Another session of the General Assembly, another partisan squabble over Iowa’s K-12 funding. What does it mean when the state agrees to a 1.1 percent increase for schools?
Iowa’s school districts are supported by a mix of state and local funding, with some federal funds thrown in for specific purposes such as assistance for high-poverty schools and students with disabilities.
State dollars, too, come with strings.
In some cases, state legislators have passed laws allowing local school boards to tax residents for specific purposes: Tax dollars gathered through the Public Education & Recreation Levy (PERL), for instance, may be used for recreational spaces and playgrounds. Tax dollars from the Physical Plant & Equipment Levy (PPEL) are intended for facility purchase or improvement.
But in recent years, state lawmakers increasingly have placed limits on the way dollars can be spent from a school district’s general fund — the multimillion dollar mix of local and state dollars that comprise the bulk of school districts’ budgets.
No doubt, they see this as a way to push reforms they believe will improve our state’s schools. But these initiatives and limitations yield another, less positive result: making it more difficult for communities and their locally elected school boards to make the most efficient use of funds.
Is the system working? Not as well as it could be. It’s time for legislators to recalibrate their efforts and give schools more control over the purse strings.
Some options to explore are:
l FLEXIBILITY — We’d like to see what local school districts could accomplish if they had almost complete discretion over the way they spend their budgets. Lawmakers would need to keep standards in place for at-risk or special needs students, as well as a statewide minimum for teacher compensation. By all means, continue to fund schools based on enrollment to assure equitable per pupil investment. But otherwise open the doors and allow local leaders to use funding in ways best suited to their district and their students’ needs. Lawmakers might be surprised by the innovation spurred when red tape is removed.
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l TRANSPORTATION — Students, regardless of where they live, should benefit from equal state education investment. But the current state formula and legislators’ insistence that teacher salaries be combined with transportation costs is shortchanging those in geographically larger districts. While an urban school might need to expend a small percentage of its general fund on transportation, a rural district with a larger footprint can quickly run through a three or four times greater amount, leaving significantly less money for teacher salaries, textbooks and other general fund expenditures. What if lawmakers capped fuel costs as a fixed percentage of the general fund, and allowed districts that require more funding to use existing infrastructure levies for that purpose? Alternatively, they might move fuel costs completely out of the general fund and make funding ongoing transportation needs an allowable use under other existing levies.
• CONSISTENCY — The Secure an Advanced Vision for Education (SAVE) sales tax program began in 2008 with proceeds earmarked for school infrastructure and property tax relief. The funding source is set to expire on Dec. 31, 2029, although needs remain. Since the fund gives districts critically needed funding for building projects and property taxpayers confidence their rates won’t increase for education building needs, lawmakers should act now to extend the program. Giving local school districts more control over how the money is spent would be one more way to allow local leaders to address their district’s unique needs.
• FORWARD FUNDING — It is unrealistic to expect Iowa school districts to file budget proposals with the state before the state has decided how much money districts will be able to spend. When Iowa lawmakers do not set supplemental state aid in time for schools to prepare factual budgets, local residents cannot understand or respond to how that budget will impact local property tax. Lawmakers did it wrong last week when they repealed forward funding for school districts. We hope they see the error of their ways and commit to completing their work on time, setting supplemental state aid early enough for school districts to plan.
• FIX THE FORMULA — As we’ve written before, a glitch in the school funding formula is shortchanging some of Iowa’s schools. Davenport Superintendent Art Tate, his supportive board members and community advocates aren’t going away. While the state’s funding formula may be arranged to eventually assure each Iowa student is worth exactly the same amount, disparities and inequities must be addressed sooner rather than later.
HOW DID WE GET HERE?
The story of school funding in Iowa reflects changes in the balance of power between state government and local communities.
In the beginning, and even in the early days of statehood, local communities established schools when and where they could raise enough money for a teacher’s salary. Completely controlled by local residents and unencumbered by broader government, the early schools provided basic education for children in ways that best met the needs and wishes of their immediate enrollment area.
