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					    K-12 School Finance

Challenges and Opportunities
 Contact Information
Larry Sigel, developed at the request of the
Urban Education Network (UEN)

Iowa School Finance Information Services
4685 Merle Hay Road, Suite 209
Des Moines, IA 50322
515-251-5970 office
515-490-9951 cell

       Last updated 1/30/2012
Overarching Problems

¡   Funding is not equal per student.
¡   Funding is not sufficient to produce
    desired outcomes.
¡   Property tax rates still vary greatly
    around the state.
¡   Property taxes are generally viewed
    as “too high”.
¡   Outdated requirements in the law
    have not kept pace with changes in
    operations.                           3
Funding Inequality

¡   Under the foundation formula, the
    basic concept is that “every child is
    worth the same no matter where
    they live”.
¡   Due to what is included in the
    definition of the General Fund from
    a revenue and expenditure
    perspective, it can produce unequal
    funding per student.

Funding Inadequacy

¡   General funding inadequacy and
    unpredictability lead to financial
    distress and inability to produce
    student achievement gains which
    are now expected.
¡   Due to increased expectations or
    societal changes, funding streams
    may no longer be sufficient to
    promote achievement.

Property Tax Equity

¡   Schools were funded primarily with
    property taxes until the adoption of
    the current foundation formula in
    the early 1970’s.
¡   Property taxes are partially
    equalized under the formula, but
    disparities still remain.
¡   Rates range from a low of $8.34 per
    thousand to a high of $23.30 per
Property Tax Relief – We’ve Come
a Long Way

Property Tax Equity

Property Tax Relief

¡   Various proposal for property tax
    relief were offered in the last
    legislative session.
¡   Property tax “reform” can take two
    l   Impact valuation (ie, the value that is
        used in computing rates)
    l   Impact tax rates

Property Tax Relief

¡   Impacting valuation impacts all
    levying authorities:
    l   Schools
    l   Cities
    l   Counties
    l   Community colleges
    l   Etc. etc. etc.

Property Tax Relief

¡   Impacting tax rates impacts all
    classes of property similarly
    l   Residential
    l   Commercial
    l   Agricultural
    l   Industrial
    l   Utilities/Railroads

Property Tax Relief

¡   Greatest sin in the system – one
    commercial business pays $8.34 per
    thousand in school taxes and
    another exactly like it pays $23.30
    (179% deviation)
¡   Property tax reforms should be
    targeted at first removing taxpayer
    inequity and then focus on reducing
    overall property taxes.


¡   The current Iowa School Foundation
    Formula was put into place in the
    early 1970’s. Statement of purpose
    in 257.31:
¡   “…the intent of this chapter to equalize
    educational opportunity, to provide a good
    education for all the children of Iowa, to
    provide property tax relief, to decrease the
    percentage of school costs paid from
    property taxes, and to provide reasonable
    control of school costs.”
Criteria for Formula Reform:

¡   Improve outcomes for children
¡   Improve property tax equity
¡   Improve predictability
¡   Nonpartisan
¡   Broad support (internal/external)
¡   Knowable and provable

    Types of Reform
¡   Equity reforms – these are reform efforts
    ensuring equality of funding. Can impact
    both students and/or taxpayers.
¡   Adequacy reforms – these are reform
    efforts ensuring that funding is adequate to
    promote achievement. Adequacy reforms
    can impact Equity reforms and vice versa
¡   Process reforms – these are system
    reforms that are less visible to the public at
    large but produce increased efficiency or
Equity Reforms

Support Levy

¡   Problem: Elimination of state match
    (25%) and proration formula
    impacts some districts more than
    l   Property poorest only generate about
        5.5% additional resources while
        property richest generate 9.4% (even
        though both approved 10%). This
        equates to $318 per pupil disparity in
        funding each and every year.

           Instructional Support Formula
           Funding Gap Widens

Source: LSA Issue Review Nov. 3, 2011 Instructional Support Program Funding Inequities
Instructional Support Levy

Instructional Support Levy

¡   Solution:
    l   Eliminate state match funding. Allow
        all districts to receive the full 10% (or
        the amount they have specified
    l   Impact: total promised by state and
        not allowed $61.8 million.

