1. Iowa K-12 Public School Finance
Larry Sigel, Partner
Iowa School Finance Information Services
rd St.
Des Moines, IA 50311
(515)

2. Overview Funds Revenues Expenditures Spending Authority
Financial Health 2

3. General Fund Basic Principles:
Student driven, amount per student set by legislature.
Schools are budget limited, not rate limited. Doubling property value = property tax rate falls – no more $’s to spend.
Tax rate driven by formula more than district actions.
District can only spend funds on allowable purposes.

4. 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.”
But, there’s a new wrinkle….

5. HF 573 Home Rule
The bill grants “school districts/school board any broad and implied powers not inconsistent with the laws of the general assembly, or inconsistent with Administrative Rules, related to the operation, control and supervision of their public schools.”
Specifically excludes:
The power to levy any tax unless expressly authorized by the Legislature.
Prohibits district’s from charging mandatory student fees not authorized by law,
District may not adopt a policy that would unreasonably interfere with the duties of a local, state or federal law enforcement agency.
If the authority of a school district conflicts with the authority of a municipal corporation, county, or joint county-municipal corporation government, the latter shall prevail within its jurisdiction.
States that Iowa Code chapters relating to school boards and districts “shall be liberally construed to effectuate the purposes of this bill”.

6. Funding Sources
School districts have restricted funding sources - not all funds can be spent on anything the district decides.
State and federal law specifies what are allowable expenditures – even from within the General Fund.
Administrative Rules can further clarify state Code.

7. Funds Funds Funding Sources Activity Nutrition Trust & Agency Other
General Fund
Management
PPEL
Capital Projects
Debt Service
PERL
Child Care

8. Finance Responsibilities of State Agencies
Department of Education
Department of Management
Department of Revenue
Oversight of school district finances
Certified Budgets
Sales Taxes (including payments)
School Budget Review Committee
Certification of Property Taxes
Income Surtaxes (PPEL and ISL)
Accreditation / Phase 2 Audit
Property Valuations
Payments to local districts (except Sales and Income Surtaxes)
Aid and Levy Worksheet (calculation of State Aid and Property Taxes)
educateiowa.gov

9. Funding Sources

10. 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

11. District must account for two things in their 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)

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

13. General Fund
Reconciling two concepts: Fund Balance and Unspent Budget 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)

14. 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 by setting State Supplementary Assistance Rate (formerly Allowable Growth)
Spending Authority is then funded by a combination of State Aid and Property Taxes

15. Permutations of Spending Authority and Fund Balance
Negative
Positive
Situation 1
Situation 2
Situation 3
Situation 4
Unspent
Budget
Authority
Ending Fund Balance
Understanding Fund Balance and
Unspent Budget Authority

16. 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+ 1 add’l year)
All weightings in addition to 1.0 for regular education.

17. 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 or Farragut School District?
Phase II Financial Viability Audit
The State Board of Education has the ability to close a school district for no other reason than financial unviability (not educational reasons)

18. 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 Supplemental 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)

19. Financing the General Fund
$6,664
$6,664
$6,664
Additional Levy
$833
$833
$833
87.5%
$53
$4,000
State Aid
$4,978
$5,778
$1,831
Uniform Levy
$853
Property Poorest
Average Valuation
Property Richest

20. Property Valuation Characteristics…

21. …Impact Property Tax Rates

22. Spending Authority

23. Fund Balance Documents
Certified Budget
Monthly Financials
Certified Annual Report (CAR)
Audit

24. 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

25. 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
DoP/At-risk Expansion: Adds counselors to list of staff whose time may be prorated for providing services to at-risk/dropout prevention eligible students, allows DOP funds to be spent on grade level, school wide or district wide prevention that serves students not necessarily eligible for DoP and eliminates the 5% cap for those services, gives the district authority to designate the amount of time/salary/benefits for each such prorated staff position as part of the program plan submitted to DE. HF 564, 2017 GA

26. Budget Guarantee
Mechanism to postpone the impact of enrollment changes by one year
If this year’s Regular Program District Cost (Kids x Credit Card Limit) is less than 101% of last year’s RPDC, the district receives and amount of spending authority equal to get the district to 1% growth
Amount is all property tax
Because the following year’s calculation does not contain any budget guarantee authority, the loss the following year is equal to what would have been for the current year

27. On Time Funding
Because enrollment figure for budgets is always a year behind, what happens when more kids show up this year than last?
District’s are eligible to receive spending authority for those pupils
Provides an extra year of spending authority for those pupils that we’re new this year
Also can receive authority for students who were new to the district but open- enrolled out before attending school in your district

28. 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)
Funds are to be used for the educational program not physical infrastructure.

29. 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 20%
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)

30. 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

31. Physical Plant and Equipment Levy (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.

32. 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

33. 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
Expires 12/31/2029

34. Property tax levy to fund certain costs in the district
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

35. 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

36. 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

37. Questions?
Do not hesitate to contact me if you have any questions or comments!
Larry Sigel, Partner
Iowa School Finance Information Services (ISFIS)
(cell)
© ISFIS