Even in 1868 with the statewide adoption of “Dillon’s Rule” — which concentrated power in state government and limited local entities to only those activities expressly authorized by the state — schools operated more or less independently from Des Moines.
It wasn’t until 1950, when state lawmakers revamped significant portions of the Iowa Code, that the state’s purse strings began to flex: “It is hereby declared to be the policy of the state to encourage by the granting of state aid the reorganization of school districts into such units as are necessary, economical and efficient and which will insure an equal opportunity to all children of the state … and the attainment of higher standards of education in the schools.”
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State aid was a key provision and monetary incentive for the state’s more than 4,600 school districts to consolidate. Two decades later, three-quarters of those districts had been eliminated through mergers, although school funding continued to stem only from property taxes.
In 1968, the Iowa Constitution was amended to take some of the bite out of Dillon’s Rule, and to give local authorities — such as cities and counties — more control over their own affairs.
Lawmakers took aim at state laws inconsistent with home rule in the following years. They began granting broader powers to the cities and entities they governed — along with several limiting qualifications. Generally, local authorities were allowed to do what they wished so long as the state hadn’t specifically imposed a limitation. Standards and requirements, for instance, could be higher or more stringent than those imposed by the state, but they could not be set below.
These were also the years when the state launched its first school funding formula, resulting in a substantial increase in state aid to K-12 districts. It’s been tweaked throughout the years — in 1992, allowable growth was adopted; an increase in the percentage of funding from the state general fund came in 1996, and in 2008, more categorical program funding was included — but through all the changes and reforms, the goal of broad, community support and investment in K-12 education has remained.
It’s worth noting, not all of the funds that are “given” to school districts by the state are, in fact, state funds. In many cases, the dollars are raised through local property tax.
How much of a state supplement each district receives, as well as how much a district is allowed to spend, is determined by a lengthy formula — similar to the complex formulas used to calculate individual tax liability.
The formula has three components across 19 active sections, each with its own subsections and calculations. The base cost per pupil set by the state is combined with local property tax and then adjusted based on several other factors like the number of special needs students served by the district, preschool enrollment, instructional support programs and state replacement dollars related to 2013 property tax reforms. For example, the worksheet used last year by the Iowa City Community School District is seven pages long and includes 401 line items.
This formula was put in place a generation ago to advance the goals of state government. As noted in the Iowa Code, those goals are to provide good education for all children, establish tax relief by decreasing the percentage of school costs paid from property taxes, keep school costs in check and establish an equal educational opportunity for Iowa students.
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The school funding increase lawmakers have fought over in recent years references state supplemental aid. When added to a uniform property levy of $5.40 per thousand valuation, the two pools make up roughly 88 percent of each district’s general fund, which is used to pay teacher salaries, provide employee benefits and purchase materials and supplies like textbooks.
What lawmakers approve also sets a general fund spending cap in each district for the subsequent school year. Additional dollars flow from other revenue streams, but schools can only use general fund revenue to pay staff.
Increase or decrease?
Per-pupil spending will increase from $6,591 to $6,664 under this year’s 1.1 percent increase. But more than half the state’s school districts will be eligible for a state budget guarantee.
That’s a mechanism within the funding formula designed to soften the blow of declining enrollment. School administrators refer to it as the “101 percent” guarantee because it boosts districts that would not receive at least a 1 percent funding increase to regular program district cost through school supplemental aid to that level.
Schools that saw steady or increased enrollment last year will receive roughly a 1 percent increase in funding next year.
If you’re still confused, don’t worry. You aren’t alone. The formula used by the state to calculate school funding is an intricate monster.
In fact, we wonder how many lawmakers truly understand how the actions they take in Des Moines impact our local schools.
Sidebar: What is the general fund?
Two types of revenue are combined to create a school district’s general fund: property tax and state general fund dollars.
