Washington Evening Journal

Fairfield Ledger   Mt. Pleasant News
Neighbors Growing Together | Jul 15, 2018

School finance is unlike other businesses

By Mike Jorgenson | Jul 31, 2017

School finance is unlike any other business or corporation. Rules and restrictions on how funds can be used and which account funds can be deposited or spent are very complicated. You always hope that a school district has either an experienced Superintendent and/or an experienced Business Manager. District’s who have rookies in both positions will many times find themselves in trouble with the auditor and the State Board of Education because funds were used incorrectly. School finance is learned from experience. There are several resources and courses to assist, but until someone has actually worked in that environment, the level of understanding is very difficult.

There are several misconceptions from the public in several school districts due to this lack of understanding. I will always remember several years ago when I was Superintendent in a small, rural district in Northwest Iowa when a neighboring district was having financial difficulties and they had a school board meeting where they had to lay off 10 staff positions due to budget cuts. In the same meeting, they approved $140,000 to pave the parking lot. People were up in arms and the cry was “the school board is choosing parking lots over teachers!!!” I hope to explain to you how this is not a true comparison. There is also an assumption that if a school district is having financial issues that they can simply raise property taxes to make up the difference. That is not the case. Let me attempt to give a simple outline of school finances and how it works.

The School Board really has limited control on the school budget. Tax rates are a formula that have been developed over the last several decades by the state of Iowa. When a school district goes to set their budget, they really only have about a half a dozen numbers of which they have control. School funding is determined based upon the number of students that are attending your district as of October 1st of the previous school year. If a family with 10 kids moves into your school district on October 2nd, you don’t get any credit for them until a year later. The number of students enrolled October 1st is multiplied by the per pupil figure set by the Iowa Legislature the previous spring to set the budget for the next school year. Within that funding formula is developed what is called the “spending authority.” This number is the maximum amount that the School Board is allowed to budget. If you exceed this amount, it is called “negative spending” and it is one of the biggest offenses a school district can commit. The board is not allowed to set a rate above their ”spending authority” so if the district is in financial difficulties, they have to make cuts and reductions in their budgets. They are not allowed to increase taxes to raise more revenue than the “spending authority.” The property tax rate is determined by formula for a district based on the allocation of funds from the state, valuations of property in the district and that spending authority.

The largest account in any school district is called the “General Fund.” These funds are used to pay for most teaching and learning related expenses. The largest portion of your general fund (approximately 80 prcent or more) is used to pay your personnel salary and benefits. Other general fund expenditures include text books, supplies, paper, workbooks, utilities, cleaning supplies, desk, tables, whiteboards,

copiers, computers, printers, minor mechanical repairs, custodial items and so forth. When districts make budget cuts, it almost always is from “General Fund” expenditures. General fund dollars can be used for expenditures in other categories, but that would not be advisable. You protect the use of General Fund dollars as much as possible.

All public school districts in the state have the Local Option Sales Tax dollars. One cent of commercial purchases sales tax is designated specifically to go to public school districts. These funds are distributed on a per pupil basis. Most all districts have also approved what is called a Physical Property and Equipment Levy (PPEL). Those are property tax dollars based on valuation. These two funds are used in much the same way and are restricted funds. They can only be used for infrastructure and real property items. This does include transportation needs such as cars, vans and busses. It also includes technology expenditures over a designated amount. These funds cannot be used for salaries and other general fund expenditures. Recently I heard a comment from a patron at a Highland Board meeting that was questioning the possible sale of the Ainsworth Building because the district needed money to educate the students. Unfortunately, those are apples and oranges. The sale of real property has to be deposited into the PPEL account and could not be used for direct service to students. This is also the answer to the example above where a school board was forced to reduce 10 staff members (general funds) but were able to approve paving the parking lot (PPEL or Local Option Sales Tax). One account has no relationship to the other. The other irony of a vacant building is the fact that if the school still maintains possession, they are still responsible for the utilities, snow removal, mowing and general upkeep (general fund expenses) while the building itself would have to be maintained through PPEL or Local option sales tax. They also need to continue to pay liability and property insurance for that facility (management account, to be discussed later). In the case of Highland, the Ainsworth building would cost the district approximately $30,000 a year of general funds and another $10,000 a year of management funds for the district to keep possession, not including any major repairs such as roofing or other major infrastructure expenditures (PPEL) that may come up. Those factors have to be weighed if a purchase offer is made. The trade-off of keeping a vacant building is slightly less than the salary for a first year full-time teacher per year.

The Management Account is also unique to school districts. It is not typically a large account and is used for things like Property Insurance, Workmans Compensation and Early Retirements. This fund is 100 percent funded by property tax and is something controlled by the school board. Once again, Management Funds cannot be used for General Fund expenditures. Districts will take advantage of General Fund savings by offering an Early Retirement package out of Management fund to experienced teachers and replace those expensive contracts with a younger, inexperience teacher who is paid out of General Funds. This is a very common strategy used by school districts in Iowa to save General Fund dollars.

The two other accounts that are managed by a district are the Nutrition Fund and the Activity Fund. The Nutrition Fund is for the Hot Lunch and Breakfast program. The majority of revenues come from the sale of hot lunches and federal funding.

The Activity fund is money that is used for extra-curricular activities such as athletics and fine arts activities (non-classroom). Revenue comes from ticket sales and fund raising.

You hope that activities are self-supporting and that General Funds are not needed to keep your Activity account out of the negative.

Once again, these funds are designated for these purposes and cannot be used for any other General Fund purposes.

Hopefully this article has given you a little more insight to the way school funding operates and why certain decisions are made.

We work hard to make the General Fund dollars stretch.

It also explains why a district maybe expands spending in one area while making cuts in another. I welcome questions from any of our patrons. I encourage you to email me at mjorgensen@highland.k12.ia.us with any questions.

Mike Jorgenson is superintendent of Highland School District.

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