Supplemental State Aid or Allowable Growth: What's the Difference?

Within the walls of the capitol a debate continues to rage. As we discussed last week, this is a debate that should have long since been settled, and there appears to be no end in sight. The latest news from Des Moines suggests that until the legislature determines how to handle the tax coupling bill, there is no hurry to resolve the issue. The tax coupling bill aligns the Iowa tax code to recent federal tax law changes. In addition is a sense there may not be a decision until the March revenue estimating conference releases their projections. From my chair, it appears we should settle in for a long drawn out debate. Sadly, from our legislature's point of view it is business as usual. 

In all the proposals that are being discussed, what is it exactly that we are debating? What is 2%, 2.45%, or even 4%? To be clear, these numbers do not represent how much a school districts budget will grow. They represent how much the per pupil cost will grow. Remember, school district budgets are per pupil based, so the number of students a school has, multiplied by the per pupil cost, provides the base budget for a school district. 

The number that is being debated can be illustrated by the table at the left. How much will the state cost per pupil increase for the fiscal year that begins on July 1, 2016? Then, based on that 'new' state cost per pupil, how much will the state cost per pupil increase for the fiscal year that is set to begin on July 1, 2017? Of immediate concern is the fiscal year that begins this July. The column at the far right of this graphic indicates the dollar amount of growth Hudson schools can expect to see based on the various scenarios (this table only considers the per pupil implications for the fiscal year that begins on July 1, 2016).

The terms 'state supplemental aid' and 'allowable growth' both serve to achieve the same goal, which is to increase the state cost per pupil. Yet the mechanism in which this is achieved is very different. When allowable growth was the instrument used to increase the state cost per pupil, the increase was funded through a blend of property tax and state aid. When the change was made to use supplemental state aid as the tool to increase the state cost per pupil, it removed the property tax component of the equation. That means the entire cost of the increase is borne by the state.

The idea behind the change to supplemental state aid was to provide property tax relief. At the same time the change was made from 'allowable growth' to 'supplemental state aid', there were other property tax reforms that were written into law. One that most are familiar with is the commercial and industrial tax rollback formula. The theory is that by providing a rollback for these property classifications it will help grow business and create jobs.

But a challenge that we face in schools and other local government agencies (like city and county governments) is that when the state takes on a greater burden of funding these local entities, it makes budget revenue much tighter. It makes resources scarcer and sometimes in direct competition with one another. Further, the more rebates and rollbacks that are provided, it has the effect of decreasing the available pool of revenue.