Wednesday, February 4, 2015

What's Good for the Goose...

Recently a colleague posed the question: What would happen if we disregarded the December 12th memo proclaiming early start waivers would no longer be automatically granted and instead just started school when we had originally planned? After a moment of uncomfortable awkwardness, it was recommended my colleague not do that. It was further explained, "We are now talking about violating state law". The consequences of which might include a 1/180 deduction in state aid for every day (the school is in session) prior to the earliest start date permitted by Iowa law. That was enough to cause the crowd of superintendents from all across Iowa to shift uncomfortably in their chairs! No school district is in a position where they would risk a deduction of state aid in order to make a point about local control. 

This certainly suggests we take violations of state law seriously--unless of course it is the state legislature that is in violation of state law. Unfortunately there are no tools available to ensure accountability for our legislators like there are for school districts, particularly as it relates to the statutory deadline for setting supplemental state aid. (See Code of Iowa 257.8) I might suggest the pay of said legislators be docked at a per diem rate each day past the deadline?

Thus we are all aware of the debate going on right now regarding supplemental state aid for school districts in the fiscal year that begins on July 1, 2015. We should all be reminded that this debate should have concluded within 30 days of the Governor releasing his budget targets last year. Right now, the debate should be on the amount of supplemental state aid for the fiscal year that begins on July 1, 2016. We haven't even gotten to that yet, although the governor has recommended 2.45% for that fiscal year. 

My suspicion is that we will not have a final decision on state supplemental aid for either of these fiscal years within the 30 day window as required by law. The legislature is already in violation of this state law from last year and there were no consequences, so what difference does it make if the deadline is missed again?

Of course I can already hear the claims that a good faith effort was made to meet the deadline. The Iowa House will likely assert 'Mission Accomplished' with their passage last week of a 1.25% growth rate. With a straight face nonetheless. My colleagues and I will argue that it is disingenuous to suggest a deadline was met when the work completed was unsatisfactory. In school, teachers won't accept a student work product if it doesn't meet the basic requirements of the task. Just because a student pencil whips (slang) an assignment does not imply they met a deadline.

So we will have a claim that in fact supplemental state aid was set, at 1.25%, and within the prescribed timeline. Even though we have hard data that refutes any attempt made to suggest this is adequate. Nonetheless, that is where funding currently stands even though the Iowa economy is strong. The unemployment rate as reported by the U.S. Bureau of Labor Statistics was 4.1% in December, below the national average. This is a drop from 4.5% in July, ergo more people which in turn means a broader tax base. In addition, the Revenue Estimating Conference in December revised their projections upward for both FY 2015 and FY 2016. These numbers suggest a spending limit of $7.5 Billion for the fiscal year that begins on July 1, 2015. The budget proposed by the Governor recommends around $7.3 Billion in spending. Iowa law coincidentally states that the General Fund budget cannot exceed 99% of available revenues. I could understand the Governor's self imposed spending limit if the State's cash reserves were not full--but they are. What happened to the other $200-$300 Million?

An often heard argument in setting supplemental state aid so low is to avoid committing more in expenses than is available in revenue. The legislature points to the 2010 across the board cut of 10% as an example of when this recently happened. While somewhat concerning, the important consideration in this case was that even though the funding was cut; districts retained the spending authority. As you have heard me say many times, in Iowa School Finance it all comes down to spending authority.

The legislature does not want to be in a position to spend reserves for recurring expenses. If you recall, I made this same argument last week but used our school district as the example. "Every one of you out there know that it is not a wise practice to spend our savings on recurring costs."

This is the case our legislature is making for setting a low state supplemental aid. Indeed a good point--if not pardoxal because this forces school districts into that position exactly. Or a good point if the spending plan exceeded the available revenue and forced the state to spend reserve funds (which this doesn't). School districts will, however, be forced to pay for recurring expenses from reserves (or one time money). Recall my comments about short term deficit spending?

Finally there seems to be a recognition (at least in the Governor's office) that day to day operational costs are increasing. We have said time and time again that just in the normal order of business we should expect costs to increase year over year. You can call it cost of living increases or rate of inflation, it doesn't matter to me. The fact is our cost of electricity alone is rising at about a rate of 3% annually.

The Governor understands that day to day operations are increasing. That is evidenced by his budget proposal to increase spending in the Office of the Governor by $200,000 (or 9.1%). 
So the key points to remember?
  1. Laws are meant to be broken: unless you are school district.
  2. We cannot use reserves for recurring expenses: unless you are a school district.
  3. Day to day operations are increasing: unless you are a school district. 

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