1. March 2017 Current Financial Pressures and Opportunities in Iowa School Districts
Margaret Buckton, Partner
© Iowa School Finance Information Services, 2015

2. About ISFIS
Our mission is to add value to data to help school leaders more accurately assess their situation, advocate for what their school needs, and confidently chart a direction for the future success of their students.
Provides finance consulting for Iowa school leaders
Provides training and information on Iowa School Finance
Does policy work and research and representation at the Capitol (UEN and RSAI)
Offers programs that create markets or provide competition in services that schools need that either save districts money, improve services, save district staff time, or all three.
Partnership, subscription based, for profit consulting firm.

3. Purpose of the Conversation
Understand the financial pressures and trends facing your school so you know where you stand on key indicators
Provide information about various kinds of efficiency measures (and state incentives if applicable)
Learn the timelines required in the law for various kinds of incentives
Share some considerations for any kind of efficiency decisions
Not to advocate a position or direction – that’s up to community members and school leaders to chart the course

4. Agenda How does Iowa school finance work?
What is the experience of sharing and reorganization among Iowa schools?
Statistics that tell us something about school size
Specific financial condition: North Winneshiek
Considerations
Questions

5. School Finance 101

6. Four Key School Finance Principles
Student driven, amount per student set by legislature.
Schools are budget limited, not rate limited. Doubling property value = property tax rate falls – no more $’s to spend.
Tax rate driven by formula more than district actions.
District can only spend funds on allowable purposes.

7. Funding Sources
School districts have restricted funding sources - not all funds can be spent on anything the district decides.
Where does this restriction come from?
State/federal law
In conjunction with Dillon’s rule:
“…municipal governments only have the powers that are expressly granted to them by the state legislature, those that are necessarily implied from that grant of power, and those that are essential and indispensable to the municipality's existence and functioning.”

9. Funding Sources

10. General Fund Very important concept: Spending Authority
State controls maximum amount of district spending
Why? Equity – basic principle is that every child should receive the same amount of funding – no matter where they live

11. General Fund
Limit on spending is the amount of Spending Authority a district has not the amount of cash or fund balance
Total Spending Authority for a year is:
Current year Spending Authority
+ Previous year’s surplus Spending Authority
= Total Spending Authority

12. General Fund Where does Spending Authority come from?
Basic formula: # of children x a cost per child = total current year Spending Authority.
# of children is a year behind – always use prior year count – this October’s number = the number used for next year’s budget
Cost per child is set by the Iowa Legislature by setting State Supplementary Assistance Rate (formerly Allowable Growth)
Spending Authority is then funded by a combination of State Aid and Property Taxes

13. Weighting
Counts students at a value greater than 1 then multiplies by credit card limit to provide additional funds.
Special Education:
0.72
1.21
2.74
English Language Learner (ELL)
0.22 (5 years with state funding+ SBRC authority to grant additional time/costs)
All weightings in addition to 1.0 for regular education.

14. General Fund So what’s the big deal with Spending Authority?
It is illegal for a school district to exceed it’s total spending authority
Ever heard of Russell/Farragut School Districts?
Phase II Financial Viability Audit
The State Board of Education has the ability to close a school district for no other reason than financial unviability (not educational reasons)

15. Formula Principles Student Driven
Cost per pupil set by the legislature

16. Adequacy
There is a cumulative impact to low funding and several years with no time for planning. SF 166 sets 1.11%. In 7 of the last 8 years, the increase in the cost per pupil has fallen short of cost increases schools typically experience.

