School Finance Articles for Local Newspapers

By Dolores Dunn,2014-08-08 08:59
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School Finance Articles for Local Newspapers

Dear Remsen-Union Community School District Stakeholder,

     The following articles have been developed to help demystify the often mysterious world of Iowa school finance. I ask that you read each article and, I believe in the end, you will have a deeper understanding of how Iowa school finance works and how R-U fits into all!

Ken Howard, Superintendent

    Remsen-Union Community School District

    General Introduction and “How the number of children in each district determines

    district revenues”

Every year, public schools in Iowa spend billions of dollars to educate the state’s children,

    sparking taxpayers to so often ask school board members, administrators and lawmakers, “Where does that money go?” That’s why part of the Remsen-Union Community School

    District's mission is to help taxpayers understand how districts are spending that money, in an attempt to dispel the mystery surrounding school funding.

    Here is an overall idea of the total funding public K-12 schools in Iowa receives to educate nearly 500,000 children in Iowa: Total state General Fund appropriations for school aid in FY 2007 amounts to $2 billion. About $1.1 billion comes from local property taxes that are earmarked to fund school programs, with another approximately $400 million funding facilities and other district expenses. Where it goes from there is a bit more complicated but just as important to understand.

    Larry Sigel, school finance director for the Iowa Association of School Boards explained, Knowing how this funding builds up from each individual district and child is important in understanding the roles and pressures facing local school districts, and taxpayers deserve to understand.

    While the area of school finance is a complex one, there are some basic principles that make it understandable to the average taxpayer, including:

    1. The number of children in each district determines district revenues.

    2. The General Assembly “equalizes” funding state-wide to make the “cost per

    student” roughly equal in every school, so that every student has access to the

    quality education.

    3. The General Assembly controls the annual increase in the “cost per student,”

    called allowable growth, to determine how much each district receives from the


    4. Property taxes matter. They determine how much money each district receives in

    state aid.


    5. Funds are restricted: we can only use funds on what the legislature tells us we


    6. Schools are budget limited - most other entities are property tax rate limited , and

    this difference is monumental

    This article is the first of six that will address each of the principles affecting school funding, in effort to explain where those tax dollars are going and why. First, Iowa’s school funding formula is a child-based formula, meaning that the allowable spending for a school district is based upon the number of children in that district on October 1 of each year. The number of students counted on that day is used to establish the district’s budget for the following year. That means our revenues are always a year behind the actual number of children we are serving in our classrooms. For the Remsen-

    Union Community School District, our October 1 enrollment is 417.4 he current

    year. Chart 1 below shows a history of the Remsen-Union Community School District’s









    -September 1996 September 1997 September 1998 September 1999 September 2000 September 2001 September 2002 September 2003 September 2004 September 2005 EnrollmentEnrollmentEnrollmentEnrollmentEnrollmentEnrollmentEnrollmentEnrollmentEnrollmentEnrollment 495 485 519 515 502 496.3437.3432.9424.6427.7REMSEN-UNION

    Because the formula is based on the number of children in the district, as we gain children, we gain revenues to serve those children. As we lose children, we also lose revenue from each of those students,” Sigel said.

    Because the enrollment for our district has been declining over the past several years, this has created significant budget pressures for our district. As each child is worth slightly

    over $5,000 per year in General Fund revenue, losing 10 children from one year to the next reduces a district’s revenue by $50,000. However, this won’t reduce our costs because we still must have the same number of teachers whether there are 15 or 28 students in a class.

    So, once district revenues are established, how is that money spent? It depends on state lawmakers, and will be discussed in the next article in this series.


The General Assembly “equalizes” funding state-wide, so that the “cost per student”

    is roughly equal in every school, so that every student has access to quality


    Taxpayers often ask, and rightfully so, how Iowa spends the nearly $4 billion that is earmarked for the state’s public education system. Last week, the Des Moines Register

    and other area newspapers dedicated articles to helping taxpayers, ultimately the patrons of the state’s public school system, understand how those dollars are being spent on educating nearly 500,000 students throughout the state. Today we’ll discuss how those dollars are divided.

When it comes to school funding, the state legislature tries to ensure all children receive a

    quality education, based on roughly the same amount of funding throughout the state. That’s where the school finance formula comes in, a formula that relies on a combination

    of state aid and property taxes to fund education. The amount of state aid each district receives depends upon how much they bring in through local property taxes. If the state relied solely on property taxes to fund schools, some districts would be able to raise a lot of money with a very small property tax rate, while others would only raise a smaller amount of money on a much larger property tax rate. This was almost exactly the situation that Iowa found itself in over 35 years ago. Before the early 70s, districts relied solely upon property taxes for school funding, but due to the wide range of property tax rates funding schools and concern over the disparity in funding per child, lawmakers instituted a formula to address both of these issues, setting a maximum and equal cost

    per student.” Districts would bring in a minimum amount determined by the

    $5.40 Uniform Levy and then the state would fund an additional amount up to a certain

    level. Beyond that level, local property taxes have to fund the remainder of the difference.

