Simplifying School Finance At the Board Table Discussion Tool © Iowa Association of School Boards

Introduction Iowa school board members do not have to be school finance experts. They should, however, be familiar enough with the terms and structure of school finance to communicate the district’s fiscal condition to the public and make responsible decisions at the board table.

Introduction, continued This discussion framework is a quick overview of some basic principles. It is not “everything a board member needs to know.” Be sure to consult the additional resources slide at the end of this presentation.

Overview A consideration of aspects of the law in three parts: Nine true or false questions A specific scenario A whole board discussion to compose eight clear definitions for “must-know” terms

1. True or False?

Directions After you have chosen true or false, explain to your fellow board members why you made that choice and why it is important to know the correct response; then click on the bar below each statement to find the correct answer. Caution: Don’t forget to talk about the “why” before you check your answer.

Click here to check your answer True or False? The fiscal year begins each July 1 and ends on June 30; therefore the school board has until June 30 to adopt its budget. Click here to check your answer

False Why: by law, the budget must be approved by the board by April 15 of the previous fiscal year. Why this is important: This makes the budget development timeline begin early on in any fiscal year and means the goals for the district should be clear as this process begins.

Click here to check your answer True or False? Iowa law creates several funds for school districts. Click here to check your answer

True Why: Iowa law does create several funds for different uses. Why this is important: These funds are for specific, code-defined purposes and cannot be blended or comingled.

Click here to check your answer True or False? The largest expenditures from the general fund for any Iowa school district are salaries and benefits. Click here to check your answer

True Why: Property, purchased services, supplies – including technology, are all large expenditures, however, the greatest expense from the general fund remains the people who make the system work.

True, continued Why this is important: Because it takes people to make the system work. Cuts in this area will be firmly felt and difficult to make. Generally 75% to 85% of expenditures in the general fund are salary and benefits.

Click here to check your answer True or False? The current year’s budget is determined by counting the number of students enrolled in the district on October 1 of that same year. Click here to check your answer

False Why: The certified count, which is taken on October 1, will determine the amount of the budget for the following fiscal year and not the year in which it is taken. Why this is important: This delay in arrival of funds means that school districts with a growing population must cover the cost of new pupils for one year before receiving funds for those pupils.

Click here to check your answer True or False? The combined district cost is determined by multiplying a school district’s cost per pupil by only its enrollment numbers. Click here to check your answer

False Why: Generally, the combined district cost is determined by multiplying a school district’s cost per pupil by its weighted enrollment AND adding the State Categorical Supplements, AEA Flow-through and Dropout Prevention Program Funding to that amount. Why this is important: The board must recognize the reasons why weighting exists and how that weighting is computed into the formula to fully understand resources.

Click here to check your answer True or False? Because Iowa has a school financing formula, all district property tax rates are the same. Click here to check your answer

False Why: The school financing formula sets a cost per pupil amount. The formula establishes a base uniform tax levy rate of $5.40 per $1,000 of taxable valuation. All districts then receive state aid to bring them up to the state set 87.5% level. The remaining 12.5% will be generated by an additional property tax levy rate, because the taxable valuation per pupil varies significantly between districts, the tax rates between districts will not be the same. Please see the next slide for illustration.

False, continued Why this is important: The board should be able to explain these differences to their public.

Click here to check your answer True or False? The unspent balance is a carry-over balance, which must be used for ongoing school improvement, like paying for an extra reading teacher. Click here to check your answer

False Why: The unspent balance is often referred to as a “carry-over balance” because it is the cumulative, unused spending authority, which is carried over to the next year. However, it is not the same as the fund or cash balance and so cannot be treated as such. It should not be spent for on-going, reoccurring expenses like a teacher’s salary. If excessive unspent balance is a pattern, then it would be important to look into why this is happening.

False, continued Why this is important: This understanding of the distinction between cash/fund balance and spending authority is crucial in making wise decisions and communicating clearly to the public.

Click here to check your answer True or False? The financial records and transactions of a school district must be audited each year. Click here to check your answer

True Why: This is required by the law. Code of Iowa §11.6. Why this is important: This is a common accountability requirement. It is important to assure the public through a third-party, independent review that proper procedures and policies are in place.

Click here to check your answer True or False? Spending authority is the only measure determining what a district can spend in the general fund. Click here to check your answer

False Why: Spending authority is only one element of determining a school district’s total budget. In addition, a board must consider the district’s fund/cash balance position as well as the revenues and expenditures it projects. Why this is important: To consider only spending authority ignores other pieces of the district’s budget.

2. Scenario

Scenario The Dreamfield board has approved some significant cuts in order to adopt a balanced budget for next year. The board was unanimous in its approval of the cuts. The public is not pleased. A small, influential group of teachers, two of whom were “victims” of the cuts, and a group of parents from a building which has been closed, have been marshaling support over the spring and summer to pressure the board to rescind the cuts.

Scenario, continued They have targeted the July board meeting as their time to approach the board with petitions in hand. The public will have a chance to speak at the open forum in July and the next item on the agenda will be “review of district financial condition.” The superintendent wants the board to be vocal during this review. She has asked the board to be clear about the factors which influenced their fiscal decision-making.

Scenario, continued The superintendent has strategically scheduled a learning workshop on “School Finance” for the board for late June. No decisions will be made at this meeting; it is information only. She has been working with the board president and the business manager to prepare an agenda. The goal of this session is to review key fiscal influences which have led to the cuts. What would be some items you would imagine the superintendent would want the board to be very familiar with?

Scenario Discussion Help the Dreamfield superintendent put together her agenda. Imagine Dreamfield is your school district. The board can’t know everything, so what facts should it focus on? What facts do you need to know as a board member? Why are these facts helpful in educating the public on board decision-making? See handout p. 2

Compose a Sample Agenda After the board has discussed what six key areas need to be reviewed at the Dreamfield workshop, and determined why they are important for the board to know about, click on the “IASB Considerations: Key Facts” to learn what the school finance experts at IASB felt were the key facts to be learned. This is not meant to be an exhaustive list, but an indication of main components of knowledge.

IASB Considerations: Key Facts Enrollment trends Financial Solvency ratio trends Percentage of revenue spent Annual UAB ratio See handout p. 2

IASB Considerations: Key Facts Unspent Authorized Budget (UAB) Ratio Balance, fund/cash balance trends Salaries/Benefits Ratio Trends in allowable growth and collective bargaining settlements Tax Rates/Valuation See handout p. 2

Other areas of school finance might be helpful Why is this helpful? What is helpful will depend upon the needed knowledge for board and community. The important thing will be to determine the needed components of knowledge in advance and determine clear ways of communicating them.

3. Whole Board Discussion

Directions As a board group, compose an understandable definition of each of the terms on the following slide. After a decision has been composed for a term, click on IASB Definition tab to the right of the term and compare the result of your work to the IASB definition. If you come up with a clearer or more succinct definition, please let us know! See handout p. 2

Definitions Supplemental State Aid Unspent Balance Spending Authority IASB Definition Supplemental State Aid Unspent Balance Spending Authority Budget Guarantee IASB Definition IASB Definition IASB Definition See handout p. 2

Definitions, continue District Cost Per Pupil Financial Solvency Ratio Combined District Cost School Finance Formula IASB Definition IASB Definition IASB Definition IASB Definition See handout p. 2

IASB Staff Resources Shawn Snyder Patti Schroeder School Finance Co-Director email ssnyder@ia-sb.org direct (515) 247-7054 Patti Schroeder email pschroeder@ia-sb.org direct (515) 247-7031 1-800-795-4272 www.ia-sb.org

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