School Finance 101

It’s the time of year when school district budgets spill onto the table like jigsaw puzzles to be pieced together. Now that the legislature has convened and the governor has proposed zero percent allowable growth in school funding for the next two years I thought we should post a primer on school finance to enable fuller understanding of the implications of the debate that’s underway at the statehouse.

Let’s start with the term “allowable growth.” Legislators and the governor determine the cost per student to be funded by a mix of state aid and property taxes. The percentage of increase, if any, from one year to the next is called allowable growth. In any given year five guiding principles combined with the rate of allowable growth frame the school budget discussion. They are:

1. Enrollment – Iowa school finance is based on the number of students in a district. Total state aid is based on a cost per student multiplied by the enrollment. State law limits the funding a district can raise via local tax levy as a supplement to state aid in order to ensure equity in school funding across all districts.
2. Taxes – Tax rates are primarily established by the state school foundation aid formula. Local school boards have a limited power to increase or decrease taxes.
3. Funding Silos – Besides state aid there are other sources for school funding but many of them come with strings attached. Construction funds generated by the statewide penny sales tax, for example, cannot be spent on teacher salaries to prevent layoffs. Similarly, federal grants for literacy programs cannot be spent for any other purpose, regardless of a particular district’s perception of its own greatest needs.
4. Compensation – Schools are labor intensive. 84% of the state’s general fund allocation goes toward salaries. Any reduction in state aid necessarily impacts staffing levels.
5. Balanced Budgets – Expenditures cannot exceed resources. Both the state and local school districts are required by law to maintain balanced budgets.

Given these guiding principles the notion of zero percent allowable growth can be seen for the misnomer it really is. Flat state funding is effectively a cut, especially if a district’s enrollment isn’t growing. Compensation, to cite one critical budget factor, tends to cost districts more each year. One of the givens of our next budget is a state-mandated hike in IPERS contributions, for instance.

School finance is further complicated by the reality that all of the funding silos are subject to shifting political tides. Long-term planning becomes problematic given the regularity of elections and the likelihood of turnover at any or all levels from school boards to state legislatures to the federal government.

Stay tuned to this space as we continue to track and discuss the development of the DMPS budget for FY 2012. Especially if you’re into jigsaw puzzles.