General Session I 2018 Legislative Session

1. 2018 ISFIS Conference General Session I 2018 Legislative Session Margaret Buckton and Larry Sigel, ISFIS June 15, 2018 FFA Enrichment Center, Ankeny DMACC Campus

2. State Revenues and Tax Policy • How big is the pie?

3. State Revenues/General Fund Balances FY17, FY18 and FY19 https://www.legis.iowa.gov/docs/publications/FU/966654.pdf

4. $$$ FY 2017 • FY 2017 General Fund budget, first enacted during the 2016 Legislative Session, was balanced with an estimated surplus of $80.0 million. • Revenue Estimating Conference (REC) later lowered the revenue estimate three times, which caused the budget to have a projected shortfall of $130.4 million by March 2017. • In response, the General Assembly passed legislation that transferred $131.1 million from the Cash Reserve Fund to the General Fund to balance the budget late in the 2017 Session, with a new estimated surplus of $1.6 million. • After the 2017 Session adjourned, revenue collections continued lag projections. At the close of the FY17, the General Fund budget had a deficit of $13.0 million. • In response, the Governor transferred $13.0 million from the Economic Emergency Fund in October 2017 to balance the budget. The FY 2017 General Fund budget ended the fiscal year with a zero balance.

5. $$$ FY 2018 • In May 2017, the FY 2018 General Fund budget expected a year-end surplus of $107.3 million. In the months following, the FY 2018 budget went through numerous changes. • The REC met in October and December 2017 and lowered the FY 2018 revenue estimate by $133.1 million (1.8%). • Federal tax changes signed into law in December, 2017, impacted State revenues (reductions of corporate and personal income tax rates). DOR estimated state personal income tax revenues would increase due to Iowa’s federal deductibility provisions. • Between January and March, DOR revised the estimated impact several times. The final estimate assumed Iowa’s General Fund revenue would increase by $28.4 million in FY 2018 and $188.3 million in FY 2019. • In January 2018, the LSA projected an FY 2018 budget shortfall of $34.7 million, later revised in March to a projected shortfall of $3.6 million. • SF 2117 (FY 2018 Budget Adjustment Act) was enacted: reduced appropriations by a net total of $23.3 million and transferred $10.0 million in revenue from the Skilled Worker and Job Creation Fund to the General Fund. As a result, the current General Fund surplus for FY 2018 is estimated to be $31.7 million.

6. $$$ FY 2019 • The FY 2019 Budget passed by the 2018 General Assembly was based on total available resources of $7.641 billion. This includes the March 2018 REC revenue estimate of $7.546 billion and revenue adjustments of $94.9 million, and an estimated surplus carryforward of $800,000. • The FY 2019 revenue adjustments include net General Fund reductions totaling $93.4 million passed by the General Assembly and an increase of $188.3 million associated with federal tax law changes. • The revenue reductions were driven largely by the passage of SF 2417 (Income and Sales Tax Modernization Act), which reduced revenue by an estimated $100.1 million for FY 2019 and by an estimated cumulative $1.527 billion over the next five years. • The General Assembly appropriated $7.480 billion from the General Fund for FY 2019, an increase of $225.9 million (3.1%) compared to estimated net FY 2018. • FY 2019 estimated ending balance is $166.2 million.

9. Other Funds FYI

10. EEF and CRF are full

11. SF 2417 Income and Sales Tax Modernization Act, AKA Tax Cuts

12. Income Tax Changes - SF 2417 does the following: • Couples with various federal tax provisions in 2018 and 2019 including personal income and corporate income taxes • Lowers Iowa individual and corporate income tax rates beginning in TY 2019. Eliminates Iowa’s alternative minimum tax and the ability of corporations to deduct federal income taxes paid from taxable income. • Reduces the number of income tax brackets/reduces tax rates effective only if two revenue targets are met (earliest possibility is TY 2023): • Actual net General Fund revenue must total at least $8.3146 billion in the previous fiscal year. • Actual net General Fund revenue for the previous fiscal year must exceed the actual net General Fund revenue level for the fiscal year immediately prior to the previous fiscal year by at least 4.0%. • Reduces corporate income tax rate beginning in TY 2021.

