1 School Finance in Iowa

2 Key Concepts of Iowa School Finance n Dillon’s Rule vs. Home Rule n “Bright line” between General Fund and Building Expenditures n Pupil Based Formula n Source of Revenues n Property Poor (kid rich) n Spending Authority vs. Cash

3 School Finance - Background n Dillon’s rule: –School districts only have those powers expressly authorized by the Code of Iowa. n Home rule: –Cities and counties can do anything not expressly prohibited.

4 School Aid - Basics n The “Bright” Line in School Finance –Educational program expenditures are funded and equalized by the state foundation formula. –Facility expenditures are not under the finance formula and may not be used for educational program expenditures (and vice versa).

5 School Aid – Basic Principles n The school aid formula is a child-based formula. n The total amount of foundation formula revenue is the number of children times a cost per child. n Some children cost more to educate than others – weightings in the formula for special education, non-English speaking

6 Operation of Foundation Formula: Three Components n Uniform Levy - Property tax levy of $5.40 per thousand of taxable valuation. n State Foundation Percentage - Amount the state pays in excess of $ varies by district (87.5% of cost per pupil). n 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.

7 Operation of Foundation Formula

8 Valuation and Property Tax Rates and Ranges: What’s the Relationship? Per Pupil Net Value (FY 2009) General Fund Rate (w/o ISL) High$927,204$7.11/$1,000Low Average$267,844$11.49/$1,000Average Low$122,993$15.73/$1,000High* *Range in levy rate from high to low has narrowed with state property tax equity payments, which will eventually lower the top half to the average.

9 School Finance - Spending Authority n Spending authority is the sum of: –Combined District Cost (property tax and state aid) –Miscellaneous income – anything not above –Unspent balance from previous years n Why important? –It’s a ceiling: Districts cannot exceed spending authority –It’s not a measure of cash –Why allow districts to carry forward unused spending authority?

10 To Increase Spending Authority: n Claim full At-Risk amount (5% enrollment) n Approve ISL (for those who don’t have it) n Efficiency incentives n Sharing incentives n Lobby legislature to increase the ceiling (allowable growth) n Decrease or shift expenditures: –Early retirement –State Penny/PPEL expenditures –Sharing (reduce costs)

11 Comparing Spending Authority and Cash Concepts TermExplanationAnalogyType Spending Authority Total amount a school district can legally spend during a year. Income + credit cards Recurring Unspent BalanceRemaining amount of spending authority at end of the year (Spending Authority minus Actual Expenditures). Credit cardsOne time TermExplanationAnalogyType Cash On HandTotal cash on hand.Savings account One time State AidAmount received by a district from state General Fund. PaycheckRecurring Property TaxesAmount received by a district from local property taxes. PaycheckRecurring Miscellaneous Income Any income which is not property tax or state aid (must be actually received). Birthday money from Grandma One time/ recurring

12 Levies Available to School Districts n Instructional Support Levy (ISL is the only General Fund levy) n Voter PPEL n Board PPEL n PERL n Debt Service n State Penny for School Infrastructure n Management Levy n Cash Reserve

13 Four Questions n Why do we have enough money to pave the parking lot but can’t pay teachers? n Why can’t we just levy whatever we need to support the school? n Why don’t schools become more efficient? n Why don’t property taxes ever decrease?

14 School Aid - Contacts n Iowa Association of School Boards (IASB) –Larry Sigel, School Finance Director ext. 235 –Website: –Margaret Buckton, Assoc. Executive Dir., Public Policy ext. 228