My first year teaching after graduating from college was in a small parochial school with a starting salary of $18,100. I can remember getting that first paycheck and thinking: wow, I can't believe they are actually paying me to do this job!
After I got passed the euphoria of being a professional, it didn't take all that long to realize that wasn't a whole lot of money, even in 1995 dollars. For perspective, the average starting salary for a public school teacher in Iowa at the time was $21,338. By the time I paid my rent ($250), a used car payment, and utilities, there wasn't much left. Then when the student loan payment kicked in a few months down the road there wasn't anything left. When faced with issues like this, there are a couple of solutions: find a job with more income or cut expenditures. For me, this meant no cable TV (cellphones weren't even a thing back then so no cutting to be had there), and a lot of canned food! I was young and healthy, so health insurance was also a luxury that I couldn't afford. For those of you too young to remember, in the mid 90s health insurance wasn't always a 'sure thing' as far as benefits were concerned. I could purchase it from my employer, but it was far too expensive and seemed like a waste of money considering I never went to the doctor. (I know, I know!)
Whether it's 1995 or 2025, that is how budgeting works. You live within your means. If your 'means' are too low, you cut expenses. Or you look for a way to improve your income stream. That's how it works for governmental entities as well. Except, not always. For public school districts, we really can't change the revenue side of the ledger. Our revenue is governed by property taxes and state aid. We have a statutory limitation on [spending] based on that revenue stream that is known as 'spending authority'. If revenue doesn't match expenditures we only have one option: cut expenditures.
What if I told you that when faced with a budget problem instead of cutting expenditures, we were actually going increase our expenditures? You would probably tell me to update my resume. But wait, I'm not quite done yet. What if I also shared that instead of looking for ways to improve our revenue stream, I would actively pursue strategies to decrease that revenue? Up is down, down is up. Most people would probably question my competence. Rightfully so, rightfully so.
Yet that is exactly what is happening with the state budget. In fiscal year 2023, the state of Iowa general fund net receipts were $9.721.3 billion. The Revenue Estimating Conference met on December 12, 2024 and set the 2026 fiscal year estimate at $8.601.9 billion. Yes, these numbers are quite large, but the math is quite simple: a $1.120 billion decrease in revenue. The decrease in revenue is because of policy decisions that have been made at the state level regarding tax reform. We'll all pay less in taxes this year. We're all for lower taxes! However....
At the same time though, there has to be offsets on the other side of the ledger. The expense side of the ledger, and we need to be prepared to accept the consequences of those offsets. It may come in the form of road repairs. Public safety. Or in the case of public schools, larger class sizes. The challenge of course, is that we want to have our cake and eat it too. The truth is that we like to have smooth roads and safe bridges. If we need to call 911, we sure hope someone shows up quickly. And parents, well I know you don't want your kindergartener in a class of 30.
The reality is that very few things in our economy cost less than they did a year ago. In fact, its a safe bet they are going to cost more: fuel prices and natural gas are up. The software that runs our student information system cost $10,360.50 last year. This year, that same software package was $12,262.62. That kindergarten teacher is going to work wherever they can earn top dollar for their talents. So it goes. The only way to really impact the expenditure side of the ledger then, is to implement some of those 'austere' measures that were discussed in the paragraph above. We've actually had to do that before here in Hudson. I can promise you it is no fun and incredibly painful. I'm glad we don't have to do it right now. Even so, I understand the challenge.
Except that isn't what the state has done. No, quite the opposite in fact. Instead of cutting expenditures to match the revenue stream-they have actually increased the expenditure side of the ledger. And not, by the way through a natural 'maintenance of effort' type strategy. You know where I'm going, right? The expenditure side has increased because of the added expense of the voucher program. HF 68, enacted in the 2023 legislative session phased in state funded Educational Savings Accounts equal to the state cost per pupil set annually by the general assembly. It included a three year ramp up that this year includes no limit for income eligibility. The additional cost to the state, that didn't exist prior to 2023 is estimated to be more than $450 million annually.
So when compared to fiscal year 2023, we already estimate a revenue gap of over $1 billion entering fiscal year 2026. Add in the expense of the voucher program and the state has effectively decreased revenue while at the same time committing to new expenses. This only makes the gap worse. Now, there will be calls to use the emergency or rainy day funds to close this gap. Frankly, I'm not sure that is a wise decision.
In school districts, this would be akin using our unspent budget authority to shore up a one time revenue shortfall. We say one time because, once that money is gone its gone forever. Budgeting 101: don't use one time money for ongoing expenditures. Further, we must ask ourselves: is it wise to use the rainy day fund for a self inflicted policy decision? Those are the questions that our legislators are currently wrestling with. I suspect it will get a bit uncomfortable before the dust settles.