13. Other Tax Changes: • Renames Taxpayer Trust Fund to Taxpayer Relief Fund and removes the maximum $60 million annual general fund ending balance transfer cap to the fund, effective in FY 2021. • Sales tax modernization provisions (effective January 1, 2019) expand sales/use tax base to include digital goods, ride sharing, subscription services, online sellers, online marketplaces, definition of manufacturing, and online travel company websites.) • Changes several existing programs financed through tax credits: • Extends the Innovation Fund Tax Credit, from June 30, 2018, to June 30, 2023. • Extends the Targeted Jobs Pilot Project and associated Targeted Jobs Withholding Tax Credit, from June 30, 2018, to June 30, 2019. • Increases the annual cap for the School Tuition Organization Tax Credit by $1.0 million, to $13.0 million. The income threshold for grant eligibility is increased from 300.0% to 400.0% of the federal poverty level. • Eliminates two income tax credits for geothermal energy systems effective January 1, 2019. • Makes changes to the Research Activities Tax Credit. The changes restrict the types of industries eligible for the credit and require that the taxpayer also claim a federal research tax credit for the same research and the same tax year. The changes are retroactive and apply to TY 2017 and after. • Eliminates the Taxpayers Trust Fund Tax Credit, beginning TY 2018.

14. SF 2417 Estimated Fiscal Year Impacts https://www.legis.iowa.gov/docs/publications/BL/965877.pdf

15. What didn’t Happen???

16. From RSAI 1.29.2018 School Choice Position Paper This map from the Department of Revenue presentation to the Tax Expenditure Committee measuring participation in Iowa’s Tuition and Textbook Tax Credit, November 2017, shows the gaps in private school geography.

17. Big Issues that could have impacted schools: • Vouchers, Education Savings Accounts, Privatization • State Penny Extension • Open enrollment ($ following students, local $ staying in resident districts, eliminating local board authority to restrict OE out based on diversity plan) • Civics test requirement for graduation • Restriction of bond elections to November regular board/city/county election date

18. Budget Bills FY 2018 and FY 2019

19. SF 2117 Deappropriations NOBA • Deappropriates $25.5 million from FY 2018 General Fund appropriations to various State departments, agencies, entities, and the Judicial Branch. • Requires the Department of Management (DOM) to submit a report to the General Assembly and the Legislative Services Agency (LSA) within 15 days of the effective date of the Act, listing how the $25.0 million in appropriation reductions (specified in Section 1 of the Act) are applied to State agency budgets. • Transfers $10.0 million from the Skilled Worker and Job Creation Fund (SWJCF) to the General Fund for FY 2018. • Biggest impacts: Regents $10.9M, DHS $4.3M, Corrections $3.4 M, DE $785K, community colleges $500K • No direct reduction to PK-12

21. The FY 2019 Budget • Remember, increases and decreases are reported compared to the revised estimated FY 2018 budget, after deappropriations and revenue adjustments were included • Schools fared better than most, except the Cash Reserve:

22. Schools got $49 million if you include the transportation/formula equality, which is a combined 1.5%.

23. SF 2415 Education Appropriations • Includes $2.7 million to the Iowa Testing Program for new state assessments (DE to give funds to IaTesting on behalf of school districts.) • $250,000 for creation of the work-based learning statewide clearinghouse as a part of the future ready Iowa initiative. • $600,000 for post-secondary summer classes for high school students (community college class taught by community college instructor – under agreement with the district.) • $500,000 for computer science professional development incentive fund https://www.legis.iowa.gov/docs/publications/NOBA/965528.pdf

24. Other Approps to DE total $7.6 M increase compared to revised FY 2018 • $54,000 increase to Early Childhood Iowa (restores to FY 2018 level) • $50,000 to SATQ programs ($25K to Career Development/evaluator Training and $25K to Teacher Development Academies) • Delays $10 million allocation of SATQ funds to implement High Needs School Districts supplemental assistance to FY 2020. • $1.0 million for iJAG • $345,000 for Iowa Reading Research Center • $2.0 million for General Aid for Community Colleges • $107,000 for Vocational Rehabilitation (MOE) • $68,000 IPTV (restores to FY 2018 level)

25. Other Appropriations of Interest • $470K to Iowa online Advanced Placement Academy (U of I) which is the same as est. net FY 2018 funding • $5.4M to UNI for Governor’s STEM advisory Council which is the same as est. net FY 2018 • $8.4M increase to Regents restores part but not all of the FY 2018 deappropriations, so in total, Regents are $12.4M below FY 2017 funding.

26. Appropriations Language • Teacher shortage loan forgiveness program: no new applicants for FY 2019 but may continue serving eligible previous recipients • ½ unit financial literacy: • specifies that teacher does not need social studies endorsement to teach the course. • allows the ½ unit to count for social studies or other combination of coursework in social studies, math or other CTE course. • Online learning: specifies that the online course subject to offer and teach waiver must be developed either by the school district staff or through a private provider that meets the standards of the Iowa Learning Online Initiative. In either case, must be taught by an Iowa licensed teacher but specifies that the teacher doesn’t need to live in Iowa.

