Dr. Jorgensen's July Highights
June 24, 2020
Highland Highlights
The Iowa Legislature is back in session after a three month closure due to COVID-19 concerns. Revenue estimates show that Iowa’s anticipated loss of revenue will be approximately $64 million. At this point in time, it appears that the 2.3% increase back in March may be maintained. The other concern was a possible across-the-board cut. What are across-the-board cuts and how do they impact school funding?
Governor Chet Culver implemented a 10% across-the-board-cut back in October, 2009. I was Superintendent at a small rural district in Northwest Iowa at the time. School budgets are determined in the spring of each year for the following school year, beginning on July 1. An across-the-board-cut in October creates a bit of an issue in the fact that schools have already issued contracts and agreements for the fiscal year that cannot be altered part way into the school year.
The unique circumstances for a school district is that they operate under the concept of “spending authority.” The school funding formula calculates the amount of money schools are legally able to budget and spend based on enrollment, property taxes and state aid. A district is not allowed to budget or spend more than their spending authority. An across-the-board-cut of 10% means that the state would only fund 90% of their obligation. It does not affect the authority to spend.
Think of a district’s spending authority like a credit card limit. A school district can spend up to that limit, but are not allowed to spend more. Like a credit card, if the school district does not have the cash needed to pay off the balance, then they will need to borrow the cash to pay off the debt. Unlike a credit card, the interest rates for schools to borrow cash are very favorable rates.
Some districts actually have more cash than their authority to spend. How does that happen? You usually will see this in a district with a lot of expensive, lake front properties or high end housing as a majority of the district’s tax base. There are not many districts in this situation, but there a few. It is all based on the valuation of property. The district takes in more property tax revenue than what their enrollments will allow as a spending authority.
So for a school district, an across-the-board-cut, while not ideal by any means, is more favorable than having a state aid reduction. An-across-the-board-cut does not reduce the district’s ability to spend funds while a state aid reduction does reduce spending authority. School district funding is unique and not comparable to any other business, which is why Business Managers are required to attend coursework in order to be able to function in that capacity.
