February 03, 2023

Public education financing

Taxpayers often ask, and rightfully so, how Iowa spends the nearly $4 billion that is earmarked for the state’s public education system.

Last month, the Creston News Advertiser ran the first in a series of articles dedicated to helping taxpayers, ultimately the patrons of our public school system, understand how those dollars are being spent on educating nearly 500,000 students throughout the state.

In this article, I will 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 funding throughout the state. That’s where the school finance formula comes in, a formula that relies on a combination of state aid and property taxes to fund education. The amount of state aid each district receives depends upon how much they bring 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 more than 50 years ago. Before the early ‘70s, districts relied solely upon property taxes for school funding, but due to the wide range of property tax rates funding schools 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.”

Districts would bring in a minimum amount determined by the $5.40 Uniform Levy and then the state would fund an additional amount up to a certain level. Beyond that level, local property taxes have to fund the remainder of the difference.

Larry Sigel, partner at Iowa School Finance Information Services compared school funding to a four-layer cake. “The first layer is local property taxes determined by the levy, the second layer is state aid, the third layer is property taxes and the top layer is state aid. The mix of all four of these is set by formula over which the local district has little control.”

The district’s per pupil valuation is $352,909 which ranks 260 out of 327 school districts. This means 259 districts have a higher valuation per student than Creston and 67 have a lower valuation. This compares to the statewide average for FY 2023 of approximately $457,000 per student.

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 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, there are still significant deviations affecting how much each district receives from the state. The lowest combined tax rate for a school district is $8.03 and the highest is $19.61, making that a difference of $11.58 per thousand. Our tax rate is $16.56 per thousand.

Regardless of the situation of a local school district, a large portion of a district’s tax rate is set by formula and there is little the local School Board or Administration can do about it. However, Iowa law does make allowances for growth and inflation from year to year. We’ll discuss the concept of “State Supplementary Assistance” in the third article in our series explaining school finance.

This article is written in collaboration with Larry Sigel from Iowa School Finance. Please visit the district website to view the schedule of events and activities and come out and support our children. Thank you for supporting our schools and making them the pride of our communities!