Track 1 Overview  Basics of School Finance  Understanding Property Taxes  Aid and Levy worksheet  Certified Budget  How to read your audit  Funds/Revenue Streams  How to read your audit  Ratios/Financial Health Analysis  Budget Estimation/Long Term Projections  Supplmentary Information 1

Housekeeping  Instructors Craig Hansel, CFO, Ankeny Bob Longmuir, Superintendent, Clarksville Marty Fonley, Superintendent, Algona Joe Kramer, Superintendent, Pocahontas Larry Sigel, Partner, ISFIS  Informal  No dumb questions 2

“Must Haves”  Are there topics, terms or concepts you absolutely want to leave with and understanding of?  Shout them out – we’ll record them and make sure we cover during the next day and a half. 3

4 Iowa K-12 Public School Finance Larry Sigel, Partner Iowa School Finance Information Services (ISFIS)

5 Overview  Funds  Revenues  Expenditures  Spending Authority  Financial Health

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.” 6

7 Funding Sources  Major funding sources: General Fund – funds the educational program (teachers, curriculum, energy) Physical Plant and Equipment Levy (PPEL) funds Debt Service funds Sales Tax funds Management Levy funds Public Education and Recreation Levy funds Cash Reserve Levy funds Nutrition funds (lunch $’s) Activity funds

8 Funding Sources  General Fund

9 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

10 General Fund  Restriction of Spending Authority only applies to the General Fund – all other funds allow spending if you have the cash to spend  District must account for two things in their General Fund: Fund Balance (cash) Spending Authority (credit card limit)

11 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 (allowable growth)  Spending Authority is then funded by a combination of State Aid and Property Taxes

12 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

Permutations of Spending Authority and Fund Balance 13

Weighting  Counts students at a value greater than 1 then multiply by credit card limit to provide additional funds. Special Education:  0.72  1.21  2.74 English Language Learner (ELL)  0.22 (4 years with state funding)  All weightings in addition to 1.0 for regular education. 14

15 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 Foundation 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)

16 General Fund  Funding a school district’s Spending Authority Property RichestAverage ValuationProperty Poorest Uniform Levy  State Aid  Additional Levy 

17 General Fund  Reconciling two concepts: Fund Balance and Spending Authority Fund Balance – if the district ceased to exist at the conclusion of the fiscal year – and took in all funds it was owed and paid all bills it owed – what would be left over Corollary to Fund Balance from Spending Authority perspective: Unspent Budget Authority (Unspent Balance)

18 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 School District? Phase II Financial Viability Audit Starting two years ago, state Board of Education has the ability to close a school district for no other reason than financial inviability (not educational reasons)

Optional Sources of Authority in the General Fund  Instructional Support Levy (ISL) First question: How much do we want to increase (up to 10% of credit card limit)? How do we fund it (property taxes or income surtax)? Voter approval – up to 10 years Board approval – up to 5 years 19

Optional Sources of Authority in the General Fund  Dropout Prevention Maximum 5% of Regular Program District Cost Used for services to dropouts or those at-risk of dropping out. Effectively funded by all property tax 20

21 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)

22 Cash Reserve Levy  Only for the General Fund!  Two sub levies: Regular cash reserve levy – general cash reserve for the operation of the district School Budget Review Committee (SBRC) cash reserve levy – used to fund spending authority granted by SBRC (primarily special education deficits and on-time funding)  No rate limit on the levy – but a district is limited to levying the Cash Reserve Levy if fund balance exceeds 25% (this will reduce to 20% in FY 2012)  Cash Reserve Levy does not create spending authority, it only gives the funds to spend it (i.e., you cannot just levy your way out of a spending authority problem)

23 Transition to Non General Fund Sources  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

24 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 Can borrow against property tax portion of voter-approved. Cannot borrow against the board-approved PPEL levy.

