Monday, July 28, 2014

Legislative Priority #1: Supplemental State Aid

The amount that school districts' budgets are allowed to grow used to be referred to as 'Allowable Growth', but a change in legislation a couple of years back changed the terminology to 'Supplemental State Aid'. Both terms virtually accomplish the same goal and serve the same function. The exception being that supplemental state aid is funded entirely through state aid, while in the past it was funded through a blend of state aid and property tax. In theory, the funding change entirely to state aid should result in a decrease in property taxes.

Supplemental state aid [then] defines the amount that a school districts budget will be allowed to grow under Iowa law, or how much the state cost per pupil will increase from one year to the next. School districts operate under a principle known as spending authority, and regardless of the relative wealth of a taxing authority it is designed to provide equity to students across Iowa and keep property taxes in check. Because expenses for school districts increase year after year, it is natural to expect that the state cost per pupil will also increase each year.

Current law requires supplemental state aid it to be set for the following year within 30 days of the Governor releasing budget targets. This is typically done around the time the Condition of the State address is given, at the very beginning of the General Assembly. During the last legislative assembly (which began in January of 2014), we should have set supplemental state aid for the fiscal year that begins on July 1, 2015. That didn't happen.

When you think about it, that may seem like quite a long time off--after all it is almost a year. But, the next legislative session doesn't begin until January of 2015, at which point we will only be about 6 months from beginning the new fiscal year. A short timeline indeed, and that assumes supplemental state aid would be the number one priority of the new General Assembly. Recent history would suggest that not to be the case. Unfortunately, the decision regarding this important budgeting number has become a political bargaining chip. The last time we ran into this issue (that would have been two years ago), supplemental state aid was one of the final matters of law before adjournment--a session that ended up being delayed because compromise wasn't reached on many legislative priorities. By the time it was settled, school districts had already completed budgets for the fiscal year. Those budgets had to be created based on some important unknown factors. That made it difficult for schools to make plans for curriculum and set staffing levels. Our request then, is for the legislature to set an appropriate amount for supplemental state as soon as the new General Assembly gavels in this coming January.

A big part of the debate will center around how much the increase [should be] for supplemental state aid. There will be numerous debates about this number and other state priorities. After all, there is only so much revenue and we have multiple entities that rely on funding that is provided by the state budget. However, an argument can be made that school districts have been underfunded for the last several years and that while the introduction of funding for teacher leadership and compensation systems is a significant investment in capital, those funds are categorical in nature. That means they can only be used for specified purposes. Categorical funds cannot be used for general budgetary expenditures.

In the coming months we will discuss an appropriate number for supplemental state aid. You may hear numbers like: "4%, or 6%,". But what exactly does that mean? That percentage represents the amount that the state cost per pupil will increase for the next fiscal year. For example, the year that we are in right now, the state cost per pupil is $6,366. If supplemental state aid increases by 4%, it is calculated like this: $6,366 X 4% = $254. That would mean the state cost per pupil for the next fiscal year would be $6,621.

When you take the state cost per pupil and multiple it by the number of resident students that your district is serving, that provides schools with the base budget number, often times referred to the as the Regular Program District Cost. The challenge is that the number of students served isn't static from one year to another. If you have fewer students from one year to the next (the majority of schools in Iowa do), then you can actually see a decrease in school funding from one year to the next; especially if the percentage in which the increase in supplemental state aid doesn't offset the decrease in enrollment. Let me give you an example.

In this example, I have assumed that supplemental state aide has increased by 4% two years in a row. However, in the sample school district, you will note that the enrollment has decreased by 50 students. In spite of the fact that the supplemental state aid has increased by 4%, this sample school district would still realize a net loss of $79,447.68. Now there is a mechanism in the scenario described above called the 'budget guarantee', which provides growth of 1% but for one year only. This is one of the primary reasons I make the argument that school districts have been underfunded for the last several years.

In addition to employee costs, other items increase as well. Consider the cost of fuel. Remember how cold it was last winter? We spent $73,023 on heating costs this year; the year prior it was $53,172. That is a pretty substantial increase. The cost of electricity was up 3.45%, and I am sure you are all aware of the dramatic fluctuations in gasoline and diesel fuel! Simply stated, the increases in supplemental state aid have not kept up with fluctuations in enrollment or increases in other school district expenses.

A logical assumption would be that fewer students would require fewer teachers, thus the budget would not need to grow as much. If the decrease in enrollment all came from one grade level then that logic is true; one probably wouldn't need as many teachers. However, decreases in enrollment are typically spread out across the entire span of grades K-12, this makes it a little more challenging to respond to these types of changes!

For these reasons, the Board of Directors has identified this as the number one legislative priority for the next General Assembly. At the last board meeting, the Director's spent time discussing priorities for the upcoming legislative session. This is the first in a five part series of articles on the legislative priorities for the next session.

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