Budgeting Decision Points for Iowa School Board Members

1. Budgeting Decision Points for Iowa School Board Members Jackie Black Education Finance Director Iowa Association of School Boards

2. Overview • Iowa finance formula often gives the illusion of control rather than actual control. • If we’re going to have local control, we’d better understand where we actually have control.

3. Overview • Strategic v. operational decisions • Primarily covers revenues rather than expenditures. • Not exhaustive, but meant to be a guide. • Each section has a series of basic questions to guide/aid discussion.

4. Key Decisions

5. General Fund • Few key decision points where the board has real control • Majority of the district's tax rate not subject to local discretion • The Additional Levy driven primarily by formula; few areas subject to local decision.

6. Budget Guarantee • Cannot adjust the amount upward. • Can: • Choose to receive the budget authority; and • Levy a property tax to fund the authority (if you have sufficient cash).

7. Budget Guarantee • The district passes a resolution by April 15 to receive the authority. OR • The budget guarantee amount is automatically included in Additional Levy (all property tax), unless district decides not to levy property tax to fund spending authority.

8. Questions: • Are we eligible for the budget guarantee? If so, have we passed and filed the resolution in a timely manner? • Do we need to levy the cash to fund the budget guarantee?

9. On-Time Funding • A district may choose to receive On-Time Funding for students who will not be "counted" under the finance formula until next year • Districts with increasing enrollment over the amount included in the budget may apply to the School Budget Review Committee (SBRC) which reviews and automatically grants the spending authority.

10. On-Time Funding • A district will not receive funds, but will receive spending authority in the year in which the increase in enrollment occurred.  • Districts may levy through the Cash Reserve Levy the following year to fund the spending authority.

11. Questions: • Have we applied by November 1 to the SBRC for our authority? • Do we need to levy a cash reserve levy the following year to fund the spending authority?

12. Dropout/Dropout Prevention Serves returning dropouts, potential dropouts and at-risk children.

13. Dropout/Dropout Prevention • Huge source of spending authority • Potential property tax impact • Spending authority amount driven by the formula. • How much to levy through property tax and fund subject to local decision.  • Five percent of a district’s enrollment times the district’s per pupil cost. • Funds through property taxes and a 25 percent local match. 

14. Questions: • How much are we eligible to receive in dropout prevention funding? • How much have we historically funded locally? • What is the property tax impact if we decide to fund more or less?

15. English Language Learner Districts may apply to the SBRC for two additional years of weighting for certain English Language Learner students (beyond the three automatically included) for a total of five years of additional 0.22 weighting (think of it as an additional 22 percent spending authority for five years).

16. Questions: • Do we need to apply to the SBRC for the additional two years of ELL weighting? • What is the property tax impact of choosing to do so?

17. Special Education Deficit • If a district spends more than they receive in funds from the finance formula for special education students, it may levy that shortfall in property taxes the following fiscal year.  • Spending authority is automatically granted in the year the expenditure occurs, so Special Education Deficits are spending authority neutral, but impact tax rates. 

18. Special Education Deficit • Many districts run a Special Education Deficit. • Estimate state shortfall in funding for special education is $30 million annually. • District's Cash Reserve Levy is the method of funding the expenditures incurred in a Special Education Deficit.

19. Questions: • Are we experiencing a Special Education Deficit? If so, what has the amount of the deficit been over the last two years? • If we are experiencing a Special Education Surplus, are we fully accounting for all costs related to the Special Education program or can we move expenses from the General Fund to special education which are truly special education expenses?

20. SBRC Modified Allowable Growth • Can apply to the SBRC for Modified Allowable Growth for both Special Education Deficits and other reasons: • Schools may appear in front of the SBRC for the purpose of receiving Modified Allowable Growth (spending authority). • SBRC rarely if ever grants state aid to go along with the spending authority. • Fund the spending authority through the Cash Reserve Levy.

21. Questions: • Are we applying for authority to the SBRC when we are eligible (if a district needs spending authority)? • Do we have (or need) a board policy on spending authority?

22. Cash Reserve Levy • Levy for the general fund of the school district • Amount of the levy is determined annually by board action. • Used to fund spending authority, but does not increase spending authority (it increases the bank account but not the credit card limit).

23. Cash Reserve Levy Two components of the Cash Reserve Levy: 1) Regular cash reserve levy: method of replenishing the district’s bank balance, for whatever reason the board determines. 2) SBRC Cash Reserve Levy: used to fund the spending authority granted by the SBRC for whatever reason.

24. Questions: • Do we have sufficient cash reserves (see Solvency Ratio section for further details)? • If we levy for cash reserve, what do we plan to use the revenue for?

25. Instructional Support Levy • Only levy that districts have available to them to increase the size of their general fund. • Can approve for up to 10 percent of their regular program budget. • The ISL may be approved for up to five years by board action (subject to reverse referendum) or by 50 percent voter approval for up to 10 years.

26. Instructional Support Levy • Can have authorization in the ballot language to “levy up to 10 percent” but the board acts annually to set the amount. • By exercising board authority in the ballot language or raising the amount that is permissible, districts can affect total funding. • Can also affect the relative mix of property tax or income surtax by adjusting the mix (if language allows).

