5 $ 5,234
308.2 $ 5,339
307.0 $ 5,446
305.0 $ 5,555
301.1 $ 5,666
Change in
Regular
Regular
Scale
Program Dist. Program Dist. Down Scale Down
Cost
Cost
Pct.
Amount
$ 1,838,577
100%
$ 1,690,721 $ (147,856)
90% $ 133,070
$ 1,635,944 $ (54,777)
80% $ 162,106
$ 1,667,183 $
31,239
70% $ 119,976
$ 1,911,835 $ 244,652
60% $
$ 1,632,928 $ (278,907)
50% $
$ 1,651,454 $
18,526
40% $
$ 1,645,508 $
(5,946)
30% $
$ 1,671,883 $
26,375
20% $
$ 1,694,211 $
22,328
10% $
$ 1,705,998 $
11,787
0% $
-
Regular
Program
Cost
w/Guarantee
$ 1,838,577
$ 1,823,791
$ 1,798,050
$ 1,787,159
$ 1,911,835
$ 1,930,953
$ 1,651,454
$ 1,667,969
$ 1,671,883
$ 1,694,211
$ 1,711,153
($1,838,577 - $1,635,944) * 80% =
25
101% Option

Calculation 2: 101% Option
– District would be eligible to receive
101% of prior year’s regular program
district cost.
– Does NOT include any “accumulated
guarantee” (any amount in excess of
headcount times cost per pupil for FY
2004)
26
101% (continued)
Calculation of Budget Guarantee Using 101% Option
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Enroll.
373.3
356.6
338.3
338.0
380.0
318.2
315.5
308.2
307.0
305.0
301.1
FY04
Cost Per Pupil
Budget
(2% growth) Guarantee
$
4,648
$
4,741
$
4,836
$
4,932
$
5,031
$
5,132
$
5,234
$
5,339
$
5,446
$
5,555
$
5,666
Change in
Regular
Regular
Program Dist. Program Dist.
Cost
Cost
101% Amount
$ 1,735,005
$ 1,690,721 $ (44,284) $
61,634
$ 1,635,944 $ (54,777) $
71,684
$ 1,667,183 $
31,239 $
$ 1,911,835 $ 244,652 $
$ 1,632,928 $ (278,907) $ 298,025
$ 1,651,454 $
18,526 $
$ 1,645,508 $
(5,946) $
22,461
$ 1,671,883 $
26,375 $
$ 1,694,211 $
22,328 $
$ 1,705,998 $
11,787 $
5,155
Regular
Program
Cost
w/Guarantee
$ 1,735,005
$ 1,752,355
$ 1,707,628
$ 1,667,183
$ 1,911,835
$ 1,930,953
$ 1,651,454
$ 1,667,969
$ 1,671,883
$ 1,694,211
$ 1,711,153
$1,690,721 * 101% =
27
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.
28
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:
FY 2007 Budget
Enrollment
Cost Per Pupil
$
Regular Program Budget $
FY 2007 Actual
450
500
5,128 $
5,128
2,307,600 $ 2,564,000
Shortfall
On-time Funding Authority
Net Change in Budget
$
$
$
(256,400)
256,400
29
School Aid - Basics

On-Time Funding (Cont.)
– Senate File 203 makes permanent the ontime funding.
– Districts requesting the authority must
adopt a resolution and notify the SBRC by
November 1 each year.
30
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.
31
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?
32
Building Blocks of Spending
Authority
Unspent Balance
100
Federal Grants - Misc
80
Teacher Compensation
- Misc
ELL-Combined
District Cost (CDC)
Special EducationCDC
Regular Program-CDC
60
40
20
0
Total Spending Authority
33
Comparing Spending Authority and Cash Concepts
Term
Spending Authority
Unspent Balance
Term
Cash On Hand
State Aid
Property Taxes
Miscellaneous
Income
Explanation
Total amount a school district can legally spend
during a year.
Remaining amount of spending authority at end of
year (Spending Authority minus Actual
Expenditures).
Analogy
Type
Income + credit cards Recurring
Credit cards
One time
Explanation
Total cash on hand.
Amount received by a district from state General
Fund.
Amount received by a district from local property
taxes.
Any income which is not propety tax or state aid
(must be actually received).
Analogy
Savings account
Paycheck
Type
One time
Recurring
Paycheck
Recurring
Birthday money from
Grandma
One time/
recurring
34
Unspent Balance and Cash on Hand Matrix
Unspent
Balance
Cash on Hand
Negative
Zero
Negative
Bad
Less Bad
Zero
Less Bad
Tolerable
Positive Better than reverse
Even Better
$150,000
$150,000
$100,000
$100,000
$50,000
$50,000
$0
$0
Cash
-$50,000
-$100,000
Unspent
Balance
Positive
Water, water everywhere…
More Tolerable
Best
Cash
-$50,000
-$100,000
Unspent
Balance
35
Cash and Unspent Balance – Pictorial Representation
$150,000
$150,000
$100,000
$100,000
$50,000
$50,000
$0
$0
Cash
-$50,000
Unspent
Balance
-$100,000
-$150,000
-$150,000
$150,000
$150,000
$100,000
$100,000
$50,000
$50,000
Cash
Unspent
Balance
$0
Cash
-$50,000
Unspent
Balance
-$50,000
-$100,000
$0
Cash
Unspent
Balance
-$50,000
-$100,000
-$100,000
-$150,000
-$150,000
36
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).
37
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
38
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.
39
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.
40
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.
41
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.
42
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
Own-Source Local Option Revenues per Pupil
Supplement Level
State Supplement
District A District B
$225
$440
$420
$420
$195
$0
43
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.
44
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.
45
School Aid - Contacts


Iowa Association of School Boards
Department of Management
46
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
47