25 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 build schools in Iowa

26 Sales Taxes  Started out as local option sales tax in early 1990’s  By 2004 all counties had passed  Converted to “State Penny for School Infrastructure” July 1, 2008  Still requires a district vote on a Revenue Purpose Statement  Can be used for buildings/grounds, PPEL purposes, and PERL purposes (still depends on language you have in place in your district) – cannot be used for staff costs

27 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 (lose court case) Not rate limited, purpose limited Set by school board action as part of district budget

28 Public Education and Recreation Levy  Funded all by property tax  Voter approved 50% +1 vote (no expiration)  Maximum levy rate of $0.135 per thousand  Funds for public playgrounds and recreation facilities and community education  Governed by Ch. 300 and Ch. 276 of the Code of Iowa

29 Financial Health  Focus primarily on General Fund  Why? That’s where we pay for educational program 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

Understanding the Iowa Property Tax System Larry Sigel Partner Iowa School Finance Information Services 30

31 Understanding Property Taxes  Calculations, definitions, formulas  Taxing entities and boundaries  Limits  Classes of property  Credits  TIF

32 Economic Principals  The Property Tax Has Unique Properties  Relative to Income/Sales taxes, Property taxes are: Unavoidable Regressive Neutral Predictable In General, property taxes impact wealth, income taxes impact wages, and sales taxes impact price.

33 Understanding the Concepts L = V X R Valuation: The tax base to which a rate is applied Levy: Dollars Collected by the tax Rate: The amount of tax that has to be remitted on $1,000 of valuation

34 LEVY = Valuation X Rate Effective Rate Vs. Levy Rate o Levy rate = the rate of tax applied to taxable value. o Effective rate = Levy divided by market value times 1,000. o Example: o Farmer has 200 acres with a market value of $400,000. The farmer’s consolidated rate (total combined levy rate) is $20 per $1,000 of taxable value. The taxable value of the land is $160,000. o The farmer pays....$20/$1,000 X $160,000 = $3,200 o Levy rate = $20 per $1,000 of taxable value. o Effective rate = Levy divided by market value = $3,200 / $400,000 X 1,000 = $8.00 per $1,000 of market value = 0.8% of wealth.

35 The Consolidated Tax Rate (Taxing Authority & Taxing District) Taxing authorities have individual levy rates that roll up to the total authority levy rate (ie. School total rate = PPEL + Uniform Rate + Additional Rate + Debt Service Rate + Mgt. Rate + Cash Reserve Rate etc.) Each taxing authority applies its rate to all the property in its boundary. Taxing District = The unique geographic area in which all properties share the same taxing authorities. Everyone in a taxing district shares the same consolidated tax rate.

36 What Do Taxing Districts Look Like? LEVY = Valuation X Rate  County A, School A, City A  County B, School A, City A  County C, School A, City A 359 School Districts 99 Counties 948 Cities 11,000 Taxing Districts

Limits 37 Some limitations are levy limitations rather than rate limitations (ie. School additional levy) Rate limitations vary by taxing authority type Cities: $8.10 general limit Counties: Rural (property in unincorporated areas): $3.95 General (all property): $3.50 School Districts: Uniform Levy: $5.40 (ceiling & floor – acts like a state wide levy) PPEL: Board Approved: $ Voted: $1.34 GO Debt Service: $4.05

Valuation Issues Assessment Calendar and Equalization Orders Classes of Property Determining Assessed Values – Ag Productivity Formula Assessment Limitations Rollback Credits TIF (Tax Increment Financing) 38 LEVY = Valuation X Rate

Assessment Calendar and Equalization Orders Property is assessed on an assessment year calendar (Jan. – Dec.) Taxes are paid on a fiscal year (July 1 - June 30, paid in Sept and March) Results in 18-month lag from assessment to first payment (Property first assessed in January 2007 won’t be taxed until September 2008 (FY 2009) 39

Equalization Orders Occur in Odd-Numbered Years Department of Revenue and Finance reviews assessment data and determines that various classes of property are assessed accurately. State has a vested interest in making sure valuations are accurate Plus or minus 5% Equalization ordered by class of property within an assessment jurisdiction In some cases (particularly ag property), State re-values where assessor chooses not to re-value. 40 Assessment Calendar and Equalization Orders

Determining Assessed Values o Residential: Market Value o Agricultural: Productivity Value, based on price & quantity of crops. o Commercial: Market Value o Utilities and Railroads o Centrally Assessed, based on stock and debt calculation. o Gas and Electric - based on generation (ie. Kwh tax). o Converted into property value equivalent o (Valuation = Taxes Paid/Rate) 41

