How is the Money Spent?
Article 2: The General Assembly “equalizes” funding statewide so the “cost per student” is roughly the same in every district and every student has access to quality education.
Taxpayers often ask, and rightfully so, how Iowa spends the nearly $4 billion earmarked for the state’s public education system. Last week, we ran the first in a series of articles dedicated to helping taxpayers understand how those dollars are being spent to educate nearly 474,000 students throughout the state. Today we’ll discuss how those dollars are divided.
When it comes to school funding, the state legislature tries to ensure all children receive a quality education based on roughly the same amount of per pupil funding throughout the state. That’s where the school finance formula comes in. This formula relies on a combination of state aid and property taxes to fund education. The amount of state aid each district receives depends on how much it brings in through local property taxes. If the state relied solely on property taxes to fund schools, some districts would be able to raise a lot of money with a very small property tax rate, while others would raise a smaller amount of money on a much larger property tax rate.
This was almost exactly the situation Iowa found itself in over 35 years ago. Before the early 70s districts relied primarily on property taxes for school funding. However due to the wide range of property tax rates funding districts and concern over the disparity in funding per child, lawmakers instituted a formula to address both of these issues, setting a maximum and “equal” cost per student. All districts are required to levy a uniform levy of $5.40 and then the state funds an additional amount up to a certain level (called the foundation level). Beyond that foundation level, local property taxes are levied to fund the remainder of the difference.
School funding is basically made up of three layers. The first layer is local property taxes determined by the Uniform Levy. The middle layer is state aid and the top layer is additional local property taxes. The mix of all three of these is set by a formula over which the local district has little control.
The following chart provides the comparison of a district with below-average, per-pupil property tax valuation and one with an above average per-pupil property tax valuation. Our district has a property valuation per pupil that is below the state average. This means our Uniform Levy of $5.40 generates fewer dollars and we get more state aid. However, our Additional Property Tax Levy rate is slightly higher than the average. This is because our additional levy rate must be higher to generate the same dollars as other districts.
While the state partially equalizes tax rates through the school finance formula, significant deviations still affect how much each district receives from the state.
Regardless of the financial situation of the local school district, a large portion of the district’s tax rate is set by formula and there is little the local school board members or administrators can do about it. However, Iowa law does make allowances for growth and inflation from year-to-year.
We’ll discuss the concept of “allowable growth”, or state supplemental aid, in the third article in our series explaining school finance.