     State Aid for Special
     Education Deficits
¡   Problem: Districts receive no state aid
    for special education spending above
    the amount allowed by state but
    expenditures are often out of the
    control of districts (ordered by each child’s
    IEP as determined by AEA and state and
    federal law).
     l This disproportionately impacts property
       poor schools – it takes a higher tax rate to
       generate same funds.
     l Also impacts those districts with relatively
       larger special education populations.        21
State Aid for Special Education

¡   Solution:
    l   Sliding scale adjustment based on
        property value per pupil (lower value =
        greater funds).
    l   Goal: equalize property tax rate impact
        of special education.
    l   Provides targeted property tax relief in
        those areas with highest tax rate.
    l   Total statewide property tax relief
        potential of $37.1 million

State Aid for Special Education

Local Option Income
Surtax for General Fund

   ¡   Problem: The current formula does
       not give districts an alternative to
       property tax to fund some of the
       burden in the General Fund.
       l   District property tax rates range from a
           low of $8 to a high of $23 per
       l   Can currently only use income surtax
           for ISL and PPEL – not replace current
           General Fund property taxes.
Local Option Income Surtax for
General Fund

¡   Solution:
    l   Allow a school district to impose a
        income surtax (reverse referendum) for
        maximum of 10 years to replace a
        portion of property taxes in the
         ¡   Maximum surtax cannot exceed current
             law of 20%.
    l   Guaranteed dollar for dollar property
        tax reductions.
    l   Local decision – based on local
        conditions and values.                      25
Categoricals and
Overhead Expenses

¡   Problem: “Overhead” costs are not
    allowed from categorical funding
    sources and this places an unfair
    burden on Regular Program funding.
¡   Solution:
    l   Districts may allocate up to 5% annually
        for overhead for any categorical program
        except Teacher Salary Supplement and
        Professional Development.

Categoricals and Overhead
  l   Recognizes that categorical funding
      sources have an impact on
      administration costs.
  l   Standardizes and simplifies accounting
      and oversight.
  l   Does not disadvantage regular
      education students to the benefit of
      categorical funded students.

Increase Uniform Levy and Raise
Foundation Percentage

   ¡   Problem: Property tax buydown
       legislation has not been funded
       adequately and is subject to annual
       l   Reduction in Use Tax receipts which
           were to fund the buydown by $17
           million resulted in higher property tax
       l   Annual appropriation places districts in
           position of not knowing buydown
           amounts when they set their budgets.
Increase Uniform Levy and Raise
Foundation Percentage

¡   Solution:
    l   Increase the Uniform Levy to $8.00 per
        thousand and raise the State Foundation
        Percentage to a level that produces the
        same amount of state foundation aid.
    l   Hold harmless any increases.
    l   Takes the annual appropriation out of
        the mix.
    l   Funding cannot be cut by the legislature
        because it would be part of State Aid
        rather than separate appropriation (PTER
        fund.)                                   29
             General Fund: State and Local $
              A per pupil look at proposal to raise uniform levy
                      and foundation threshold equally
         Property Poorest              Average Valuation             Property Richest
         (uniform increase less than   (uniform increase offset by     (held harmless from
         additional levy decrease)      additional levy decrease)     property tax increase)

  Levy à

 State Aidà

Uniform Levyà

Equalize the Cost
per Pupil

¡   Problem: The amount of formula
    spending authority is not equal per
    student. About half of the districts
    are at the state minimum ($5,883)
    and about half have a higher
    l   Creates a student inequity – some kids
        are worth more than others.
    l   Creates a taxpayer inequity – all of the
        amount above the state minimum is
        100% property tax (no state aid).       31
Equalize the Cost per Pupil

Equalize the Cost per Pupil

¡   Solution:
    l   Equalize the amount per pupil by raising
        the per pupil amount from the minimum
        to the maximum ($5,883 to $6,058 –
        deviation of $175 per pupil 3.0%).
    l   Phase in over 4 year period ($44
        increase per year). Fully implemented
        cost is $71 million (split between
        property tax and state aid)
    l   Equalizes the amount per pupil and also
        results in lower property taxes in those
        schools that are over the minimum.       33
Equalize Tax Rate
Impact of On-Time Funding

   ¡   Problem: Because the formula uses
       prior year enrollment, growing
       districts must fund this expense
       solely from property tax.
       l   Creates taxpayer inequity because
           some growing districts are property
           rich and others property poor =
           higher/lower rate.
       l   Districts have no choice but to serve
           students and consistently growing
           districts have higher cash demands.
      Equalize Tax Rate Impact of On
      -Time Funding

Property Tax Relief: $38 million
    Equalize Tax Rate Impact of On
    -Time Funding

¡   Solution:
    l   Fully equalize the tax rate impact of
        funding on-time funding.
    l   State buys all rates down to the
        whatever is annually calculated as the
        lowest rate impact per student.
    l   Administered by DOM as part of the
        Property Tax Equity and Relief Fund.

