Tax Rates and SSA: Part 1

Well, the legislative session is now underway. Where the holiday season is the most wonderful time of the year, the legislative session is the most stressful time of the year. I'll spend the next several months waking up wondering what they are going to do to us next under the guise of 'fixing' education. But to pick up and carry forward my theme from the post last week, I'll hope for the best! As we have come to expect this time of year, the first order of business from the legislature should be to set supplemental state aid (SSA) timely and adequately. State law requires the SSA rate to be set within 30 days of the governor releasing her budget targets. That clock is now ticking.

To remind my readers, SSA is the amount which the state cost per pupil grows annually. Last year, supplemental aid grew by 2.5% or $191 per pupil. Remember, the base budget revenue for a school district, or regular program district cost is a simple calculation: cost per pupil multiplied by number of resident students. (Resident students will become important in a few minutes, so stick with me.) So, by knowing what the SSA rate will be, a district can determine how much their budget revenue will grow for the new fiscal year. This is important insofar as planning purposes are concerned. What staffing is needed? How will compensation packages be structured? Will the district be able to implement a new curriculum? All of these decisions need to be made in a relatively short window because state law requires a school budget cycle be completed by April 30, with legislatively mandated milestones along the way. We have a lot of big decisions to make in a compressed timeframe. This is the reason why it is important to set the rate timely. 

What that rate should be, the adequacy so to speak is largely in the eye of the beholder. Each of the 327 school districts in Iowa have differing enrollment(s), priorities, staffing needs, and operate within unique contexts characterized by diverse demographics, socioeconomic factors, and community values. School districts with decreasing enrollment may require greater resources simply for 'maintenance of effort'. Property owners in school districts with increasing enrollment may benefit from a higher SSA as it relates to their property tax rate. That is certainly the case for Hudson. Before I reveal to you the number that I believe is 'adequate' for Hudson, I think a historical perspective might first be in order.

The table above depicts the rate at which supplemental state aid has been set for the last decade. It averages out to 2.04%. The rate at which the governor recommended in her Condition of the State address on Tuesday evening was 2.0%. But, in the spirit of keeping the hope alive that was discussed last week, we'll presume the SSA rate for FY 2026 will be set at 2.5%. Furthermore, based on the last decade of known rates, I think we can [hope] speculate a rate of around 2.5% for the next five years. A bit of a teaser: the lower the SSA, the higher the property tax rate. 

How will this impact how our budget, and by extension, the property tax rate forecast into the next half decade? Well, to get there we are going to first need to infer some other key variables to understand how this interplay work. 

Enrollment Growth: For this exercise, we'll use a static growth factor of 2.5%. In the near short term, it has ranged from 1.9%, to this year being 4.1%. I want to underscore this important point: this is considering residential students only. Open enrollment won't factor into the equation since that cash inflow occurs occurs 'on time', or during the current fiscal year, whereas residential enrollment growth is in arrears by a year. When we complete our certified enrollment count on Oct. 1, that sets the base number for the follow on fiscal year. 

Property Valuation: This variable is a bit more difficult to predict due to ever changing state laws and how rollbacks may or may not be applied to different classes of property each year. Additionally, as the property tax base grows due to residential development, so too will our valuation. Over the last 5 years, property valuation has averaged 4.36%. However, if one were to look at how property values have changes from 2019 to 2020, you would see a growth of 2.06%. From 2020-2025, 2.44%. For our purposes, we'll use 2.5% as the operative variable. 

Miscellaneous Income: Anything that isn't either property taxes or state aid is considered miscellaneous income. For the current fiscal year (FY 2025), our miscellaneous income is expected to be just over $2 million. Now, the largest driver of miscellaneous income is tuition from open enrollment. In Hudson's case, approximately 70% of our miscellaneous income is generated by open enrollment and special education tuition. For this reason, I predict this will slow from a historical double digit increase to just 1%. Why? Because as our residential enrollment grows, we will have less capacity to serve open enrolled students. In fact, this has already begun to slow as we have made the deliberate decision to limit open enrollment in many of our grade levels. 

