One of the most difficult and confusing elements of school funding is how Iowa law restricts the ways 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, such as the Physical Plant and Equipment Levy, which 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 face pressures from the staff side of the budget while others have more pressures on facilities. However, due to the restrictions on revenue uses, excess money from the facilities fund cannot be used to solve shortages on the general fund side. As a result, you sometimes end up with districts that have adequate facilities funds but have to lay off staff.
Instruction expenditures (general fund) are equalized, but the funds we levy locally are not. The physical plant and equipment levy and debt service are valuation dependent and the revenue received varies considerably among districts. However the statewide school infrastructure sales and service tax (better known as the state penny sales tax), provides “equal” funding for school infrastructure needs and/or district property tax relief. The tax capacity of the district and the one penny revenue largely limits the amount of funds for building expenditures.
The state penny sales tax, which replaces the one-cent local option sales tax and is dedicated primarily to school buildings, equipment and property tax relief. It has proven to be a popular alternative to property taxes to renovate and build buildings. Now, with the passage of the state penny for school infrastructure, each school district receives the same amount per pupil.
In short, when it comes to school spending, districts must look at all potential expenditures 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 allowed 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.