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Because one of the goals of Iowa education has been student equity, all districts begin with a base or uniform property tax levy of $5.40 per $1,000 evaluation. State Supplemental Aid — better known to most Iowans as the percentage lawmakers fight about each session — supports up to 87.5 percent of each district’s cost per pupil. An additional and variable property tax levy does the rest. It adjusts automatically to provide the remaining 12.5 percent of cost per pupil or whatever the district needs to meet its spending authority.
This revenue mix ensures that equitable financial resources are allocated for all Iowa students. Those districts with small taxable evaluations receive less property tax revenue, but higher investments of state aid. Property rich districts receive less state aid. But regardless of geography, per-pupil allocations remain relatively the same.
The state limits school budgets, not property tax rates. Doubling a district’s property value won’t result in added money. Instead, the property tax rate would fall as the school’s needs are absorbed across a larger tax base.
In order to keep school costs in check, the state uses a complex formula to determine each district’s general fund spending authority. At its most basic level, this spending authority is based on total enrollment from the previous October. Districts working on next year’s budgets will multiply enrollment figures from October 2016 by the per-pupil funding amount set by lawmakers. They’ll take that number and add any surplus from the previous year to arrive at the total amount that can be spent from the general fund.
Approved general fund expenditures include salaries, employee benefits, services, materials, supplies and capital outlays. Within each of these designations, however, specific state guidelines can impact how and when general fund money can be distributed.
And because the Legislature has recognized that meeting the needs of some students costs more than others, enrollment counts are weighted within the state formula. Students with disabilities or those who are English language learners are funded at a higher rate due to those additional education costs.
Roughly 80 percent of any district’s general fund is used to pay for staff. The remainder is spent on curriculum, utilities, professional development and transportation fuel costs.
A key component of the general fund is the Cash Reserve Levy, which is broken into two sub-levies:
• general cash reserve for the operation of the district
• School Budget Review Committee cash reserve, used to fund spending authority granted by the SBRC. This is primarily for special education deficits and on-time funding.
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What the reserve cannot do is create additional spending authority. Reserves mean that funds will be available when a district needs them, but does not increase the amount of money a district can spend.
Sidebar: Beyond the general fund
While the general fund is the most well-known source of school revenue, it isn’t the only one. And, due to the way the general fund is filled and calculated, the revenues it provides cannot generally be mixed with or supplemented by these other sources.
PPEL — This fund must be used for buildings, buses, equipment and technology, and cannot be used to pay salaries. School boards can approve 33 cents per thousand property tax levy for this fund. Voters can approve a maximum equivalent to $1.34 per thousand property tax levy. If voters approve a rate higher than the standard, districts can borrow against that portion of PPEL.
PERL — A property tax levy up to a maximum of 13.5 cents per thousand that requires a 50 percent vote. Revenue must be used for public playgrounds, recreational facilities and community education.
Debt Service — This fund is always voter-approved, generally presented as a bond issue that requires 60 percent approval. This is sourced from property taxes, up to a maximum of $4.05 per thousand evaluation, and is limited to a 20-year duration. It’s a funding stream fewer districts have tapped since the state began collecting a penny sales tax for school infrastructure.
SAVE — Although this began as a local-option sales tax in the early 1990s, it had been passed in all counties by 2004. In July 2008, it became a “State Penny for School Infrastructure,” which still requires a district vote on a revenue purpose statement. It can be used for buildings and grounds and other stated and related purposes, but cannot supplement staff costs.
Management Levy — This is another property tax that is set by the school board as part of its budgeting process. Revenues can be used for property insurance, workers’ compensation, early retirement benefits and legal judgments against the district.
Student Activity Fund — Revenue from event admission fees, student dues, fundraising and similar sources may be recirculated into the system that created them and used to support other extracurricular activities.
Enterprise or Nutrition Fund — Revenue is gathered from meal sales and sometimes tuition, and generally is used to support federal nutrition services.
Fiduciary Funds — Typically funded by gifts or other rare sources and used to support specific purposes or projects. For example, a gift to a district to improve student health may be funneled into school health clinics.