27. Standings Appropriations HF 2502 • Suspends state match for ISL for FY 2019 (again . . . .) • Continues the $15 million cut to AEAs (again . . . ) • Military installation – allows school enrollment into an Iowa district for students living with parents in a military installation in another state which is contiguous to a county in Iowa. Specifies that the parent is responsible for transporting the student without reimbursement to the regular school bus route. • Technical correction to HF 2253 PPEL change; clarifies lease-purchase agreements that exceed bid thresholds must go through a competitive bid process. Applies to a contract with a private party for construction, renovation, or repair of property that will be leased or purchased by the district, defining that as a public improvement project subject to bidding. • Prohibits future wind energy projects from receiving 90% C&I rollback if they otherwise benefit from special assessment valuation provisions of Iowa Coe 427B.26

28. School Funding: State Cost per Pupil and SSA

29. HF 2230 SSA (Signed 3.7.18) • Sets 1% increase in the state cost per pupil and 1% increase in per pupil supplements (TLC, TSS, PD, EICS) • State Cost per pupil of $6,731, which is an increase of $67 • TLC per pupil of $326.50, which is an increase of $3.23 • $527.2 Million in total categoricals (PP supplements) funded entirely by the state • $82.2 Million for PK funded entirely by the state • $26.1 million in budget guarantee, with 183 districts on Budget Guarantee • Continues Property Tax Replacement payment, through which state pays what would otherwise be property taxpayer’s share of the 1% increase. • Freezes additional levy contribution to SCPP at $750 (since 2013) • Per pupil PTRP is now $91, costing the state $51.5 M • Uniform levy of $5.40/$1,000 increases by $37.6 M • Total state aid for FY 2019 = $3,236 M which is an increase of $47M (Standings later lowers by $15M with AEA cut continuation and SF 455 increases by $2.5 M for formula equality, for net state aid increase of $34.8M)

32. EdWeek Quality Counts Financehttps://www.edweek.org/ew/collections/quality-counts-2018-state-finance/map-per-pupil-spending-state-by-state.html?cmp=eml-enl-eu-news2&M=58509923&U=2278736&override=web

34. Distribution: Iowa ranks 18th

35. SF 455 Transportation and Formula Equality

36. Transportation Equity Program • Requires DOM to determine a statewide adjusted transportation cost per pupil annually that is not lower than the average transportation cost per pupil. • Additional aid is provided to those districts with transportation costs that most exceed the statewide average. • Formula: (Districts actual transportation cost to transport students minus reimbursement for transporting nonpublic students) / (actual enrollment minus shared-time enrollment) • Provides for transportation base payments if funds appropriated exceed that necessary to bring all districts down to the statewide average transportation cost. • Specifies this funding is misc. income, deposited into the general fund, is not included in district cost. • Appropriates $11.2 M into the transportation equity fund for FY 2019 (one-time appropriation which will have to be reconsidered next session.)

37. Funding Formula Equality • Relates to the discrepancy between the State cost per pupil and district cost per pupil within the State school aid formula, which varies by $175 per pupil in FY 2018. • Districts above the minimum state cost per pupil use property taxes to fund the difference every year. Districts at the minimum state cost per pupil are prohibited from levying for anything more. • This bill lowers that gap by $5 for the FY 2019 fiscal year and future fiscal years. • For FY 2019, this is estimated to increase the State school aid General Fund appropriation by $2.9 million and decrease property taxes by $1.6 million.

38. SF 475 Omnibus Education Act 7 Divisions

39. Online Learning (Div I and IV) • Lifts cap on number of students who can open enroll into an online learning academy (currently CAM and Clayton Ridge are the only two) • Requires state BOE to adopt rules and ensure online curriculum aligns to Iowa Core standards and maintain a list of approved private providers • Allows all districts to offer online learning, develop courses themselves or with private providers or public entity partners • Allows districts that can not find a teacher for courses that typically have 10 or fewer students to apply for a waiver and offer the course through ILO. If there isn’t ILO capacity, offer online course taught by an Iowa licensed teacher that aligns with Iowa Core standards. • Allows local resident district to keep up to $400 per year ($200 per activity and up to two activities per year). Student may not participate in more than two activities unless the resident district approves it. • Resident district may charge a fee similar to fees charged to other resident pupils for participation • Participation is under the same conditions and requirements as the pupils enrolled in the district of residence (comply with eligibility, conduct and other requirements of the local district)

40. Concurrent Enrollment CTE (Div II) • Allows school districts to work with a community college to provide a CTE course in one of the 6 CTE service areas to meet offer and teach requirements • Students in the class get the concurrent enrollment weighting if there are more than 5 students in the class and the district has 600 or fewer students. • District has to certify that concurrent enrollment courses for post secondary credit do not supplant a course provided by the district except for this provision (allows supplanting in this case.)

