Wednesday, October 21, 2015

Balance of Power

Back on October 9th I received an email from a colleague that the Department of Revenue was proposing a change to one of the rules regarding the application of sales tax in Iowa. After sorting through some of the misinformation that we had received, it was discovered that some items that had previously been subject to sales tax would become exempt under this rule change. As consumers, we all know that some of the goods that we purchase are sales tax exempt. For example, most items that we buy at the grocery store are not taxed. What this rule would do is expand the number of items that are sales tax exempt. Hold on though--the rule is not intended to grow the list of items for the consumer, it is designed to broaden the list for manufacturers. In practice, it will increase the list to include items used in the manufacture of goods. I would give you an example, but I am not exactly sure what those might be. 

Stadium lighting funded through
Capital Project fund.
Summer, 2015.
To remind everyone, sales tax revenue for school districts is used exclusively for capital improvement projects and the purchase of equipment and hardware for schools. In conjunction with our Physical Plant and Equipment Levy (PPEL), we use our sales tax revenue to purchase such items as computers for students, school buses, and desks for classrooms. These funds are also used for the improvement of our facilities. Specifically such projects as the construction of parking lots at Hudson, the installation of football field lights, the purchase of real estate, and the construction of the greenhouse have all been funded with sales tax or PPEL. Expanding the list of exemptions will have a negative impact on school funding. 

The current school sales tax is scheduled to sunset in 2029, and economists estimate a loss of $98 Million to $196 Million over the life of the sales tax statewide if this rule change goes into effect. If we put that in our local perspective, that suggests a loss in revenue for Hudson schools somewhere between $135,957 and $256,065. This means that some future project probably won't get done.

This change comes about in response to a petition from the Iowa Taxpayers Association. In that petition, they ask for this rule change. Many people believe that issues of taxation and this type of policy making is reserved for the legislature and that this rule making shifts the balance of power. The fact is, this bill has been proposed several times and has not garnered the support necessary for legislative approval. The balance of power issue is raised because the Department of Revenue is under the authority of the executive branch. 

Elementary restroom renovation funded through Capital
Project fund. Summer, 2015.
Unfortunately this isn't the first time the question of balance of power has been raised--again to the detriment of local school districts. A similar petition was presented to the Department of Education and State Board of Education (again, under the authority of the executive branch) a few years ago from the Iowa Tourism Industry asking for a change to the school start date. The State Board, rightly so in this case, ruled that they were unable to circumvent the legislative process. Regrettably that was a victory short lived, because the governor issued a statement in December of last year that set in motion the calendars that all school districts in Iowa now live by. True, this was resolved through legislative process; however there was no real alternative. 

The Administrative Rules Committee, which is made up of 10 legislators (five from each chamber and five from each party) met to consider the rule change last week. The committee voted to reject the rule change, but the motion failed on a 5:5 vote. This means the rule will go into effect on July 1, 2016 unless the legislature and governor change it with legislation. The chances of this happening are slim. 

Real estate acquisition (hotel property) funded through
Capital Project fund. Summer, 2015.
This couldn't come at a worse time for Iowa schools! Coupled with six years of the lowest levels of state supplemental aid since the inception of the school foundation formula, this only adds to the challenges of meeting the needs of local school districts. In addition to this rule change, when we consider the fact it comes on the heels of a $55.6 Million veto of school funding it really makes people wonder.

Are schools and education in Iowa considered an investment in our future or a burden on society?

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