2010 School Finance Boot Camp Intermediate 201

1. 2010 School Finance Boot Camp Intermediate 201 Galen Howsare, Vice President, Hawkeye Community College Jackie Black, IASB Education Finance Director

2. Welcome!!! • Introductions • Session Overview/Packet Contents • Housekeeping Items • Questions • What are the burning questions you need to have answered before you leave? • Ground rules • Please ask questions at any time!

3. Packet Contents • Presentation Slides • FY2011 Property Tax Report • FY2011 ISL Report • Impact of Allowable Growth Rate on per Pupil Cost • Unspent Balance Report • Cash Reserve Report • Property Tax Chapter Summary • Financial Health Report • Standard Financial Measures • Sample Audit • Definitions • Scenarios/Exercises • Assessment • Resource website List • Evaluation Form

4. Agenda • School Finance Basics Overview • Property Tax Basics • Categorical Funds/Special Education • Communicating Your Budget to the Public • Measures of Financial Health • Understanding Your Audit Report • Use of School Budget Review Committee (SBRC)

5. Agenda… continued • Fiduciary Responsibility • Check for Understanding • Summary and reflection • Evaluation

6. School Finance Basics Overview

7. School Finance - Background • Dillon’s rule: • School districts only have those powers expressly authorized by the Code of Iowa • Home rule: • Cities and counties can do anything not expressly prohibited

8. School Finance - Background The “Bright” Line in School Finance • Educational program expenditures are funded and equalized by the state foundation formula. • Facility expenditures are not under the finance formula and may not be used for educational program expenditures (and vice versa).

9. Goals and Principles of Finance Formula • Equity in expenditures • Property tax relief • Equalization of method of taxation • Uniform state aid allocation formula • Predictable • Simple • Pupil driven • Provide for local discretion and incentives

10. Goals and Principles of Finance Formula • Establish maximum spending control • One formula for AEA and K-12

11. School Aid - Basics • Purpose of the foundation formula: • Code of Iowa, 257.31: • “…equalize educational opportunity, to provide good education for all children of Iowa, to provide property tax relief, decrease the percentage of school costs paid from property taxes, and to provide reasonable control of school costs.”

12. School Aid - Basics • Foundation formula - ceiling vs. floor • The foundation formula results in a maximum expenditure per pupil and therefore a maximum amount a district can raise and spend (note: not every district has the same ceiling) • Other states’ school aid formulas have created a minimum spending per pupil • This has led to lawsuits nationwide • Iowa’s Constitution does not guarantee educational equity

13. School Finance - Background • The school foundation formula relies on two sources of revenue: • State General Fund appropriations • Locally raised property taxes

15. Operation of Foundation Formula • Three components • Uniform Levy - Property tax levy of $5.40 per thousand of taxable valuation • State Foundation Percentage - Amount the state pays in excess of $5.40 - varies by district (87.5% of cost per pupil) • Additional Levy - Property tax levy which funds the difference between the Combined District Cost and the sum of the Uniform Levy and the State Foundation Percentage

16. Operation of Foundation Formula

17. Any questions before we transition into Iowa’s property tax system???

18. Property Tax Basics

19. Understanding Property Taxes • Handout – Chapter of School Finance Manual “Property Taxes” • Taxing Authorities vs. Taxing Districts • Basic equation • Rate x Value = Taxes due • Tax Incremental Financing (TIF) • Tax rates • Expressed in dollars per thousand (Add bullets according to handout)

20. Which is lower tax rate? • $8.34 per $100 of taxable value or • $12.50 per $1,000 of taxable value

21. Property Valuation: Assessed value Classes of property Residential Agricultural Commercial/Industrial Gas and Electric Railroad Market value Productivity value Equalization Taxable value Rollbacks Credits Understanding Property Taxes

22. Rollback History

23. Understanding Property Taxes Computing school taxes paid on an individual property can be reduced to the following steps: • Taking the assessed value, multiply by the rollback percentage which results in the taxable value • Taking the taxable value, divide by 1,000 and multiply by the school tax rate to get the school taxes due without homestead credit • Taking the homestead credit, divide by 1,000 and multiply by the school tax rate to get dollars of homestead credit • Taking the taxes due without homestead credit, subtracting the dollars of homestead credit to the get the net school taxes due.