    Iowa Association of School Board’s school finance director, Larry Sigel compared school funding to a three-layer cake. “The first layer is local property taxes determined by the

    levy, the middle layer is state aid and the top layer is additional local property taxes. The mix of all three of these is set by formula over which the local district has little control.”

The following chart provides the comparison of Remsen-Union Community School

    District and what we'll call area schools. The state average is $212,000 per pupil. As you can see, we have a "property valuation per pupil that is above the state average. This means our Uniform Levy of $5.40 generates more dollars and we get less state aid as a result. However, our Additional Property Tax Levy rate is lower than average, so that our additional levy rate can be lower and generate the same dollars as other districts."










     379,095.73 334,530.89 259,544.78 231,884.43 230,792.59 253,197.00 225,447.06 187,784.49 377,503.82 248,273.68 Series1

    While the state partially equalizes tax rates through the school finance formula, there are still significant deviations affecting how much each district receives from the state. The lowest combined tax rate for a school district is $8.39 for the current fiscal year and the

    highest is $18.79, making that a difference of $10.40 per thousand.

    Regardless of the situation of the local school district, a large portion of the district's tax rate is set by formula and there is little the local School Board or Administration can do about it. However, Iowa law does make allowances for growth and inflation from year to year. We’ll discuss the concept of “allowable growth” in the third article in our series explaining school finance.

    The General Assembly controls the annual increase in the “cost per student,” called

    allowable growth, to determine how much each district receives from

     the state each year.

    Iowa law guarantees that every child in the state receives an equal amount of money to fund their education. A district’s budget is the number of children in the state times that cost per child. However, economic factors change from year to year, and it is up to state lawmakers to decide just how much to increase the cost per child to reflect that change, called “allowable growth.” This is the topic of the third article in our series on

    understanding school finance.

    Larry Sigel, school finance director for the Iowa Association of School Boards, uses a credit card to explain the principle. The state gives each child the equivalent of a credit

    card, setting the credit limit each year. Under the basic finance formula, each child’s

    “limit” is $5,128 for the current fiscal year. The total amount the district gets to spend is that limit times the number of children. A district can spend less than the maximum, but cannot spend more,” Sigel said.


    Allowable growth is intended to further provide equity in school districts throughout the state, because, as we discussed last week, the legislature set a principle that each child is worth the same amount, no matter where they live. The district's credit card "balance" is then paid off by a combination of state aid and locally raised property taxes. For the entire state, the general fund provides $2 billion annually and local property taxes $1.1 billion, or about two-thirds state to one-third local property taxes. However, it is important to note that each district's mix of state and local property taxes is different. Why? We'll discuss in the next article on how property taxes determine how much each district receives in state aid.

    Property taxes matter

    Local property taxes account for one-third of total funds going into schools and represent over half of the overall state property tax funds levied. As discussed in prior articles, the state school funding formula largely determines school property tax rates and therefore, the amount each district receives in state aid.

    People often ask, "Why don't we just remove property taxes from the formula entirely?" There are several reasons why this isn’t a wise move.

    ; It would take away roughly $1.1 billion dollars statewide, leaving lawmakers to

    decide whether to raise the state sales tax or income taxes to make up that


    ; Property taxes also add stability to the funding of schools. For example, if we

    operated solely under the sales tax, the amount available for school funding

    would surely fluctuate depending on consumer spending.

    ; Just as many people found out during the 1990s, too much reliance on a single

    funding source invites large swings in funding, which isn’t good for an entity

    unable to layoff teaching staff during the year. Diversification is a

    prudent investing strategy that applies to schools as well.

    Considering the aforementioned reasons and the present political climate, removing property taxes from the school finance formula seems unlikely.

    No public official, whether our local school board and administration, or the city and county officials, takes the impact of raising property taxes lightly. In fact, in most cases, public officials exhaust all other options before asking property taxpayers for more funds. However, when the General Assembly cuts short our state aid (as they have done twice in the last five years) and we experience additional, unforeseen expenses like increased fuel and energy prices, we really have no alternative except to raise local property taxes. Plus, we are prohibited from terminating teachers mid-year to cut costs. Cutting field trips and similar expenditure reductions could help, but frankly the scale of dollars is so high there's not enough money in these kinds of activities to make a huge difference. No one likes property taxes, but for the time being at least, they are an essential part of efficiently funding our schools.


    Once all 365 districts establish their budgets based on the combination of state aid and local property taxes they receive, there are still many restrictions on where and how that funding can be spent. We’ll discuss that issue next week in our fifth article on understanding school finances.

    Funding Sources have Restrictions on Their Use (Dillon's rule)

     One of the most difficult and confusing elements of school funding is how Iowa law restricts the way K-12 public schools can use various funding sources. Simply put, if we have a shortage in one area of the budget we cannot use other funds available to the district to offset such a shortage unless specifically allowed by law.

