School finance is topic at NEH meeting
BLAIRSBURG – In Iowa, school financing is based on a student-driven formula, Larry Sigel of Iowa School Finance Information Services told Northeast Hamilton district patrons at a work session Monday night in the school cafeteria.
Invited by the NEH school board to present an analysis of the district’s financial condition, Sigel began by explaining the basic principles of school finance in the State of Iowa.
In order to equalize education spending throughout the state, the Iowa Legislature developed a school funding formula. For each child, the legislature determined it costs $6,121 to educate a student annually. To finance this, each district is required to collect a uniform levy of $5.40 in property taxes and $750 is provided in an additional levy. The difference between the $6,121 and the total sum of the uniform levy and additional levy funds is made up by state aid.
“Schools are budget limited, not tax rate limited,” he said.
Sigel touched on the Spending Authority of a district which in essence is its credit card limit. By law, Iowa school districts are restricted in how they can generate and spend General Funds.
“Spending Authority impacts Iowa schools,” said Sigel. “It used to be that schools were funded exclusively by property taxes”.
Today, a district’s Spending Authority is determined by a combination of state aid and property taxes, said Sigel.
A school district that doesn’t adhere to the state’s guidelines can find itself in serious trouble, said Sigel.
“Have you ever heard of the Russell School District?” he asked.
The Russell CSD in south central Iowa was closed by the state for running its Spending Authority in the negative for seven years.
“Today, the state has the ability to close down a district if it is in the negative for two years,” said Sigel.
The state also has the jurisdiction to close all buildings within that school district, he said.
While Northeast Hamilton has the eighth highest property tax valuation in the state, it is facing a continued decline in student enrollment which results in a reduced Spending Authority in its General Fund.
The anticipated certified school enrollment for 2013-2014 is 201. The district experienced a net gain of three students over last year. The total includes a gain of 16 open enrolled into the district and a loss of 52 students who have open enrolled out of the district.
Since NEH loses approximately 2 to 3 students annually, it will begin operating with a negative Spending Authority by 2015, predicted Sigel.
“Kids make a huge difference,” in a school district’s viability, said Sigel. “As enrollment goes, so goes your budget”.
Unfortunately, with the loss of each student, the district also loses state aid and property taxes which then follow the student to the new district, said Sigel.
“This is one of the challenges you have,” said Sigel. “Nobody did anything wrong. You just lost kids”.
Unfortunately, the situation is the culmination of the Perfect Storm, said Sigel. Current conditions in the district include a decline in enrollment, low allowable growth and the worst economic downturn in our lifetime, he said.
Sigel pointed out that of the 346 school districts in Iowa, only 25 districts are experiencing moderate to rapid growth in enrollment.
Approximately 200 are facing declining enrollment similar to NEH.
“The rest are treading water,” he said.
In the best case scenario if the legislature would set a three percent allowable growth rate, the new money would general between $3,000 to $5,000 per student, he said.
But even then, time is running out.
“Over time, it buys you about two more years until you experience a negative in your Spending Authority,” said Sigel.
Sigel outlined the district’s options. The district can institute a whole grade sharing with an neighboring district, merge and consolidate with a contiguous neighbor to pool together resources or it can dissolve the district.
The final option involves the district voting and the area education agency parcelling out students to neighboring districts.
Sigel encouraged patrons to discuss and weigh its options rather than ignore the current situation.
“Hope is not a strategy,” he said. “You can have faith that local governments can make the right decisions, but burying your head in the sand does not go well”.
He warned that if the state takes over a school district, it will not leave one building open.
“It is not fun and not pleasant, but I want to tell you the truth from a numbers standpoint,” he said.
During the question and answer segment, Sigel urged patrons to contact their state representatives.
“You have unique needs and nothing is impossible,” he said. “But it is an uphill battle.”
The legislature could remedy the situation by recognizing the sparsity of students geographically across the state or by allowing districts to use all available funds across the entire budget to cover operating costs.
“All politics are local,” said Sigel. “Don’t make an assumption that they understand your situation.”