Adequacy Reforms

Set and Fund Reasonable
Allowable Growth

 ¡   Problem: Low/no allowable growth
     produces financial crises in school
     budgets over the long run.
     l   Districts must still collectively bargain
         benefits with staff including insurance
         benefits – districts only have control of
         the number of staff they bring back the
         following year.
     l   Other cost increases occur whether or
         not per student total funding does not
Unreasonable Control of
    School Costs?

Set and Fund Reasonable
Allowable Growth

¡   Solution: Return Allowable Growth
    to formula based amount –
    supermajority (2/3 of each
    chamber) to override.
    l   Provides funding based upon cost
        increases faced by districts.
    l   Removes as political decision.
    l   Provides predictable and sustainable
        funding for schools.

    Dropout Prevention
    Funding Changes

¡   Problem: Dropout prevention is limited
    for every district regardless of local
    l   Each district currently receives a maximum
        amount of 5% of Regular Program.
    l   Some districts serve a much greater
        number of at-risk students than others.
    l   Funded effectively by all property tax – so
        just increasing the amount allowable has
        negative taxpayer equity consequences.
Dropout Prevention Funding
Changes Solution
l   Add 0.3 weighting component to Dropout
    Prevention for each identified student.
l   Weighted component funded with a mix
    of property tax and state aid – so
    produces less taxpayer inequity than just
    increasing the percentage.
l   Roll existing at-risk funding from the
    formula into Dropout Prevention.
l   State match for some of the property tax
    remaining would promote equity and
    broad tax relief.
Dropout Prevention Funding
  l   Recognizes that every district has
      students at-risk.
  l   Places additional resources in those
      districts that have more at-risk
  l   Is more fair to property taxpayers.
  l   Adding existing at-risk funding stream
      minimizes confusion, streamlines
      funding and improves local

Transportation Costs

  ¡   Problem: Some districts pay
      virtually nothing out of General
      Fund for transportation costs while
      others spend over 10 percent of
      General Fund just getting students
      to the door of the schoolhouse.
      l   Impediment to reorganization – school
          transportation costs simply replace
          savings due to reorganization.
      l   Equity issue for students – some
          receive less funding than others.     44
    Transportation Costs

¡   Solution:
    l   Remove transportation costs from General
        Fund and place in Transportation Fund.
    l   Formula driven – create a per pupil amount
        of transportation each district receives
        based on actual costs.
         ¡ 75% based on vehicle miles in base year.
         ¡ 25% on number of students transported.

         ¡ Transportation AG set by DE annually based
           on national index of cost per vehicle mile.
         ¡ Legislature reviews formula every five years.

Sparsity of Population

 ¡   Problem: Current finance formula
     doesn’t take into account that there
     are districts in the state which are
     so large they cannot be made
     l   Some areas of the state will always
         operate with fewer children (and hence
         revenue) per classroom and yet costs
         are not different.

Sparsity of Population Weighting

¡   Solution:
    l   Weighting based formula based on
        population density – Regular Education
        weighting of 0.1 students.
    l   Requirements:
         ¡ District land area must exceed ½ land
           area of average county.
         ¡ Must exceed 300 students to receive
         ¡ May only be used for funding educational
Innovation Fund

¡   Problem: Barriers to innovative
    programs/processes are hard to
    l   Local barriers include resistance to
        change, uncertainty and fear.
    l   State barriers include Dillon’s rule,
        current waiver process and ???

Innovation Fund

¡   Solution: Creation of State
    Innovation Fund.
    l   $25 million fund for innovative projects
        that improve cost effectiveness of
        student achievement, improve
        business practices or otherwise
        improve sharing of information.
    l   Districts would have to provide a 50%
        local match.
    l   Expenditures would be exempt from
        provisions of Dillon’s rule.
Extend/Enhance Sharing

¡   Problem: Major sharing incentives
    are expiring.
    l   Current Operational Efficiency and
        Whole-Grade Sharing incentives have
        been successful at promoting
        consolidation. Both expiring in FY
    l   Operational Efficiency incentive allowed
        five positions to be shared, but more
        opportunities exist.
    l   Increased sharing leads to more
        mergers.                               50
Extend/Enhance Sharing

¡   Solution: Extend Whole-Grade
    Sharing and Operational Efficiency
    incentives five more years.
    l   Expand Operational Efficiency definition
        to allow weighting for sharing of
        curriculum directors and counselors.
    l   Continue documentation and annual
        reporting requirements.