    According to the Iowa School Foundation Formula, the largest funding source for schools comes from state and local property taxes. Revenues received under the formula are part of a school district's General Fund, which covers most of our expenditures for faculty and staff salaries. We also have dedicated funding streams for facilities, like the Physical Plant and Equipment Levy that can only be spent on buildings, grounds and certain equipment. People often refer to the General Fund side of the budget as the "breathing" part of the budget, while the other side is often referred to as the "bricks and mortar" side. Depending on each district’s economic and demographic situation, some

    have issues with the staff side of the budget while others have more pressures on facilities. However, due to the organization of revenues, excess money from the general fund cannot be used to solve shortages on the facilities side or vice versa. As a result, you sometimes end up with districts that have adequate facilities funds but have to lay off staff.

    As we discussed in previous articles, the State partially funds and equalizes the General Fund to promote equity among students and taxpayers in the state, but does not do the same under the facilities side of the budget. If the legislature ever did allow such un-equalized funding sources to be used under the General Fund side of the budget, some districts could potentially receive much more revenue per child, violating the general principle of equity. For example, our instruction expenditures are equalized, but the funds we levy locally for buildings are not. Except for the local option sales tax which we’ll discuss in a moment, the tax capacity of the district largely limits the amount of

    funds for building expenditures. If a neighboring district has twice the capacity for the same number of children, they can either build twice as much building for the same property tax rate, or they could have the same building for half the property tax rate. If our neighbor has half of our capacity, the situation is exactly reversed.

    The one area where some state equalization of capacity is occurring is in the local option sales tax, which is relatively new. Currently 97 of 99 Iowa counties have this tax, which is a one-cent local option sales tax dedicated primarily to school buildings, equipment and property tax relief. It has proven to be a popular alternative to property taxes to fix our buildings. However, the legislature has begun equalizing sales tax revenues among districts because of the wide disparity in monies spent in each district. When the


    legislature passed the sales tax pool for schools, the difference was approximately $100 per pupil in the lowest district to over $1,000 in the highest district. The legislature then appropriated $10 million annually. Now, as local school districts vote to renew their first 10 years of local option tax, if they are over the state average, they will provide those dollars to the pool to help bring up other districts. Last fiscal year, these two sources brought the lowest school districts in the state to a minimum of $420 per pupil - a big help to those districts. In the Remsen-Union Community School District we are grateful

    to our voters for approving the local option sales tax and have been using the money to repair our buildings and lay foundation for possible facility needs we may have in the future.

    In short, when it comes to school spending, districts must look at every potential expenditure and determine not only if they have the money, but whether state law allows a particular fund to cover the expense. This standard, often referred to as Dillon's Rule, says school districts are only allow to do what is specifically outlined by state law. This differs from cities and counties, which operate under “Home Rule,” which allows them to do anything not specifically prohibited by state law. Schools have less latitude than cities and counties in complying with the Code of Iowa, and in turn, how they spend their money.

     Schools are Budget Limited, while other Property Tax Entities are Rate Limited

    K-12 public schools, cities and counties represent more than 85 percent of the total property taxes in the state of Iowa. The basic equation for property taxes in Iowa is really pretty simple; it is a tax rate multiplied by taxable value equals taxes levied. However, the way these governmental entities can spend those tax dollars differs: cities and counties are "rate" limited whereas schools are "budget" limited.

    Rate limits carry different results than budget limitations, giving cities and counties more flexibility with which to operate their budgets. For example, if a city has tax rate of $8.10 per thousand and the property valuation in the city doubles, if they leave the tax rate unchanged, they'll have twice a many property tax dollars. Likewise, if the same city loses half of its property valuation, it will lose half of its revenue. Schools are different. The legislature effectively set a school district's budget by setting a maximum spending per child. In a school district, if the property tax valuation doubles, the tax rate falls, but the amount of money the district has to spend is exactly the same. Likewise, if the property valuation falls by half, the total budget of the district remains the same, but the property tax rate will increase. In schools, the vast majority of the tax rate is driven by this formula; local school boards have limited ability to influence the General Fund tax rate.

    So, how much impact can a local school board have on the district’s tax rate? The answer to this question isn’t finite: it depends. Of our total tax rate of $11.4347per

    thousand, $ 9.1417 per thousand is due solely to the operation of the school foundation


formula, while board and voter approved levies amounting to $2.2930 supplement our

    instruction and provide our facility budget. While some may wish to call these “optional” levies, in reality most school districts around the state utilize some or all of

    these levies. Due to the low levels of spending increases in the last five years allowed by the state, there has been an increasing trend to utilize more of these “optional” levies to

    replace funding not provided by the state. We are committed to providing the best value for taxpayers in our district, but we are also committed to providing the best possible education in the Remsen-Union Community School District. This is what your school board and administration struggle with every day.

    I hope you’ve enjoyed and learned a little bit about school finance in Iowa. Please do not hesitate to contact me if you have further questions or comments.

Ken Howard, Superintendent/Elementary Principal

    Remsen Union Community Schools

    511 Roosevelt Street

    Remsen, Iowa 51050

    Phone: (712)786-1101

    Fax: (712)786-1104



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