27. Questions: • When does our ISL expire and when do we need to begin the process of renewing? • What level of funds would be provided if we enacted or increased the ISL? If so, what would we do with the funds? • How should we fund the ISL (all property tax or income surtax or a mix of the two)?

28. Use of Fund Balance to Reduce General Fund Levy • Districts have the ability to reduce their general fund levy through the use of general fund reserves: • Not levying for those items which automatically get included in the additional levy; for example, the budget guarantee. or • To reduce a district’s cash reserve by funding a portion of the tax receipts for the coming year with the current year’s reserves.

29. Questions: • Is our fund balance too high, too low, or just right (see discussion below on Solvency Ratio)? • Are we acting as a bank for the taxpayers?

30. Solvency Ratio • The calculation of solvency ratio is the General Fund unreserved fund balance divided by total General Fund revenues. • A district can impact its solvency ratio one of two ways, either through increasing revenues or by reducing expenditures.

31. Solvency Ratio • There is a range of recommended solvency ratios anywhere between 5 percent and fifteen percent classified as “good” or “excellent” • Can a district hold too much cash? • Yes, however determining what is “too much” is a local decision based on local conditions and practices.

32. Non-General Fund Revenues

33. Management Levy Uses: • Early retirement programs • Judgments against the district • Property and casualty and workers’ compensation insurance and claims Levy is not rate limited, but purpose limited

34. Questions: • Are we funding everything possible to fund out of the Management Levy and not the general fund? • What is our fund balance in the Management Levy and has it been increasing or decreasing over time?

35. Physical Plant and Equipment Levy • For the construction, repair and renovation of facilities, purchase of technology and transportation equipment • Board has the authority to annually approve a $0.33 per thousand property tax levy. • May also levy an additional $1.34 per thousand (funded either by property tax or income surtax) by voter approval of 50 percent or higher.

36. Questions • When does our voted PPEL expire and when do we need to begin the process of renewing? • If we are below the maximum,( $1.67 per thousand) what level of funds would be generated by increasing the levy and what would be the impact on taxpayers? • What would we use the funds for? • Should we borrow against the property tax portion of the voted PPEL? • Do we need/have a long range plan related to facilities?

37. Public Education and Recreation Levy • Levy for playgrounds and recreation facilities in the community. • Voted (50 percent) property tax levy generating $0.135 per thousand. • Board makes the decision regarding the use of these moneys as long as they meet the authorized uses of the PERL.

38. Questions: • Should we consider asking our voters to approve a PERL? • What would we use the funding for?

39. Debt Service Levy 60% voted majority property tax levy for infrastructure purposes The board has a role in shaping the plan and the proposal that will be submitted to voters, but has little control over the actual property tax rate.

40. Questions: • How long do we have left before our current issue is paid off? • What is our current bonding capacity? • What will our bonding capacity be when the current bonds are paid off? • What would we do with the funds if we could bond?

41. Local Option Sales Tax This is a 50% majority voted sales tax for infrastructure and other purposes • May levy up to one cent, in addition to the state sales tax of five cents. • May expend the funds for any authorized purpose in their ballot language and revenue purpose statement.

42. Questions: • For what purposes does our ballot language/revenue purpose statement allow us to spend our funds? • What have our actual collections been over the past couple of years? • Should we bond against the proceeds to finish projects more quickly? • Should we provide some form of property tax relief either by not levying the PPEL or reducing the Debt Service levy?

43. Expenditure Side Ultimately, the budget the board adopts by April 15 is the document and plan for spending the resources generated by the district during the coming year. The budget sets a level of expenditure which the district may not exceed unless it amends the budget.

44. Expenditure Side • Do you plan to use reserves to fund some portion of the future year’s budget? • Option of utilizing prior year’s unspent budget authority to fund a portion of the district’s budget for the following year • One-time source of spending authority • To commit one-time revenues to ongoing expenses will result in reduced unspent budget authority the following year.

45. Number of Staff/Staffing Ratios • Districts have the discretion to set the staffing level of the district. • Once a contract is in place districts cannot terminate certified staff during the term of the contract. • Districts may choose to reduce the number of staff prior to awarding contracts in the spring. • Reductions must follow the provisions of the Code of Iowa and individual contract language. • Budget redirection is a legitimate reason to reduce staff.

46. Number of Staff/Staffing Ratios For districts that are experiencing falling enrollment, maintaining your staffing ratios each year is critical. If staff ratios are not adjusted, personnel costs (already 80 to 85 percent of the average district’s budget) will continue to consume larger amounts of decreasing resources.

47. Budget Priorities • The board has the authority to set the district’s priorities during the budget process. • The question that must constantly be asked is “Is this method the most cost effective alternative to fulfill the mission of the district?”

48. Conclusion • Even though the funding of schools is complex, there are a series of key areas where boards do have discretion and control. • Important to know where we have control (and where we don’t). Helps focus district time and resources and helps the public understand why we make the decisions we do.

49. Contact: Jackie Black, Education Finance Director; (800) 795-4272 lsigel@ia-sb.org