School Funding, State Aid and Property Taxes

Iowa law guarantees that every child in the state receives an “equal” amount of money to fund his/her education. A district’s budget is basically derived from the number of children enrolled in the district multiplied by the district’s 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. This increase used to be called “allowable growth" and is now referred to as "State Supplemental Aid Increase."

Patti Schroeder, education finance co-director for the Iowa Association of School Boards, explains the principle this way: “Under the basic finance formula, each district’s spending is based upon a district cost per pupil. The total amount the district is allowed to spend is that per pupil amount times the number of students enrolled. A district can spend less than the maximum, but cannot spend more.” So in this way, school districts are budget limited in what we can spend. We have limited flexibility to increase revenues and spend authority through the current tax system.

An allowable growth rate is recommended by the Governor and established by the Legislature. The rate is multiplied by the state cost per pupil to calculate an allowable growth amount per pupil. All districts receive the same amount per pupil. Allowable growth per pupil is intended to further provide equity in school districts throughout the state. The legislature set a principle that each child is worth the same amount, no matter where he/she lives. Recently our legislature set an allowable growth rate for school at a 1.0% increase. This equates to an increase of $67 per student.

Local property taxes account for one-third of the total funds going into districts’ programs and represent about 40% of the overall state property tax funds levied. The state's 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 $1.5 billion dollars statewide, leaving lawmakers to decide whether to raise the state sales tax or income taxes to make up that difference.

• Property taxes also add stability to the funding of school districts. 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 adjust to midyear revenue changes. Diversification is a prudent investing strategy that applies to schools as well.

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

Due to changes in our school district's budgeting practices, whole grade sharing, and operating as lean as possible, we have been able to maximize our local and state funding sources. This, along with increased property valuations, has allowed our local school property taxes in both the Alta and Aurelia school districts to come down over the past 4 years. If the current trend from the capitol to underfund schools continues, taxes will go back up.

No public official, whether our local school board members and administrators or the city and county officials, take the impact of raising property taxes lightly. 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 and we experience additional, unforeseen expenses such as increased fuel and energy prices, we really have no alternative except to raise local property taxes or reduce expenditures.

Seventy-five to 85 percent of school district budgets are comprised of salary and benefit costs, which doesn’t leave much discretionary spending to cut. No one likes property taxes, but they are an essential part of efficient funding of our schools.

Next year's tax rate for Alta taxpayers will be set at $9.69 (a $2.00 reduction from last year). The tax rate for Aurelia taxpayers will be set at $8.52 (a reduction of over $1.00from last year).

We are fortunate in the short term that local Alta-Aurelia School District taxes will be reduced. This is a direct product of the school reorganization that will take effect on July 1st. For school's reorganizing, the foundation levy is reduced by the state from $5.40 to $4.40 the first year and gradually increases back to $5.40 over the next three years.

Currently, 70% of the total Alta-Aurelia levy rate is determined by the State's school funding formula. 15% of the total levy rate is voter controlled and 15% is controlled by the school board. The

Once all school 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. This is known as "Dillion's Rule" and will be a topic of discussion in a future article.