Rate, Value and Valuation

Since we just finished our budget certification for the fiscal year that begins on July 1, 2021, I thought it might be interesting to spend a bit of time talking about the budget process. Budgeting is an ongoing evolution that includes forecasting as far as five years into the future. We have developed models that help us make assumptions based on enrollment trends, growth in per pupil cost, changes to tax policy, and fluctuations in property valuations. The challenge is understanding how each of these variables relate to one another and realizing that one minor change in any can make a big difference when looking into the future. Our models provide a platform to refine and develop our work on an annual basis. Budget development for the next fiscal year typically starts in late November and is wrapped up no later than April 15th. What you see in the newspaper each February or March is simply a summary that provides little insight into the total budget. The fact of the matter is that beyond publication of the tax rate, the usefulness of the published budget is limited as a tool of management, particularly since it provides only a high level of insight. Today I want to spend some time providing a bit of context. To begin, I think an explanation of property tax is a great place to start. 

If you have tracked our tax rate over time, you probably are aware the tax rate has dropped over the last decade. You can see our historical tax rate here, which provides perspective back to 1997-1998. The column titled 'certified' is the tax rate that was approved by the Board of Directors during the budget hearing in that particular fiscal year. The column labeled 'DOM' is the final rate as determined by the Iowa Department of Management following the legislative session. The finalized rate by the DOM generally isn't available until late May or early June and is almost always lower than the rate certified by the board. This is because there are typically changes made by the legislature following the boards certification of the budget that impact the tax rate. The only caveat to these changes is that by law, once the rate has been certified by by board it cannot be subsequently raised by the Department of Management.

So if the tax rate has consistently dropped, is your tax bill lower? Perhaps, but not necessarily. That is because there are a lot of variables used to calculate your tax bill. First, and perhaps most important: school taxes aren't the only taxing authority that your property taxes support. Among some of the entities in addition to schools that are funded through property taxes include cities, counties, and community colleges. Each taxing authority has the responsibility to set their rates, and obviously if one rate decreases while another one rises the property owner sees little if any change. 

A key variable in determining your tax bill is the value of your property, and more specifically the percentage of valuation [of that property] that is used to calculate your tax bill. For the sake of simplicity, let's assume you own property valued at $100,000. The Iowa Assessment Limitation has implemented a 'rollback' that is applied to your assessed valuation. Again, using that assumed assessed valuation of $100,000, in 2019, the property tax bill would have been calculated on a valuation of roughly $55,000 when using the rollback. In 2020, that same property would have been applied on approximately $56,000 of your assessed value. You can view the rollback chart by clicking here. You will note the rollback changes every year. It is important to understand this table doesn't take into consideration how your property value may change over time. Our homes do increase in value, which helps us to buildup equity in our investment. 

Once all those variables are known, the calculation of your property tax bill is quite simple. You simply take the taxable valuation of your property (after applying the appropriate rollback percent), divide it by 1,000 and then multiply by the tax rate. The example to the right assumes a property valued at $100,000 with a rollback of 56%. In our modeling, we use an assessed value of $157,686, which is the average home valuation in Hudson. 

It is important to point out the examples used in these illustrations are based on residential property owners. Nevertheless it is important to keep in mind there are multiple classes of property that are subject to rollbacks. We primarily focus on residential property since the vast majority of property owners in our school district are residential property owners. That stated, we have agriculture, multi-residential (apartments), industrial, and commercial all represented. Rates are also applied to utilities as well, but that is a complication we don't necessarily need to get into at this point!

Finally it is important to note that property tax is but one revenue source that is used to build our budget capacity. The fact is, the biggest contributor of revenue in our budget is state aid. In fiscal year 2020, 58.2% of our budget resources were from state aid whereas 39.4% came from property tax collections. In a future post, we'll talk more about how the blend of state aid and property tax is calculated in a mechanism known as the aid and levy worksheet. 

The Charter Dilemma

There is a saying during the legislative session that it isn't over until its over. That stated, signs do point to the fact that current voucher proposals don't appear to have enough support in the Iowa House to advance. That seems to square with public sentiment. The majority of Iowans feel the same way, at least according to the recent Iowa poll which found that more Iowans oppose public funds [being used] to pay for private education. 

However, the fate of an expansion to Iowa's charter school law remains uncertain at this point. There has no doubt been a heavy focus on education during this legislative session. The pandemic has shined a light on the importance of having schools open and in session, not only for the educational role that we play but for those secondary and tertiary benefits that during normal times we take for granted. The frustration some parents had with decisions made by schools that led to them not reopening in a timely manner, and their feelings of being trapped are understandable. Frankly, I was disappointed that some of my colleagues felt state law didn't apply to them. Unfortunately this has given our legislators all the permission they needed to focus a lot of attention on choice schemes that would do nothing but undercut the good work that is going on in our public schools around the state. 

So while I have cautious optimism the voucher bill has been stymied (at least for now), the charter expansion does not yet garner that same amount of confidence. Here is what you should know about this bill. First, it is important to note that Iowa currently has a charter school law on the books. That's right, a mechanism already exists for charter schools in Iowa. Granted, there aren't very many of them. Proponents of the expansion would argue the current law is too onerous and cumbersome to set up a charter. I might counter that point with the thought that when dealing with multi-million dollar organizations (which deal with taxpayer money); having a bit of oversight and accountability might be a good thing. 

What this current proposal would do is eliminate a lot of that accountability. In fact, this charter bill would permit an out of state corporation to set up a charter school in a community and completely circumvent the locally elected public school board. These folks who run the charter school would be accountable to their shareholders, and not even live in our communities. If the parents who sent their kids to the charter school had a complaint, they wouldn't have the option of airing their grievances with the local superintendent or having an opportunity to speak at the next school board meeting. The Board of Directors won't be elected by the local community and may be two states over. 

The arguments that I have made countless times against the privatization of public schools over the years remain the same, whether we are talking about voucher programs or charter school expansion. Public money needs to remain with public schools where there is proper oversight and accountability from the local community and locally elected school board. 

The latest installment of Jamie Vollmer's 'Schools Cannot Do it Alone' network video is 'The Privatization Game'. In this video, he rightly states that public money should be reserved for public schools. He goes on to state there is no higher return on our investment than public schools: 7:1!