2. Dec. 10, 2015 Iowa Demographics & Education Funding Then and Now
Larry Sigel & Margaret Buckton, ISFIS
© Iowa School Finance Information Services, 2014

3. Who is ISFIS? Iowa School Finance Information Services
Our mission is to help schools electronically organize and use data; educate school leaders on school finance issues and other issues affecting their work;  and empower school leaders with information and communications tools to connect with staff, parents, community and state level decision-makers to the benefit of students.
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4. Presentation Agenda Iowa Demographic Change
Condition of the state’s revenues and budget
School Finance Implications
Understanding school finance
Historical Trends in Iowa school funding: what’s changed? What hasn’t?

5. Demographics: This isn’t your grandmother’s Iowa

6. Stats about Iowa Students
After a 16-year decline, public school districts have seen a third year of increased enrollment through school year.
The number of minority students in Iowa’s public schools continues to increase and is at an all-time high (100,151). Minority students make up 21.1% of the student body.
% of students eligible for free-or-reduced priced lunch increased slightly in % of Iowa students were eligible in the school year compared to 41.0% in
The number of students who are English language learners (ELL) continues to increase. In the school year, 5.3% of students were reported as ELL up from 5.0% in

7. FY 2001 Free and Reduced Eligibility (percent of enrollment)
Notice darkest areas > 41%.
Notice how many are in lowest category of 3-23%

8. FY 2002 Free and Reduced

9. FY 2003 Free and Reduced

10. FY 2004 Free and Reduced

11. FY 2005 Free and Reduced

12. FY 2006 Free and Reduced

13. FY 2007 Free and Reduced

14. FY 2008 Free and Reduced

15. FY 2009 Free and Reduced

16. FY 2010 Free and Reduced

17. FY 2011 Free and Reduced

18. FY 2012 Free and Reduced

19. FY 2013 Free and Reduced

20. FY 2014 Free and Reduced

21. FY 2015 Free and Reduced

22. 2001
2015

23. Median Age by County 1970

24. Median Age by County 1980

25. Median Age by County 1990

26. Median Age by County 2000

27. Median Age by County 2010

28. Median Age by County 2020 (est)

29. Median Age by County 2030 (est)

30. Median Age 1970 vs. 2030

31. From LSA Factbook 2015

32. From LSA Factbook 2015

33. Limited English Proficient Percent of Enrollment 2008

34. Limited English Proficient Percent of Enrollment 2015

35. = those served in LEP programs Denison at 55.6% Des Moines at 19.6%

36. State of State Revenues and the State Budget

37. Revenue Estimating Conference
Sets Revenue Estimate and revises quarterly (meet today)
REC Revised Estimate from Oct
But look at this year in context of last year

38. FY 2016 Total Net Receipts ended 6. 2% above FY 2015 actual
FY 2016 Total Net Receipts ended 6.2% above FY 2015 actual. REC revised FY 2016 to 4.0% estimated Net Receipts and 4.2% for FY Impact:
FY16 = $266 million increase compared to actual FY FY17 = $294.6 million increase compared to estimated FY 2016.

39. CRF = $539.0M EEF = $179.7M Growing annually
Source: Iowa Legislative Services Agency Graybook, end of session analysis

40. Governor’s veto of HF 666 included $57 million for schools, grows the ending balance surplus to $351.7M

41. State’s Cash Position aka “don’t panic”
Cash position: north of $1B
CRF full at $539 million
EEF full at $179 million
Surplus for FY 2016 $351 million
Gloomy predictions of growth are hard to dispel – it depends on the date and what was happening this time last year, and the perception of not having any funds available.
Today’s REC estimate binds the Governor’s budget request re., 99% expenditure limitation

42. What percent of state budget is spent on Education?
Any guesses?
Definitions and assumptions are important
Here’s a good example why:

43. Health Care Trust Fund: note $222 million that never touches the state general fund. Comparisons of PK-12 spending as a percent of state general fund over a few years ago don’t acknowledge this change.

44. Education in Iowa gets a Smaller Slice
The National Association of State Budget Officers (NASBO)  State Expenditure Report analyze all state expenditures excluding bonds (not just general fund.) In their analysis titled State Spending by Function, as a Percent of Total State Expenditures, Fiscal 2014
“Iowa Elementary and Secondary Education for FY 2014 was 16.8% of total state spending.”
That is below the 19.1% average for the plain states region, in which Iowa is categorized, and further below the national average of 19.5% for all states.