LEVY = Valuation X Rate 42

43 Determined County by County Determine Net Income (Revenue Minus Expenses) Divide by 7% (Capitalization Rate Defined in the Code of Iowa) Spread out over all the ag property in the county, so that all identical property IN THAT COUNTY has the same value. Revenue= + Bushels of Corn X Avg. Price of Corn + Bushels of Beans X Avg. Price of Beans + (Repeat for all Crops) Expenses= (BEA Expenses, Provided by ISU and others) Property Taxes, Seed, Fertilizer, Petroleum products, labor, change in inventory Agriculture Productivity Formula “Capitalizes Income”

Understanding the Rollback Rollback applies to all classes of property (not just residential) Rollback Rules Taxable valuation cannot grow more than 4% for any class. 4% growth limitation is a statewide limitation - local differences can be dramatic 4% growth limitation is net of new construction. 44

Understanding the Rollback Ag-Residential Tie: Neither class grows faster than the other.... Agricultural taxable values (pre-existing) cannot grow more than Residential taxable values (pre-existing) Residential taxable values (pre-existing) cannot grow more than Agricultural taxable values (pre-existing) EXAMPLES: Ex. 1. If Ag taxable values grow 8%, and Residential grows 2%, both classes will have 2% taxable valuation growth. Ex. 2. If Residential taxable values grow 8%, and Ag grows 2%, both classes will have 2% taxable valuation growth. Ex. 3. If Ag taxable values grow 8%, and Residential grows 12%, both classes will have 4% taxable valuation growth. The ag-res tie will have no effect in this situation. 45

Rollback Implications Other rollbacks have not decreased because existing properties have not grown more than 4% annually. Differing Rollback Percentages Do Not Necessitate Unfairness Residential has consistently growing share of valuation, yet population is stable. Consider entire puzzle: Credits...Exemptions...Declassification (computers, M&E, etc)...Depreciation 46

Rollback History 47

LEVY = Valuation X Rate - Credits Valuation Credits (ie. Homestead credit) Last step before taxes are determined. Homestead Calculation: [(Assessed Value X Rollback) - $4,850] X Rate Example: $100,000 Home with a.56 Rollback and $30 tax rate (per $1,000) 1. [($100,000 X.56) - $4,850] X $30/$1, [$56,000 - $4,850] X $51,150 X.03 = $1, (Tax Bill) Valuation Credits are Progressive. Homestead Credit = $4,850 for ALL HOMEOWNERS. Everyone living in the same taxing district gets the same TAX REDUCTION. Valuation Credits are worth the most where tax rates are the highest. $45 / $1,000 X $4,850 = $ $20 / $1,000 X $4,850 = $

LEVY = Valuation X Rate - Credits  Rate Credits (ie. Agland Tax Credit)  Last step before taxes are determined.  Agland Tax Credit Calculation: [(School Tax Rate - $5.40) X Taxable Value]/$1,000  Example: $160,000 Farm in a district with a tax rate of $ [($ $5.40) X $160,000 / $1, $5.00 X $ Apply Proration Percentage (If State only reimburses 30% of the total claims, than every taxpayer gets 30% of their claim. $800 X.3 = $240)  Rate Credits are Proportional (neither progressive nor regressive). Rate credits reduce every taxpayers bill by the same percentage amount. 49

50 LEVY = Valuation X Rate - Credits

Where does the money go? 51

Tax Increment Financing (TIF) TIF is financing tool cities use to make improvements to an area. The city borrows money to make the improvements. The city repays the loan with the taxes paid by the growth in taxable valuation in the area. Taxpayers in a TIF district pay the same rate as those outside the TIF. But their payments are intercepted before they ever get to the local governments that would otherwise have received the payment. 52

TIF Allowable Purpose Original Focus: TIF was only allowed to finance improvements to slum and blighted neighborhoods. Economic Development Tool: TIF was then allowed for economic development. A city needs to install water and sewer lines so a company can locate in the city. The company won’t locate without the infrastructure, and the infrastructure is pointless without the company. The city TIF’s the company, so the company’s future taxes repay the cost of development. “Economic Development” Has Evolved Malls and other retail Local Services Tax rebate agreements – give property tax dollars back to recipients. 53

54

55 The Reality Anticipated growth is scooped rather than created.

56 Why Do Local Governments TIF? Competition. “Rapid Response” tool. Greater Flexibility. TIF allows a city to finance economic development by shifting the tax burden.