17. Comparing Indicators: Iowa Median Income and State Cost per Pupil
Iowa Median Income
State Cost per Pupil
Per Pupil cost as % of Iowa Median Income
1993
$ ,663
$ ,336
11.6%
2015
$ ,855
$ ,366
10.5%
Change in dollars
$ ,192
$ ,030
Change from percent
112%
91%

18. General Fund
So how do we pay for the Spending Authority in the General Fund?
Three sources:
Uniform Levy - $5.40 property tax levy (first layer)
State Supplemental Aid – backfills up to 87.5% of the cost per pupil (credit card limit)
Additional Levy – property tax levy that funds the last 12.5% of the cost per pupil (no rate limit – adjusts automatically to fund as much as needed)

19. General Fund Property Poorest Average Valuation Property Richest
Additional Levy 
State Aid
Uniform Levy

20. Optional Sources of Authority in the General Fund
Instructional Support Levy (ISL) Maximum 10% and voter/board directed
Dropout Prevention: Maximum 5% and Restricted use

21. Budget Guarantee
Mechanism to postpone the impact of enrollment changes by one year
If this year’s Regular Program District Cost (Kids x Credit Card Limit) is less than 101% of last year’s RPDC, the district receives spending authority equal to get the district to 1% growth
Funded entirely with property tax
Because the following year’s calculation does not contain any budget guarantee authority, unless enrollment or cost per pupil goes up (a lot), those additional cuts are made in the next year.

22. Budget Guarantee Calculation
North Winneshiek
FY2017
FY2018
FY18 - FY17
Enrollment
297.4
283.3
-14.1
Cost per pupil
$6,698
$6,771
$ 73
RPDC
$1,991,985
$1,
$ (73,761)
101% Guarantee
X 101% =
$2,011,905
Budget Guarantee
$93,681
(All property tax)
New Authority
$19,920
Regular Program District Cost Comparison
101% guarantee
Budget Guarantee amount (all property tax)
New Authority

23. Review question: What two things are most responsible for determining the size of your budget?
1) _________________________ 2) _________________________

24. General Fund Where does the money go?
80% of the district’s funds go to pay for staff
Remainder is spent on curriculum, utilities, professional development, and costs of transportation (fuel and salaries, usually not buses)
Funds are to be used for the educational program not physical infrastructure.

25. Other Funds Step across the great divide
Most of the following funding sources cannot be used in General Fund and vice versa
Might have money in one of these sources but cannot use to offset a General Fund shortfall

26. PPEL
Used for buildings, buses, equipment and technology – cannot be spent on staff
Two levies:
Board-approved $0.33 cents per thousand – exclusively property tax
Voter-approved – maximum equivalent of $1.34 per thousand of property tax. May be funded by property tax or income surtax or a combination. Maximum 10 years – 50% + 1 vote (North Winneshiek has no voted PPEL)
Cannot be used for staff

27. Debt Service For buildings/grounds only
Voter approved – think “bond issue”
60% + 1 to approve
All property tax – maximum $4.05 per thousand
20-year maximum duration
Until State Penny, was the primary way we built schools in Iowa
North Winneshiek has no debt service levy

28. Sales Taxes Local option sales tax in 1998
By 2004, voters in all counties had passed it
Converted to “State Penny for School Infrastructure” July 1, 2008 which sunsets December 2029
Still requires a district vote on a Revenue Purpose Statement
Can be used for buildings/grounds, PPEL or PERL purposes (still depends on language you have in place in your district) – cannot be used for staff costs

29. Management Levy
Property tax levy to fund certain costs in the district
Property insurance, liability insurance and workers’ compensation
Early retirement benefits
Judgments against the district (lost court case)
Costs of mediation and arbitration (beginning July 1, 2016)
Not rate limited, purpose limited
Set by school board action as part of district budget

30. Financial Health Focus primarily on General Fund Why?
Primary purpose: education expenses
Largest portion of a school’s expenditures
Biggest risk
Focus more on Spending Authority than Fund Balance – why?
Simple, Negative Spending Authority can get you closed – Negative Fund Balance can be solved locally

31. © Iowa School Finance Information Services, 2015
What is the experience of sharing and reorganization among Iowa schools?
© Iowa School Finance Information Services, 2015

32. We hear: “Why don’t Iowa Schools ever reorganize?” They do . . A lot!
333
FY16 FY 17
DE Annual Condition of Education Reports, Bureau of Information and Analysis, Basic Educational Data Survey, address files