24. Sample Calculation Home with assessed value = $100,000 Projected Rollback (2011-12) = 48.529% District Tax Rate = $15.20 per $1,000 Homestead Credit on first $4,850 of taxable value 1.  $100,000 x .48529 = $48,529 (taxable value) 2.  $48,529/$1,000 *$15.20 = $737.64 (school taxes due without homestead credit) 3.  $4,850/$1000*$15.20 = $73.72 (dollars of homestead credit if fully funded) 4.  $737.64 - $73.72 = $663.92 net school taxes due

25. FY 2011 Total Levy – All Districts

26. FY 2011 General Fund Levy – All Districts

27. Understanding Property Taxes • Property valuation characteristic of school districts (why we care): • “Property Rich” • “Property Poor” • How is it calculated? • Total Property Valuation / Certified Enrollment • Interaction: • High value = lower property tax rate • Low value = higher property tax rate

28. Valuation Per Pupil

29. Understanding Property Taxes • Tax Increment Financing School Impact • Costs the state $45.9 million this year to pay for loss of taxes generated by $5.40 levy (“looks” like increased school funding) • Shifts taxes to other property tax payers in the district since TIF taxes on the increment go to the city (management, cash reserve, instructional support and additional levies) • Loss of revenue to districts with “capped” levies (PERL levy or levies capped by either board promise or politics) • Debt levy is exempt and PPEL levy may be exempt

30. Basics-Tax Increment Financing

31. Question #1 • With a taxable valuation of 158,400,000 and a tax rate of $14.65 per $1,000, how much money should the district receive? • Calculation 158,400,000/1000*14.65 = $2,320,560

32. Question #2 • With a taxable valuation of 158,400,000, what would the tax rate need to be to generate $350,000 for the instructional support levy? • Calculation 350,000*1,000/158,400,000 = $2.2096

33. Question #3 • Find the taxable valuation of a home if the tax levy is $2,453 from a tax rate of $18.65 per $1,000. • Calculation $2,453*1,000/18.65 = $131,528

34. Activity/Table Discussion • Scenario – The City of Dreamfield intends to approve a Tax Increment Financing district for a new housing development. You have been invited to the Consultation Meeting to share pros and/or cons. • Should the local school board support this? • If put in place who is actually going to pay for it? • Questions about taxes before we go into additional topics in Iowa school finance???

35. Categorical Funds/Special Education

36. Categorical Funds Considerations • State appropriations beyond state aid and federal appropriations • Designated spending – certain allowed expenditures, accounting and reporting by project number • If possible keep outside of bargaining unless law does not allow • Do not tend to increase with inflation • Easier target for reduction

37. Categorical Funds Examples • Teacher Salary Supplement • Professional Development • Early Intervention • Gifted and Talented (TAG) • At Risk/Dropout Prevention • Limited English Proficient (LEP) • Home School Assistance Program (HSAP) • All Title Programs • Grants - such as Preschool • Part B ARRA Monies, Education Jobs Fund

38. Special Education Why Weight? • Some populations have higher costs than others. Two choices: pay more per student or count students at value greater than 1 • Special education has three weightings, depending on level of service student needs: • Level I .72 • Level II 1.21 • Level III 2.74 • These are in addition to the 1.0 weight

39. Special Education – Calculate District’s Funding • Level I $5,883 x 1.72 • Level II $5,883 x 2.24 • Level III $5,883 x 3.74

40. Special Education • Revenue determined by weightings • Special Education Supplement (SES) • Report due • School Budget Review Committee • Iowa’s system is unique • If you spend less than the weightings generate have to send back (>10%) • What happens if spend more? • Creates a “deficit” • Does not cause long term spending from regular education • Deficits may be recouped from property taxes

41. Special Education • Are weightings sufficient? • No, special ed deficits growing statewide • Number of students relatively stable • How to solve? • Adjusting weightings = more state $’s • Adjust annually = less “sticker shock”

42. Communicating Your Budget to the Public

43. Communicating Your Budget

44. Key Elements • What is key information to include? • How do you communicate to the public now about financial matters? • What can your board do to avoid surprising the public? Possible issues: re-organization, sharing, closing building, layoffs of staff, negative unspent balance, others???

45. BREAK Please take a 5 minute break.

46. Measures of Financial Health

47. Financial Health Indicators What are they? • Research based financial ratios • Assesses different aspects of a District’s General Fund operations • Shows if trends are going up or down relative to what has happened • Good measurement tools for bondholders • When used together they are a reliable predictor of financial health for the year ahead

48. Financial Health Indicators What they are not. • Are not useful without a context or benchmark • Use of single indicators for operational conclusions is not advised • Assesses only General Fund operations • They do not quantify management’s future response to identified financial issues

49. Financial Goal Considerations • What should be the relationship of revenues and expenditures? • How are revenues and expenditures projected? (conservative-what does that mean?) • What are the right and wrong things for spending? • Where are contingency dollars (unallocated) in budget?

50. Financial Goal Considerations • What are the targets for financial solvency ratio, unspent balance, fund balance, and other measures of financial health? • How much cash should be available? • Inter-fund loans? • Use of reserves?