41. Other Divisions • Division III creates a student health working group to review state initiated student health requirements (dental and vision screenings, blood lead testing and immunizations) and is required to study implementation efforts while reducing the administrative burden on public schools. Report of findings due Dec. 31, 2018 • Division V requires the DE to establish a Bi-literacy Seal for graduation for students who have demonstrated proficiency in two or more world languages (including ASL). Participation for school districts is voluntary. • Division VI DE guidance limitation, prohibiting guidance that imposes a legally binding obligation or duty unless required or reasonably implied by state statute, rule or other legal authority. Guidance issued not meeting this standard is not legally binding.

42. Other Divisions • Division VII Financial Literacy (House Amendment) • Requires all student graduating from an Iowa school complete ½ unit of financial literacy • Specifies that the curriculum include 9 different content areas (1.5 pages of outline – savings, investments, wealth building/college planning, credit and debt, consumer awareness of the power of marketing, financial responsibility and money management, insurance/risk management income and career decisions, different types of insurance coverage, buying, selling and renting advantages and disadvantages and mortgages) • Effective date July 1, 2019 (unclear if this means for any graduates after that date or for incoming 9th graders. . . ) • Standings clean-up language allows the ½ unit to count as social studies, math or CTE, etc.

43. HF 633 Operational Sharing Incentives Extension House passed it 99:0 April 17, 2017 Senate amended and passed it 47:0 May 5, 2018 House concurred and Governor signed it

44. HF 633 Operational Sharing • Extends incentives through 2024-2025 school year (repealed July 1, 2025) • Eliminates 5-year limitation on any one shared position. • Adds licensed Social Worker as a position that can be shared (either a master social worker or an independent social worker licensed under Iowa Code 147 or 154C) • Oct. 2018 Fall BEDS: report intent to share, count of students, supplementary weighting is received in the 2019-20 school year. • Maximum equivalent of 21 students per district for all sharing is unchanged ($141,351 max in FY 2019) • The FY 2018 actual supplementary weighting, equal to 3,245 students, is an estimated $21.4 million, less than half of the total capacity estimated statewide which further indicates that this program primarily serves rural schools (228 school districts utilize these sharing incentives.)

45. Operational Sharing • The fixed amount per position is as follows: • Superintendent - 8 students, • Human Resources, Business Manager, Operations and Maintenance, and Transportation Positions - 5 students, and • Counselors, Curriculum Directors and Social Workers – 3 students. • Must share at least 20% FTE, or essentially one day a week • May share with schools (not necessarily contiguous) and AEAs, although AEAs are limited to a minimum of $30K and maximum of $200K in weighting regardless of how many sharing relationships they support. • Schools may also share with other political subdivisions, such as city, community college or county – school still gets the weighting but the other entity does not. • Extension again in 2025 will be a big deal. Keep track of benefits over time to inform advocacy down the road.

47. HF 2441 Flexibility House passed it March 6, 2018 97:0 Senate amended and passed it 46:0 March 28, 2018 House concurred 99:0 April 3, 2018 Governor signed it

48. HF 2441 Flexibility • Prohibits DE and State BOE from issuing guidance that imposes a legal obligation unless that obligation is required or implied by statue, rule or other legal authority. • Allows Early Intervention/Class Size supplement to be used for any GF purpose. (Iowa Code 256D sunsets June 30, 2018, removing any restrictions on use) • Eliminates 5-year maximum for a lease of property by the school board to a private entity. Also exempts private lease of property from having to pay property taxes if the lease is part of a project designed to generate electricity for the school district. • Allows reconditioning of athletic equipment (in addition to purchasing new) paid by school board GF transfer to student activities fund via board resolution. • Allows transfer of child care fund balance to GF with some process (publish notice, public hearing, board resolution, etc.) • Allows use of HSAP materials purchased by the district for other purposes.

49. HF 2441 Flexibility Dropout Prevention Provisions • Removes DE from DoP application approval. Requires school boards to approve by resolution comprehensive program plans for programs for at-risk students, secondary students who attend alternative programs/schools, and returning dropouts and dropout prevention. • Removes the requirement that school districts not identify more than 5% of their enrollment as returning or potential dropouts, but requires the district to include in the request for MSA the number of students so identified. Sets up a process for SBRC to approve requests for MSA. Requires the board to certify that the requested MSA amount complies with their DoP/At-risk program plan. • Expands use of DoP to include staff “including but not limited to”: and then adds new categories including administrative staff, staff salaries and benefits or contract payments for psychologists licensed under chapter 154B, licensed independent social workers or master social workers under Chapter 154C, licensed mental health counselors under chapter 154D, and for school-based youth service staff working with at-risk and DoP programs or students in those programs. Requires staff costs to be prorated if the staff members’ work for DoP/At-risk isn’t their full job. States that DoP/At-risk funds made be spent for “any purpose determined by the Board of Directors that directly benefits students participating in the adopted program.”

50. HF 2235 Assessment House passed it Senate amended and passed it House concurred Governor signed it