33. Recent History of Consolidation

34. Reorganization History and Involuntary Merger
Reorg and dissolution history
Russell Community School District, Involuntary Merger, July 1, 2008
Farragut Community School District, Involuntary Merger, July 1, 2016
Phase II Financial Audit and State Oversight

35. Iowa School Reorganizations, 2011 through 2015, by prior year enrollment of districts
297
2011

36. Statistics that tell us something about school size
© Iowa School Finance Information Services, 2015

37. DE COE Annual Report
The Iowa Department of Education does an annual report on the condition of education
The following slides show data organized by school district size category and may be helpful in determining where district staffing and expenditure pressure points are outside of the normal range.
This may also be predictive of what lies ahead for districts with decreasing or increasing enrollment trends.
The Iowa Annual Condition of Education Report: 2016

41. Smaller districts tend to have less experienced, younger, lower-degreed, less diverse teachers compared to larger districts.

46. North Winneshiek FACT Snapshot
Oct enrollment is down 14.1, now students.

47. Open Enrollment Caveat
May look like enrollment increase results in more funding or enrollment decrease is minor
Each open enrolled-out student takes district cost per pupil with them
Local district staffing adjusts to actual students served

49. North Winneshiek FACT Snapshot
FY 2016 Unspent Budget Authority is $159,275 (4.5% of prior year’s expenditures)

50. Increase in Unspent Authorized Budget Caveat
Categorical funds have restricted purposes
Special Education is the biggest one, with cost of services outpacing increased state funding per pupil (results in a special education deficit)
District gets that additional spending authority
It’s all special education
It’s basically already spent
Can’t just hire another 2nd grade teacher with special education or any other categorical authority balance

51. North Winneshiek FACT Snapshot
FY 2016 Solvency Ration is 17.03%. Good trend if there is underfunding of state aid. But without spending authority, this balance isn’t accessible.

52. Solvency Ratio Caveat
It’s a measure that reflects how much cash the district has
Cash in the bank is a critical metric for assurance of repaying bonds
Cash on hand may exceed spending authority
Spending authority is the more important issue for financial feasibility

53. Why would school leaders and their communities consider sharing, consolidation, reorganization, dissolution?

54. Building conditions require investment or relocation
Why think about sharing?
Program, staffing and accreditation requirements are becoming difficult
Too few bodies require staff to be generalists, which minimizes specialized expertise and increases risk
Building conditions require investment or relocation
General financial constraints
Natural population changes
Natural relationship progression (already sharing)
More opportunity for students
Self determination for community

55. Types of Incentives/Sharing
Operational Function Sharing Agreement
Shared Teacher / Student
Sharing Under Joint Employment
Sharing Under Community College Offered Classes
Regional Academies
Whole Grade Sharing Agreement
Reorganization Taxpayer Incentive
Reminder: Incentive is an additional consideration, but sharing may occur for efficiency without an incentive
28E agreements with other entitites
DISTRICT REORGANIZATION, DISSOLUTION, AND SHARING GUIDE, Sept. 2014, by the Iowa Department of Education

56. Considerations for Local Leaders
Student opportunities and achievement – what do students need to be successful?
Program, Accreditation, Staffing Requirements
Community Involvement, transparency and open process
Feasibility study to inform future trends and expectations
Student and parent preferences – are students likely to open enroll out of (or in to) newly formed district?
Transportation costs
Which neighbor is the best match for any kind of sharing? Are we attractive partners?
Special areas – do districts have different talents?
Building locations & grade level configurations
Levy issues: ISL & PPEL – lowest common denominator in the newly formed district
Debt issues: in original district or shared?
Meld into one salary schedule (TSS and PD too)
Property valuation issues: how will a newly reorganized district impact property taxes?

57. Larry Sigel, ISFIS – Partner larry@iowaschoolfinance.com
Questions?
Larry Sigel, ISFIS – Partner
Iowa School Finance Information Services
rd Street
Des Moines, IA
Office:
Margaret Buckton , ISFIS – Partner