45. State Budget Woes Pig through the Python
Commercial property tax phase in done after FY 16 ($132m) and FY 17 ($25 m)
TLC phase in done after budget $50m for year 3 grants and $50m to continue year 2 grants.

46. Economic Comparability

47. Per Capita Personal Income
2014
2013
2012
2011
2010
2003
Iowa
$44,937
$45,114
$43,935
$40,470
$42,040
$29,828
National
$46,049
$44,543
$43,735
$41,663
$39,937
$31,472
Iowa Rank 24 22 25 28 33

48. In 2011, Iowa ranked 24th in the nation in Median Household Income, up to 23rd by LSA FACTBOOK does the ranking quoting U.S. Bureau of the Census doesn’t look remarkably different.

50. Nov. 19 DMR http://www. desmoinesregister
Nov. 19 DMR Wells Fargo chief investor bullish on Iowa economy
Iowa’s economy has already weathered the commodity price storm and should strengthen with crop prices expected to increase slightly next year, said Darrell Cronk, Wells Fargo’s chief investor.
“The good news about the Iowa economy is it is still a very balanced economy between manufacturing, services, as well as agriculture,” said Cronk, president of Wells Fargo Investment Institute, the financial giant’s investment arm.
Amid strong consumer spending, a robust housing market and declining unemployment, Cronk said he expects wages to increase in the coming year.
Asked if he expects cities in Iowa to start feeling the effects of crop prices, which dropped by more than half in 2013, Cronk said he thinks the worst has passed. 

51. Iowa Leading Indicators Index Report (Dec 3 release for October 2015)
The Iowa Leading Indicators Index (ILII) fell to (100=1999) in October 2015 from in September. The Iowa non-farm employment coincident index recorded a 0.12 percent rise in October, which extends the streak of employment gains to 61 consecutive months.
During the six-month span through October, the ILII decreased 2.2% (an annualized rate of -4.4%). The six-month diffusion index increased to 25.0 with six of the eight components experiencing a decrease of greater than 0.05 percent over the last half a year.
Average manufacturing hours increased and joined the national yield spread as the only components to show any positive growth in the past 6 months.

52. Iowa K-12 School Finance Larry Sigel, Partner

53. History of the Finance Formula
Until the early 1970’s schools were funded almost exclusively by property taxes.
The property tax base varied widely around the state (and still does).
The purpose of the formula was to (257.31):
Equalize educational opportunity
Provide a good education for all Iowa children
Provide property tax relief
Provide reasonable control of school costs
The formula we have today is basically the same formula passed in 1971 (with some changes who pays)

54. History
During the same time period the formula was created, there were other significant changes made by the Legislature:
Created the Area Education Agencies
Created the Community College System
Enacted binding Collective Bargaining and eliminated the right for public employees to strike
Significantly changed the income tax and property tax systems

55. 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.

56. 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.”

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

58. Funding Sources

59. 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

60. 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)

61. 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 districts?
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)

62. General Fund So where does spending authority come from?
It’s set by the legislature as part of the State Supplementary Assistance (SSA) rate
The rate sets the amount the credit card limit can grow. For example, 1.25% SSA meant that the prior fiscal year’s credit card limit of $6,366 per student could grow by 1.25%, or $80 per student.

63. So What’s the Big Deal? Remember this:
Because schools are required to collectively bargain, districts cannot just say “no raises”. Average salary increases are 3.5%
Salaries average 80% of district General Fund spending
Also because the formula is per pupil, districts with declining enrollment actually see less new resource from one year to the next (over 200 districts)

64. What if?
If increase in cost per pupil had averaged 3.5% since 1993, per pupil cost would be $920 higher today.
If increase in cost per pupil had averaged 4.0% since 1993, per pupil cost would be $1,775 higher today.

66. Timing
In 4 of the last 6 Sessions, the legislature did not set the growth rate in the year preceding the budget year, required Iowa Code Section 257.8,(1): “The state percent of growth for each subsequent budget year shall be established by statute which shall be enacted within thirty days of the submission in the year preceding the base year of the governor’s budget under section 8.21.”
In the 2010 Session, the legislature delayed setting the cost per pupil for the first time, for the school year (great recession, lower state cash reserve and economic emergency funds, federal assistance pending, etc.) In 2012, no rate was set for the school year. In 2014, did not set the rate for the school year. In 2015, did not set the rate for the school year.

67. Adequacy
There is a cumulative impact to low funding and several years with no time for planning: 8 of the last 14 years, the increase in the cost per pupil has fallen short of cost increases typically experienced in schools.