Summer School

¡   Problem: Some students need
    additional opportunities for which
    there is no current funding.
    l   State sets student contact days at 180
    l   Employee contracts require pay for
        additional days
    l   A wide variety of student needs exist
         ¡   Below proficiency
         ¡   Talented and gifted
         ¡   Low-income students typically lose ground
             during summer break
         ¡   Non-English speaking students               52
Summer School

¡   Solution: Create a weighting
    associated with summer school
    enrollment count
    l   Weighting of 0.2, or 1/5th of the regular
        program district cost, would cover the
        teaching and support staff costs of a
        typical summer school program
    l   May be cost savings down the road
        with less special education, ELL or
        dropout prevention eligible students.

Process Reforms

         Goals are to improve efficiency,
         maximize transparency and
         predictability, and generally to
         improve processes and avoid

Remove Special Education from
General Fund

¡   Problem: Special education funds
    are intermingled with regular
    education funds in the General
    Fund. Makes it difficult to report
    and track. Extends timeline where
    districts know final Unspent
    Authorized Budget.

     Remove Special Education from
     General Fund

¡   Solution:
    l   Place in Special Education Fund.
    l   Tie to Regular Allowable Growth rate.
    l   Transfer taxing authority for Special
        Education to Special Ed Fund.
    l   Improves accountability – impossible to mix
        Special Ed and Regular Ed.
    l   Improves school district financial projections.
    l   Helps DE – Special Ed is huge sticking point
        in determining Unspent Authorized Budget –
        no longer an issue.                         56
Increase Effective Borrowing Capacity
from Sales Tax Funds

  ¡   Problem: Financial markets do not
      let districts borrow against full
      amount of Sale Tax proceeds.
      l   Because of inherent risk of sales tax
          fluctuations, schools only can borrow
          against 70% to 80% of expected
      l   Rate is higher because of inherent
          default risk.

     Increase Effective Borrowing
     Capacity from Sales Tax Funds
¡   Solution:
    l   Provide school districts with same mechanism
        as cities and counties have for their sales tax
        funds: Property Tax Backing.
    l   In the event a school doesn’t have sufficient
        sales tax funds to pay their bonded
        obligations, can levy a property tax to ensure
        they don’t default.
    l   Reduces all sales tax borrowing costs
    l   Adds fair and safe borrowing capacity at
        virtually zero cost.
Annual Settlement

¡   Problem: 279.33 of the Code
    l   1. At a regular or special meeting held on or after August 31 of each year, and
        prior to the organizational meeting held after the regular school election, the
        board of each school corporation shall meet, examine the books of and settle with
        the secretary and treasurer for the year ending on the preceding June 30, and
        transact other business as necessary.

    l   Doesn’t reflect GAAP changes –
        impossible to “settle” – CAR submitted
        but not approved and audit likely not

Annual Settlement Requirement

¡   Solution: Change requirement to
    utilize the Audit for settlement.
    l   More accurately portrays financial
    l   Recognizes changes in accounting from
        cash to accrual.

State Innovation

Extend Sharing

                   Summer School
                     Weighting     61
    Overall Benefits

¡   Provides some property tax relief to all
    districts while providing targeted tax
    relief to those with the highest property
    tax rates (#2, 3, 5, 6, 7, 9, 15)
¡   Provides increased resources to
    General Fund or increased services to
    certain populations. (#1, 4, 6, 8, 9, 10,
    11, 12, 13, 14, 16)
¡   Produces more transparency and local
    accountability. (#4, 9, 10, 15,17)
Discussion of Ideas in the Public

¡   Feedback and question survey will
    be posted with this PPT on public web site.
¡   A wiki has been created to discuss
    and refine these proposals.
    l   Are these the right things to talk about?
    l   What’s missing?
    l   Are these the right weightings or formula
        suggestions? Have your local experts
        weigh in.                                 63

Contact Information
Larry Sigel
Iowa School Finance Information Services
4685 Merle Hay Road, Suite 209
Des Moines, IA 50322

       Last updated 1/30/2012

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