Wednesday, January 29, 2014

Allowable Growth (Supplemental State Aid): Stalemate

We are a little more than a week and a half into the legislative session and are already at an impasse in regard to education funding. Allowable growth, or supplemental state aid as it is now called, is the amount that the state cost per pupil  increases from one year to the next. This year, the state cost per pupil is $6,121 and next year it is scheduled to increase by 4% to $6,366. The unknown is the rate for the following year. It may seem like quite a long time off, but the legislature needs to act now. This way, when schools begin the budgeting process for the following school year, decisions are based on anticipated revenue.

If they don't make this decision now they will be forced to make it when they reconvene in January of 2015. While that may not seem like too big of a deal it really is. First, school districts will begin to budget for that fiscal year in January (2015) and have statutory benchmarks that must be met with regard to budgeting deadlines. Second, while we can anticipate certain increases in expenditures, that only accounts for half of the picture necessary for sound budgeting practices. Knowing revenue is equally important. It has also been opined that 'certainly the legislature can determine school aid early in the session', which was the argument made last year. Except that didn't happen. School aid was not determined until the very end of the session, shortly before the next fiscal year began. And finally, even if it were determined as the first order of business in the new legislative session it would provide a mere 6 months to put together sound fiscal policy that has far reaching implications for educational programming. This makes it incredibly difficult to make projections and programming decisions. Case in point: the State of Iowa has insisted on a two year budget cycle because they see the value of forecasting, and predicting.

Ever hear that saying about building a plane while you are flying it?

Governor Branstad has been consistent in his remarks that supplemental state aid for the fiscal year that begins on July 1, 2015 (Fiscal Year 2016) will not be determined this legislative session. His reasoning is that we shouldn't make the decision on supplemental state aid until we have a better idea of what revenue will be. The result of not setting supplemental state aid during this fiscal year will no doubt mean that school districts will be put in the situation of deciding their own spending plans without knowing what revenue will be. Seems paradoxical, doesn't it?

If you recall, that is what happened last legislative session. Schools began the budgeting process for Fiscal Year 2014 (which began on July 1, 2013) last January. During that budgeting cycle, school districts did not know the school funding level. Hudson, along with a majority of school districts in Iowa were forced to assume that there would not be an increase in school funding. In many school districts this delay in the funding algorithm resulted in cuts to programming or layoffs of teachers. Luckily the allowable growth rate was set before the end of the legislative session that provided answers to school funding levels for Fiscal Year 2014 (which we are currently in) and Fiscal Year 2015 (which we are now planning for--and is set to begin on July 1, 2014). The trouble was, funding levels were set so late that school budgets had already been approved. If districts previously had this knowledge, programming decisions would have been different.

So to properly frame the debate it is first important to realize that funding levels currently being discussed are approximately 18 months in the future. Sure, it seems like a long time away and it probably is, but if the legislature doesn't set the school aid rates this session, they won't be revisited again until next January. At that point, we are only 6 months out from the start of the fiscal year. That is why the Code of Iowa, 257.8 requires the legislature set the rate of growth for the subsequent budget year within 30 days of the submission of the Governor's budget. That puts the 30 day deadline at February 13th. What happens if they miss the deadline? Well, I guess they have broken the law, which probably doesn't really mean anything since the same thing happened last year. The net effect is that it shifts uncertainty to local school districts. 

Meanwhile, the Senate is moving forward with a spending proposal to increase supplemental state aid by 6 percent. Once the bill clears the Senate, (which I am sure it probably will) it will be sent to the House for consideration. Don't get too excited, that doesn't really mean anything. The House likely won't do anything to move the bill, they have already indicated that they are with the Governor on this.

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