Expenditures: In the current fiscal year, our expenditures are expected to grow an eye popping 8.74%. For the budget year 2026, we anticipate expenditures will grow another 8.36%. While these are staggering numbers, it is very important to point out that in both fiscal years, we will exhaust just 96.7% of the available revenue for the current fiscal year and 99% of the available revenue for the following fiscal year. In the follow on years out to fiscal year 2030, we'll make the assumption that we can back that off to a roughly 4% growth rate per annum. If you are wondering why such large increases in the short term, the answer is simple. As enrollment grows, so too will our need for additional staff!

That seems like a good place to stop for today. We'll tackle part 2 next week. I'm sure that is a lot to digest. Plus, you want to hear the ending don't you? Next week, we'll answer the question: Based on the variables above, what can we expect our budget forecast to look like assuming 2.5% SSA. Stay tuned!

The Word: Hope

I've been doing the 'one word' thing since about 2017. A lot of the reason for that is that it means I don't have to worry about a New Year's Resolution that will quickly be broken! Whatever 'vices' I may have I'm perfectly willing to continue! So at the end of the year, when preparing for this post I like to look back at the word I chose from a year ago and reflect on that decision. Why did I choose that particular word? What was going on at that time that made me think of that particular word? 

Last year the word was acceptance. I chose that word because Ann was diagnosed with cancer the spring prior. At that time, she was going through chemo treatments every 6 weeks. Our social calendar revolved around doctor visits. We were very limited in where we could go and who could come to visit. It was scary and it was stressful. That regimen lasted through the entire 2024 calendar year. On top of that, both of us had lost parents. So in preparing for that blog post one year ago, 'acceptance' seemed like a pretty good choice. There wasn't anything I could do to change those circumstances but accept them. We had to learn to live with a new 'normal'. 

One year later, the challenges mentioned above continue to ring true. But a brighter future is on the horizon. So now as we stand on the precipice of a new year, I believe 'hope' is the perfect word for 2025. But please understand that hope is not blind optimism. It's the belief that even in the face of adversity, there is still good to be found. It's the courage to face uncertainty with a positive outlook. It's the fuel that drives us to persevere, to seek solutions, and to build a better future.

Hope is not a passive state of wishful thinking. It's an active, intentional force that fuels our resilience and propels us forward. It's the belief that even amidst the darkest of storms, there is a glimmer of light-a possibility of brighter days.

Indeed, uncertainty continues to loom large. Hope does not mean we ignore the realities of the world around us no matter what they are. Perhaps for you it is climate change, social injustice, or political divisions. For us it is largely personal health struggles. Whatever your reality, acknowledging these challenges is the first step toward finding meaningful solutions.

And let's be clear eyed about this: hope is not about ignoring problems. Since this blog is rooted in education and coming from an educator, it is about learning. It is about actively seeking solutions. It's about identifying areas for positive change and taking concrete steps. Let's also remember that while individual actions are important, collective action is even more powerful. By working together we can achieve far greater things than we could ever accomplish alone. 

In spite of our personal and collective challenges, hope cannot flourish in a state of despair. We must prioritize our own well-being. Hope is not a feeling; it's a choice. A decision to believe in the possibility of good things to come. So then, let 2025 be a year of cultivating hope. Hope within ourselves, within our communities, and the world. 

So about that brighter future? Ann was admitted to the hospital the day before Thanksgiving for a bone marrow transplant. We had planned on her being able to come home sometime between Christmas and New Year's Day. As it turned out she was able to come home on December 21, almost 10 days ahead of schedule! Think about the significance of that day. The winter solstice. The darkest day of the year. Even in darkness, we see light. Each day forward will be a little brighter, both figuratively and literally. The doctor told her that is she had to give her a grade on her progress, it would be an A+! There is nothing better than being home at Christmas. Granted the next 6 months will be challenging, but we have hope.

2025: Hope! We'll face the challenges ahead with courage, determination, and hope. Brighter days are on the horizon.