68. Enrollment
Following 16 years of declining enrollment, growth has commenced.
From , enrollment has grown 7,279 students statewide.
5 of those 6 years had very low increases in cost per pupil.

69. What’s the buzz about increased $$ for schools?
“Portion of the state’s general aid fund from public school has gone up from 37.8% to 41.9%.”* Two thoughts:
Tobacco and alcohol tax is not in the GF anymore
Property tax portion of school funding has shifted:
50% of school funds in 1985
43% in 1990
39% in 1995
33% in 2015
Remember NASBO 2014 report says: “Iowa Elementary and Secondary Education for FY 2014 was 16.8 % of total state spending.” That is below the 19.1 % average for the plain states region, in which Iowa is categorized, and further below the national average of 19.5 % for all states.
*Governor’s letter to Des Moines Register, titled Education Facts Speak for Themselves.

70. Student and Achievement Changes
“. . . During that same period, academic achievement in Iowa has dropped in comparison to other states.” NAEP test scores for Iowa students are up compared with 20 years ago, despite significant growth in number of low income students, as measured by FRL participation, (from 25% to 41% of all students.) Over this same time, the number of students learning to speak English has increased from 3,785 (0.8%) in 1994 to 26,990 (5.3%) in Iowa has PK for four-year-olds, Teacher leadership for improved instruction, all-day kindergarten, increased participation in higher level math and science, college credit in HS, more STEM courses, increased graduation requirements, and the highest graduation rate in the nation (>90% of high school students graduating with their class in four years.)

71. Are Iowa Schools Adequately Funded?
UEN Op Ed piece from the DSM
What does the money buy? (student attention, programs for students, additional opportunities, lower class sizes, technology, STEM and Career/Technical Programs, fine arts)
What will continued low funding deliver?
Considerations: Return on investment, cost of doing business, lack of state funding shifts costs to local taxpayers.

73. Iowa’s Formula
At-risk funding in the formula, plus dropout prevention (local property taxes) plus $10 million “high needs schools grants” not yet appropriated add up to less than 10% additional funding for low income students.
National average* is .29 weighting (29% additional funding per low-income student)
Iowa’s ELL funding is .22 weighting for up to 5-years. National average* is .39 and some students require up to 7 years of ELL support.
*Study of a new method of funding for public schools in Nevada, San Mateo, CA: American Institute for Research Study.

74. ROI
“A suggestive benefit-cost analysis reveals that investments in school spending are worthwhile. Increasing spending by 10% for all school-age years increased wages by 7.25% each year (Table 4) This implies a benefit-cost ratio of 2.01 and an internal rate of return of 8.9%. This internal rate of return is similar to those estimated for pre-school programs (Deming, 2009), smaller than estimates of the internal rates of return for class size reductions (Fredriksson et al, 2012), and larger than long-term returns to stocks. In sum, the estimated benefits to increased school spending (that go toward productive inputs) are large enough to justify the increased spending under most reasonable benefit-cost calculations.”

75. National Bureau of Economic Research, educational spending does impact educational and economic outcomes. The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms, written by C. Kirabo Jackson (Northwestern University), Rucker C. Johnson (Northwestern University) and Claudia Persico (University of California-Berkeley), concludes:
“Money alone may not be sufficient, but our findings indicate that provision of adequate funding may be a necessary condition. Importantly, we find that how the money is spent may be important. As such, to be most effective it is likely that spending increases should be coupled with systems that help ensure spending is allocated toward the most productive uses.”

76. Ongoing Study of School Funding
Legislative School Finance Inequities Study Committee met Dec. 2
Charge: review current provisions of the school finance formula and consider alternatives for achieving a more equitable application across all public school districts in the state.
Transportation funding with a particulate emphasis on small and rural school district transportation funding levels,
School district property taxation levels,
At-risk student funding challenges, and
Other school finance formula provisions which may result in funding disparities between school districts.
Based on stakeholder input from the DE, school districts, education-related organizations and associations, and other interested stakeholders, the committee shall submit recommendations, if deemed appropriate, to the General Assembly by Jan. 1, 2016.

77. Larry Sigel, ISFIS – Partner Cell: 515-490-9951 Larry.sigel@isfis.net
Questions or Comments?
Larry Sigel, ISFIS – Partner
Cell:
Iowa School Finance Information Services
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Des Moines, IA
Office:
Margaret Buckton , ISFIS – Partner
Cell: