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Iowa School Foundation Aid Formula Overview. Shawn Snyder Dwayne Ferguson Legislative Services Agency Fiscal Services Division. School Foundation Aid Formula. The School Foundation Aid Formula funded 365 school districts and 12 area education agencies in FY 2006.

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Iowa School Foundation Aid Formula Overview

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    1. Iowa School Foundation Aid Formula Overview Shawn SnyderDwayne FergusonLegislative Services AgencyFiscal Services Division

    2. School Foundation Aid Formula The School Foundation Aid Formula funded 365 school districts and 12 area education agencies in FY 2006. The goals of the formula include: 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 school costs paid from property taxes, and to provide reasonable control of school costs.

    3. FY 1965 – 450 school districts FY 1975 – 438 school districts FY 1985 – 390 school districts FY 1995 – 377 school districts FY 1999 – 375 school districts FY 2002 – 371 school districts FY 2004 – 370 school districts FY 2005 – 367 school districts FY 2006 – 365 school districts FY 2007 – 364 school districts History of School Finance in IowaIn the 1950s, there were over 4,000 school districts in Iowa, so the General Assembly adopted a reorganization plan. The following summarizes the changes in the number of school districts beginning with FY 1965:

    4. History of School Finance in Iowa (Cont.) • The method of fully financing school districts through property tax remained in place until the mid-1960s. • In 1971, the first state foundation program was adopted and state aid to school districts was substantially increased. • In 1989, the finance plan was substantially modified with the enactment of Chapter 257, Code of Iowa. The new finance plan was implemented in FY 1992.

    5. History of School Finance in Iowa (Cont.) • In 1992 and 1993, the finance plan was altered. • The enrollment decline cushion and the advances for increasing enrollments were eliminated. • The growth in state aid and budgets, known as allowable growth, was determined by legislation and not automatically by a formula. The eliminated formula for allowable growth had used variables of inflation and revenue growth.

    6. History of School Finance in Iowa (Cont.) • In the 1995 Legislative Session, General Assembly changed the law so that allowable growth is set two years in advance. The General Assembly is also required to set the allowable growth rate within 30 days of the submission of the Governor’s budget. • Under current law, the General Assembly will set allowable growth in the 2008 Legislative Session for FY 2010.

    7. The school foundation aid formula first determines how much each district will receive and then determines the State portion and the property tax portion. Funding is basically on a per pupil basis. Additional weightings are added for higher cost students, such as, special education, English Language Learners, etc. Iowa creates equity by setting the maximum that can be spent per pupil. Most states set a minimum. Those states then can encounter equity issues when the richer school districts spend more. The Legislature determines the school districts budget by setting the Allowable Growth Rate. This is the percentage increase that is applied to the cost per pupil. In General

    8. General Concepts:Basic Calculations • Local school district funding is primarily determined by the number of students within the district and the district’s cost per pupil. • A district’s basic budget is calculated by multiplying a district cost per pupil amount times the weighted enrollment.

    9. General Concepts:Weighted Enrollment • Besides actual enrollment, enrollment is weighted to provide compensation for higher cost pupils or to provide incentives. • The weighted enrollment is based on the actual enrollment plus a weighting for special education and a supplemental weighting for sharing teachers, pupils, or administrators, for at-risk students, for students in an English as a Second Language Program, and for school districts that reorganize and consolidate.

    10. General Concepts:Weighted Enrollment (Cont.) • Example: A severely disabled student is counted as a 1.00 pupil for the regular program and receives an additional weighting of 2.74 pupils in special education. A moderately disabled student receives an additional weighting of 1.21 pupils, and the least disabled receives an additional weighting of 0.72 pupil. • The weighted enrollment for FY 2006 was 560,259. This included an actual enrollment of 483,335 which was taken in September 2004, plus a special education weighting of 70,150, plus a supplemental weighting of 6,774.

    11. General Concepts:Something not included - Transportation • Transportation costs are paid from the general operating budget. • Statewide 4.9% of the regular program budget goes to transportation. • 28 school districts use less than 2.0% • 30 school districts use more than 8.0% • School districts less than 250 average 6.3% • School districts over 7,500 average 2.4%

    12. General Concepts:District Cost per Pupil • Initially, school districts identified their total operating costs. Those operating costs were divided by enrollment to get a district cost per pupil. • The average of all the district’s cost per pupil became the State cost per pupil. • After these calculations, a minimum and maximum were set for the district cost per pupil. • The minimum was the State cost per pupil. • The maximum was 110.0% of the State cost per pupil. Over time the maximum was reduced to 105.0%.

    13. General Concepts:State Cost per Pupil • In FY 2006 the State Cost per Pupil is $4,931. • The State cost per pupil, which is the basis for determining the foundation level and State aid, is increased each year by an allowable growth amount or allowable growth per year. • The State cost per pupil is also used as follows: • To calculate the annual allowable growth amount. • As the minimum district cost per pupil. • To calculate the maximum district cost per pupil.

    14. General Concepts: Allowable Growth • The allowable growth rate as set by the General Assembly is multiplied by the State cost per pupil to determine the allowable growth amount. • The allowable growth amount is added to each district’s per pupil cost.

    15. General Concepts:Allowable Growth (Cont.)

    16. Area Education Agencies

    17. General Concepts: Area Education Agencies Costs per Pupil • Area Education Agencies (AEA) are also funded on a per pupil basis. • The basic funding formula includes separate funding on a per pupil basis for each of the three service areas. • The media services and educational services cost per pupil are funded entirely from property taxes. The enrollment count includes pupils from approved non-public schools. • Special education support services cost per pupil is included in the State foundation plan to determine the mix of State aid and property taxes. • Each district includes the AEA cost per pupil when generating State aid and property taxes. The funds generated by each district flow through to the AEA.

    18. General Concepts:Combined District Cost • The combined district cost is the total funding a district receives from the School Foundation Aid Plan. Combined district cost funds: • Regular programming. • Special Education. • Supplemental weightings (English Language Learners, Shared students & teachers, At-Risk Program, Reorganization Incentives) • Area Education Agencies cost for special education support, media services, and educational services. • Dropout/Dropout Prevention Program (local decision funded with property taxes). • Regular program budget guarantee (supplement for districts with declining enrollments).

    19. General Concepts: Foundation Level • After the school’s budget is determined, the split between State Aid and property taxes is determined.The Foundation Level determines at what point State Aid stops and property taxes pay the remainder. • State Aid pays a portion of the costs of: • Regular program • Special education (both school and AEA) • Supplemental weightings • Property taxes pay entirely for: • AEA media and educational services • Dropout Prevention Programs • Amount the District Cost per Pupil exceeds the State Cost per Pupil • Budget Guarantee

    20. General Concepts: Foundation Level (Cont.) The foundation level is 87.5% of the State cost per pupil for the regular program and special education, and 79.0% AEA special education support. The specific State cost per pupil is applied to the weighted enrollment for that particular service.

    21. State Aid and Property Taxes • Uniform Levy - First component in building the budget. • The uniform levy is $5.40 per $1,000 of taxable valuation, and it is levied against the taxable property in the State.

    22. State Aid and Property Taxes • State Aid – Second component in building the budget. • State Aid pays the difference between the amount from the Uniform Levy and the Foundation Level. Foundation Level

    23. State Aid and Property Taxes • Additional Levy – Third component in building the budget. • The Additional Levy pays the remainder. The Additional Levy Rate is set at what ever percentage is needed to collect the revenues and varies by school district. Foundation Level

    24. State Aid and Property Taxes • School districts with a high taxable valuations per pupil (Property Rich) receive more money from the Uniform Levy than school districts with a lower taxable valuation (Property Poor). High Low

    25. State Aid and Property Taxes • Districts with low taxable valuations per pupil will require higher Additional Levy rates to raise the same amount of revenue as a school district with high per pupil valuations. • Variance in school foundation property tax rates between districts is due, for the most part, to the additional levy. Low Rate High Rate

    26. State Aid and Property Taxes Note:. The Uniform Levy includes adjustments for the Utility Replacement tax. Utility companies pay a tax on energy delivered in lieu of property taxes on their facilities.

    27. General Concepts: Example

    28. General Concepts:Spending Authority • Iowa is unique in that maximum spending authority is controlled in each district through the foundation plan. • The maximum spending authority or controlled budget includes the State aid and property taxes as calculated by the foundation formula, plus unspent balances from the prior year, plus actual miscellaneous income. • Once spending authority has been granted, it is not removed even if the authorized state aid or property taxes are not actually received.

    29. Issues: Kinds of questions that confront legislators. • What situation are we facing – demographics, economic, political, social? • What do we need to accomplish? (Often what do we need to fix?) • How much will we pay for it? • Where will the funding come from? • Who will it help? Who will it hurt? Are there winners and losers? • How will the people back home see this?

    30. Issues: Enrollment Enrollments have declined over the past three decades by 163,614 students (25.3%).

    31. Issues: Enrollment

    32. Issues: Enrollment Decreasing (305) Growing (60)

    33. Issues: Enrollment

    34. Issues: Are all school districts equal? • Course Offerings • Teaching Assignments • Teacher Salaries

    35. Mathematics – State requirement is 6 units

    36. Science – State requirement is 5 units

    37. Foreign Language – State requirement is 4 units

    38. Teaching Assignments – Number of unique courses taught per teacher.

    39. Average teacher salaries have increased substantially, but still lag in smaller districts.

    40. What is the impact? • One Measure – College Readiness

    41. How do we pay for “it”? • Taxes: • Property • Income (Individual & Corporate) • Sales and Use • Specialty (Fuel, Cigarette &Tobacco, Beer & Liquor, Gambling, Insurance Premium) • Surtaxes • Fees

    42. FY 2006 Property Taxes

    43. Issues: Variation in Foundation Property Tax Rates Minimum = $6.85 Maximum = $15.22

    44. State Aid and Property Taxes • How can the disparity in foundation property tax rates be reduced? Low Rate High Rate $5.40 / $1,000 $5.40 / $1,000

    45. State Aid and Property Taxes • Raise the Foundation Level to 100.0% so the foundation property tax rate is $5.40 plus a small amount more for AEA’s, budget guarantee, and difference between State Cost per Pupil and District cost per Pupil. • Cost to the State General Fund = $402.0 million in FY 2007. 100% FL 100% FL $5.40 / $1,000 $5.40 / $1,000

    46. State Aid and Property Taxes • Where would the $402.0 million come from? • 8.0% of total budget • 14% of other budgets

    47. State Aid and Property Taxes • Raise both the Foundation Level and the Uniform Levy. • This creates winners and losers. Property Rich districts will have taxes increase while Property Poor districts have property tax decreases. Small Additional Levy $3.80 / $1,000 $5.40 / $1,000 $9.10 / $1,000

    48. Another approach to property tax relief – School Infrastructure Local Option (SILO) Sales Tax