Understanding the Aid and Levy Worksheet  Follow along on your Aid and Levy Worksheet  We’ll hit important Aid and Levy Line numbers as we go and discuss each.  The number preceding each description is the line number on the Aid and Levy Worksheet 57

Section 1: Aid and Levy – Enrollment  1.1 Budget Enrollment  1.2 Audited Change in Oct 2009 Headcount  1.7 Enrollment Audit Adjustment – State Aid Portion 58

Section 2: Aid and Levy – Costs Per Pupil  2.2 Regular Program Growth per Pupil  2.3 Regular Program District Cost per Pupil  2.6 Teacher Salary Supplement (TSS) Cost per Pupil  2.9 Professional Development Supplement Cost per Pupil  2.12 Early Intervention Supplement Cost per Pupil 59

Section 3: Weighted Enrollment – Special Education  Special Education Special Ed Weighting Special Ed Weighting Special Ed Weighting 60

Section 3: Weighted Enrollment – AEA’s  3.6 AEA Weighted Enrollment  3.7 AEA Supplmentary Weight for Sharing  3.8 Total AEA Weighted Enrollment 61

Section 3: Weighted Enrollment – Supplementary Weighting  3.9 Sharing  3.10 At-Risk Formula  3.11 ESL  3.12 Reorganization Incentives 62

Section 4: Regular Program District Cost (RPDC)  4.3 Regular Program District Cost without Adjustment  4.10 Scale-Down Budget Adjustment Calculated  % Budget Adjustment Calculated  4.16 = Greater of 4.10 or

Section 4: Regular Program District Cost (RPDC)  Important points to remember: Budget Guarantee calculations provide spending authority. It is entirely funded by local sources (either reserves or cash reserve levy) 101% calculation provides only provides one additional year (step down) 64

Section 4: Other District Cost Calculations  4.19 District Cost for Supplementary Weighting  4.22 Special Education District Cost  4.30 Teacher Salary Supplement District Cost  4.38 Professional Development Supplement District Cost  4.46 Early Intervention Supplement District Cost 65

Section 4: Other District Cost Calculations  Important points to remember: These numbers represent the total spending authority generated by the formula, the mix between property tax and state aid is set later. Budget guarantee for TSS, Professional Development and Early Intervention is for one year – following year work from lower base. TSS, Professional Development and Early Intervention is 100% State Aid (no property taxes). 66

Section 4: AEA District Cost Calculations  4.52 Total AEA Special Ed Support District Cost  4.60 AEA Media Services District Cost  4.63 AEA Ed Services District Cost 67

Section 4: AEA District Cost Calculations  Important points to remember: Include AEA’s in each district’s Aid and Levy. Why? AEA’s do not have property tax asking authority. Book AEA flowthrough as expense, even though no cash changes hands. 68

Section 5: Combined District Cost Summary  Recap from prior sections – mostly Section 4.  Generates total amount that the district will receive in spending authority due to the formula.  School are budget based – that is we determine first how much in total we are to receive, then the mix of property tax and state aid is determined.  5.18 Combined District Cost 69

Funding Combined District Cost  Three layers of funding actually provide the revenue to fund your Combined District Cost: Uniform Levy (Section 6) (property tax) State Foundation Aid (Section 7) Additional Levy (Section 8) (property tax) 70

Section 6: Uniform Levy  6.1 Taxable Valuation with Gas and Electric Utilities  6.2 $5.40 Uniform Levy Rate (can be as low as $4.40 if reorganization incentive applies)  6.8 Uniform Levy Dollars Adjusted for Utility Replacement – have to adjust for the fact that Gas and Electric utilities don’t really pay property tax – they pay sales tax that acts like a property tax. 71

Section 6: Uniform Levy  Observations: The Uniform Levy generates the first layer in funding your Combined District Cost. Property rich districts will generate more than property poor. Next layer of funding, State Aid is meant to offset a portion of the funding inequity. 72

Section 7 – State Foundation Aid  Big picture: State backfills up to 87.5% of the Cost per Pupil after the Uniform Levy.  Cost per Pupil x.875 = State Regular Program Foundation Dollars  State Regular Program Foundation Dollars less Uniform Levy = State Aid 73

Section 7 – State Foundation Aid  7.3 District Foundation Dollars without Special Ed  7.6 District Special Ed Foundation Dollars  7.16 Teacher Salary Supplement District Cost  7.17 Professional Development District Cost  7.18 Early Intervention Supplement District Cost  7.21 less Uniform Levy Dollars  7.25 equals Unadjusted State Foundation Aid 74

Section 7 – Preschool Foundation Aid  7.27 Preschool Budget Enrollment (actual enrollment x 60%)  7.34 Total Preschool Foundation Aid 75

Section 8: Additional Dollar Levy  8.4 Additional Dollar Levy: 8.1 Combined District cost Minus 8.2 Total Foundation Dollars (State Aid + Uniform Levy) Equals Additional Dollar Levy (total dollars – we then back into rate necessary) 76

Section 8: Adjusted Additional Property Tax Levy Aid (8.15 – 8.24)  Big picture: State began process of buying down the highest Additional Levy tax rates (property poorest).  Funding came originally solely from State funds ($24 million). Now is funded by additional Use Tax funds generated by passage of State Penny ($25 million) for a total funding of $49 million.  State funds replace property taxes 77

Section 8: Property Tax Equity and Relief (PTER) Fund (8.25 – 8.29)  After buying down all school Additional Levies to average, what happens if there is money left over?  All schools would receive a tiny bit of increase in State Foundation Percentage (87.5%), which means State Aid used to reduce property taxes (applies to all schools, just not property poor/high tax rate).  No funds to buy down (yet). 78

Section 9: Final State Foundation Aid  Recap section – all numbers calculated in earlier sections.  Provides 9.11 State Foundation Aid  Important to legislature as that is their “price tag” for schools.  We’ve got some adjustments to make before we can come to final property taxes. 79

 The ISL allows a district to raise the “credit card limit” by up to 10 percent.  Really there are two questions: How much do we want to increase the credit card limit by? (up to a maximum of 10 percent) Then how are we going to fund this increase?  Property taxes  Income surtaxes  Combination of the two Section 10: Instructional Support Program

 Income surtax A “tax on a tax” in that the percentage is applied to the total income tax owed by a taxpayer. If a 5 percent income surtax, it is NOT 5 percent of their income; it is 5 percent of their tax liability. For example, if someone’s total Iowa income tax liability for the year is $2,000 then their income surtax at 5 percent is.05 x 2,000 or $100. Applies only to individual income tax not to corporate income tax. Lags behind property tax by a year. Can be used only to fund an ISL or voter approved PPEL. Property Tax v. Income Surtax

 Does the state provide any support? Yes, the state originally said they would fund up to 25% of the total cost. Froze state funding in FY Prorate the funding now (smaller and smaller pie). Cannot make up what the state doesn’t fund. Proration method penalizes property poor districts. Funding the ISL

 Board approved Board passes “Resolution of Intent to Participate” Sets date for public hearing and places public hearing notice in paper. Public hearing must be not less than 10 nor more than 20 days following publication. Holds public hearing and then adopts resolution to participate Wait 28 days – if no petition with 100 signature or 30 percent of those voting in the last election is presented (whichever is greater) the ISL is certified for five years (starting next fiscal year) How to Implement an ISL

 Voter approved Pass resolution – work with county Auditor to put to a vote on one of the special election dates. If passes by 50 percent + 1 vote, then goes into effect for a maximum of 10 years. How to Implement an ISL

Section 10: Instructional Support Program  10.4 Maximum Portion (up to 10 percent)  Unadjusted Instructional Support Program Dollars  Instructional Support Income Surtax Dollars  Instructional Support Property and Utility Replacement Dollars  Adjusted Instructional Support State Aid  Adjusted Instructional Support Program Dollars 85

Section 15 – Summary of General Fund Levies  15.1 – 15.8 = recap from prior sections.  15.9 Cash Reserve Levy – SBRC – used to fund spending authority granted by School Budget Review Committee  Cash Reserve Levy – Other. Neither 15.9 or generate spending authority – simply cash. Limits on levying cash reserve: 20% in FY

Section 15 – Summary of General Fund Levies  Use of Fund Balance to Reduce Levy – this allows a district to use some of its fund balance to buy down the levy rate. Rare to use (know what you are doing).  Total General Fund Levy – totals dollars levied then divides by valuation to get rate in

Section 16 – State Payments to AEA and District  Because districts don’t ever send the property taxes they levy on behalf of the AEA’s to the AEA’s. The state sends all the money to the AEA and just reduces State Aid to school districts by the amount of property taxes they keep. Section 88

Section 17 – Summary of General Fund Budget Authority  Recap section – all come from elsewhere.  Sets spending authority for coming year.  Notice lack of Cash Reserve Levy?  Line 17.9 less 17.2 = Breakeven expenditure calculation – ie, how much can you spend in the upcoming year and not have your Unspent Authorized Budget change. 89

Section 19 – Voted Physical Plant and Equipment Levy  Background In the early 1990s, the legislature replaced what used to be called the Schoolhouse Levy with the Physical Plant and Equipment Levy (PPEL). There are two portions of the levy – a 33 cents per $1,000 board approved levy and a voter approved PPEL that can go as high as $1.34 per $1,000 of property valuation. Iowa Code Section covers the procedure for adopting the levy and covers the allowable uses under the levy

Section 19 – Voted Physical Plant and Equipment Levy Allowable Uses Purchase or improvement of property Construction of schools, buildings and roads Purchase or lease purchase of equipment and technology exceeding $500 per single unit (includes computers, musical instruments, copiers, projectors, etc.) Payment of debt for schools or buildings Procuring or acquiring library facilities Repair, remodeling and reconstructing of existing facilities Expenditures for energy conservation Rental of facilities under 28E Purchase of transportation equipment for transporting students (buses) Purchase or lease purchase of buildings Equipment for recreational purposes 91

Section 19 – Voted Physical Plant and Equipment Levy  Prohibited Uses School district employee salaries, benefits or travel expenses Materials and supplies Printing costs or media services Heating and cooling costs or bus fuel Any other purpose not expressly authorized in this section (298.3) 92

Section 19 – Voted Physical Plant and Equipment Levy  Maximum 10 year duration  Simple majority vote of the district voters (50% plus 1)  Property tax or income surtax/property tax at a maximum of $1.34 per $1,000 of net taxable value (or an income surtax to generate an equivalent amount)  Districts may not borrow against income surtax revenues. Districts may borrow against property taxes, no longer than the time remaining on the current vote.  There is a one year delay from the imposition of the tax before income surtax revenues are received by the district. 93

Section 21 – Other Property and Utility Replacement Taxes  21.1 Management  21.2 Amana  21.3 Regular PPEL  21.6 Public Education and Recreation Levy  21.7 Debt Service Levy 94

Understanding the Certified Budget  Larry Sigel, Partner, ISFIS 95

Big Picture  Aid and Levy (A&L) Worksheet is just the first step in the process. The A&L feeds the Certified Budget with critical information.  There are budget forms which must be completed as well.  This information is then provided to the Department of Management so they can certify budgets and allow the collection of property taxes. 96

Certified Budget  The Certified Budget covers three fiscal years (all fiscal years are July 1 to June 30): Previous fiscal year, called “Actual” Current fiscal year, called “Re- estimated” Upcoming fiscal year, called “Budget” 97

General Order 1. Tax Cert 2. Aid and Levy Worksheet Debt Form 4. WK1 & WK 2 FY WK1 & WK2 FY Unspent Authorized Budget (Breakeven calc) 7. Errors (check) 8. Proposed 9. Adopted 10. Published 98

Tax Cert  Purpose: Enter property valuations for calculating property tax rates.  Enter valuations in the box below on Form S-TX: 99

703 Debt Form  Purpose: record General Obligation bonds, revenue bonds, long term loans and lease-purchase agreements. 100

WK1 and WK2 Sheets S-W1 S-W2  Re-Estimated revenues and expenditures for current fiscal year.  Estimated revenues and expenditures for Budget Year. 101

UAB Wksht  Purpose: Estimating current and proposed fiscal year spending authority and Unspent Authorized Budget. 102

UAB Wksht  Breakeven calculation at bottom of UAB Wksht.  Tells the district how much they can spend and not have their Unspent Authorized Budget decline. 103

Errors  Errors page will pick up any errors. Fix these before proceeding.  Example: 104

Proposed S-PB-8  Proposed budget for public hearing.  Builds from WK1 and WK2 information. 105

Published S-PB-6  Actual format for publication.  Pull from WK-1 and WK-2 Information 106

Adopted S-AB  Adopted budget summary.  Pull information from WK-1 and WK-2 of applicable year. 107

Certified Budget  Public hearing must be held not less than 10 nor more than 20 days following publication.  Certify maximum expenditures or what you think you’re going to spend (know past practice).  Understand Breakeven calculation and what it means for your distritct. 108

How to Read Your Audit  Larry Sigel, Partner, ISFIS 109

Background  Basic accounting equation: Asset = Liabilities + Fund Equity Or by using a bit of algebra: Assets – Liabilities = Fund Equity  Fund Equity (Fund Balance) effectively says: the difference between your assets and liabilities is your fund equity on June

Four types of statements  Balance Sheet  Income Statement  Statement of Retained Earnings  Statement of Cash Flows 111

Balance Sheet  Compares assets to liabilities on June 30 of the fiscal year. Assets: 112

Balance Sheet  Liabilities:  Fund Balances 113

Income Statement  Also known as profit and loss. Shows how revenue ends up as net income (positive or negative) 114

Income Statement  Also tells you how where the fund balance started and where it ended. 115

Statement of Retained Earnings 116

Statement of Cash Flows  Shows how change in balance sheet and income accounts affects cash and cash equivalents. 117

Statement of Cash Flows 118

School District Funds By: Craig Hansel ISFLC Track 1 – December 2010

GAAP Fund Structure  Governmental  Proprietary  Fiduciary

Governmental  General Fund  Special Revenue Funds

Governmental - General  Money In: State aid Most Property Taxes Grants Most Miscellaneous Income

 Money Out: Most all Wages & Benefits Supplies Equipment Utilities Purchased Services Continuing Education Conferences Governmental - General

Special Revenue (SR) Funds  Management  Physical Plant & Equipment Levy (PPEL)  Public Education & Recreation Levy (PERL)  Student Activity  Capital Projects  Debt Service

SR - Management  Money In Board Approved Property Tax  Money Out Liability Insurance Early Retirement Unemployment Claims Tort Payments

SR - PPEL  Money In $.33 Board Approved $1.34 Voter Approved  Money Out Classroom Renovations Energy conservation measures Lease-purchase of single unit Equipment > $500 Buses / Sidewalks / Parking lots

SR - PERL  Money In $.135 Voter Approved  Money Out For the Purchase & Construction of playground Equipment

SR - Student Activity  Money In Activity Admissions Student Fund - Raising Events Picture money  Money Out Co-Curricular Activities

SR - Capital Projects  Money In Bond Proceeds Local Option Sales Tax  Money Out For the purpose for which the bonds or indebtedness was incurred L.O.S.T. school infrastructure authorized by Iowa Code 422E

SR - Debt Service  Money In Collected for other sources and transferred to this fund  Money Out Principal & Interest Payments on Debt

Proprietary Funds  Enterprise  Internal Service

Enterprise - Nutrition  Money In Lunch Fees State and Federal Reimbursements  Money Out Any expenditure related to the hot lunch program

Enterprise - Child Care  Money In Fee for Service Revenue  Money Out Any expenditure related to the Child Care program

Internal Service  Money In Departmental Reimbursements and Charge-backs  Money Out Purchasing or Production of Goods and Services

Fiduciary Funds  Private Purpose Trust  Agency

Trust - Expendable  Money In Benefactor Gifts  Money Out Both Principal and Interest spent on the trust’s intended purpose

Trust – Non-Expendable l Money In Benefactor Gifts l Money Out Only Interest spent on the trust’s intended purpose

Agency  Money In Individuals Private Organizations  Money Out Funds held in a custodial capacity on behalf of the owner

Final Important Formula 2 + 4L + 2C i = SNIFF 2

School Budget Review Committee 140 By: Craig Hansel

School Budget Review Committee  History & Purpose Created in 1967 to address issues of equity in opportunity following a period of school district consolidation. It was the concern of the state policy makers that some school districts may have unusual or unique circumstances that required special attention and funding as a result of the consolidations.

 Creation was in effect granting of property tax levying power to the executive branch.  1973 Attorney General Opinion 1973 stated there was no constitutional violation in the structure of the SBRC. SBRC - History & Purpose

Required July 1, 1991, to adopt reasonable and uniform policies in compliance with the goals of the formula to serve as the basis for its decisions.  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 costs paid from property taxes  To provide reasonable control of school costs. SBRC - History & Purpose

SBRC - Membership Committee  Director of the Department of Education, who serves as the chairperson  Director of the Department of Management, who serves as secretary  Three public members appointed by the Governor and serve staggered three-year terms

SBRC - Membership Criteria  Required to be knowledgeable in Iowa school finance or public finance  One public member must possess a master’s or doctoral degree with school finance, economics, or statistics as an integral component or the member must have equivalent experience in an executive administration or senior research position in the education or public administration field  Requires approval by the State Senate

Kevin Fangman, Chairman  Non-voting member Dick Oshlo, Secretary  Director Dept. of Management Don Hansen – Algona * Lee Tack – Johnston * Jane Babcock – Monroe * Connie Maxson * Su McCurdy  Administrative consultant *: Public Member Appointed by the Governor and Confirmed by the Senate SBRC - Membership - Who They Are?

SBRC - Meetings  Meets as often as necessary to carry out its duties.  Scheduled meetings four times per year – the second Monday of September, December, March, and May.

SBRC - Penalties Failure of a school district to appear before the SBRC as requested constitutes justification for the committee to instruct the Department of Management to withhold state foundation aid to the school district until the SBRC’s inquiries are satisfied completely.

SBRC - Jurisdiction  Review and make recommendations regarding anything that affects school district accounting and budgeting matters  Direct the Department of Management or the Department of Education to investigate or study school costs of any school district  Recommend a school district share or jointly employ the services of any school personnel, classrooms, laboratories, equipment, and facilities

 Review each school district’s budget annually and may suggest changes  Approve or modify the initial base year district cost of a school district which changes accounting procedures SBRC - Jurisdiction

 Review each school district’s cash reserve levy annually  Standard of review: “Unreasonably high” in the eyes of the SBRC  SBRC rule: A school district’s budget year cash reserve levy cannot exceed 25 percent of the school district’s expenditures for the year prior – the year ending cash balance SBRC - Jurisdiction

SBRC - Accountability  Report annually to the legislature. Activities for the year Cash reserve levies made by school district Other information the SBRC deems advisable Any recommendations for changes in school laws

SBRC - Available Funding Modified allowable growth in the form of additional allowable growth  Additional allowable growth is a lump sum amount that increases a school district'’ combined district cost for one year  Returning dropouts and dropout prevention  Negative Special Education Balances

Expenditure of unexpended cash balance  SBRC grants school districts authority to spend a reasonable and specific amount of its unexpended cash balance.  Funds used only for the purpose requested and granted; excess funds revert to their status as unexpended cash balance.  Traditionally, authority has been granted to use unexpended cash balance for purchasing structural type equipment but not for classroom equipment such as computers. SBRC - Available Funding

SBRC Unusual or Unique Circumstances Any unusual increase or decline in enrollment. Unusual natural disasters. Unusual initial staffing problems. The closing of a non-public school, wholly or in part. Substantial reduction in miscellaneous income due to circumstances beyond the control of the school district.

Unusual necessity for additional funds to permit continuance of a course or program which provides substantial benefit to pupils Unusual need for new course or program which will provide substantial benefit to pupils if the school district establishes the need and the amount of necessary increased cost Unusual need of additional funds for special education or compensatory education programs SBRC Unusual or Unique Circumstances

Year-round or substantially year-round attendance programs which apply toward graduation requirements, including but not limited to Trimester or four-quarter programs. Enrollment in such programs shall be adjusted to reflect equivalency to normal school year attendance. Unusual need to continue providing a program or other special assistance to non-English speaking pupils after the expiration of the three-year period allowed. SBRC Unusual or Unique Circumstances

Circumstances caused by unusual demographic characteristics. Any unique problems of school districts. SBRC Unusual or Unique Circumstances

SBRC - Application process Provide written request one month prior to the meeting date. Confirmation of the request by the SBRC. Receive notice three weeks prior to the meeting of the date the request will be considered. Legislators must be notified of hearings concerning the school district in their legislative districts.

Receive notice two weeks prior to the meeting of the time and place of the meeting. Provide 10 copies of the information requested by the SBRC at least two weeks prior to the meeting date. A maximum two-page summary of the request and the information regarding it must be provided to the SBRC. Appear before the SBRC at the meeting. Administrators and board members may appear and, upon the SBRC’s request, shall appear before the SBRC. No appearance is necessary for routine action of the SBRC. SBRC - Application process

Receive decision by telephone no later than the first working day following the meeting. Receive confirmation of the decision in writing. Changes in the combined district cost, budget and/or tax levy of a school district because of a decision are made by the SBRC.  Special Education is reviewed and set annually, generally at the December meeting. SBRC - Application process

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