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Dec. 10, 2015Iowa Demographics & Education Funding

Then and Now

Larry Sigel & Margaret Buckton, ISFIS

© Iowa School Finance Information Services, 2014

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Who is ISFIS?• Iowa School Finance Information Services• Our mission is to help schools electronically organize and

use data; educate school leaders on school finance issues and other issues affecting their work; and empower school leaders with information and communications tools to connect with staff, parents, community and state level decision-makers to the benefit of students.

• Subscription-based model of tools, consulting, expertise on tax policy, school finance, communications, and public policy to which school districts subscribe annually. We provide advocacy and lobbying services for UEN and RSAI.

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Presentation Agenda

• Iowa Demographic Change • Condition of the state’s revenues and budget• School Finance Implications– Understanding school finance– Historical Trends in Iowa school funding: what’s

changed? What hasn’t?

Demographics: This isn’t your grandmother’s Iowa

Stats about Iowa Students• After a 16-year decline, public school districts have seen a third year

of increased enrollment through 2014-15 school year.• The number of minority students in Iowa’s public schools continues

to increase and is at an all-time high (100,151). Minority students make up 21.1% of the student body.

• % of students eligible for free-or-reduced priced lunch increased slightly in 2013-14. 41.1% of Iowa students were eligible in the 2013-2014 school year compared to 41.0% in 2012-13.

• The number of students who are English language learners (ELL) continues to increase. In the 2013-14 school year, 5.3% of students were reported as ELL up from 5.0% in 2012-13.

https://www.educateiowa.gov/sites/files/ed/documents/2014ConditionOfEducation_0.pdf

FY 2001 Free and ReducedEligibility (percent of enrollment)

• Notice darkest areas > 41%.

• Notice how many are in lowest category of 3-23%

FY 2002 Free and Reduced

FY 2003 Free and Reduced

FY 2004 Free and Reduced

FY 2005 Free and Reduced

FY 2006 Free and Reduced

FY 2007 Free and Reduced

FY 2008 Free and Reduced

FY 2009 Free and Reduced

FY 2010 Free and Reduced

FY 2011 Free and Reduced

FY 2012 Free and Reduced

FY 2013 Free and Reduced

FY 2014 Free and Reduced

FY 2015 Free and Reduced

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2001

2015

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Median Age by County 1970

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Median Age by County 1980

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Median Age by County 1990

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Median Age by County 2000

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Median Age by County 2010

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Median Age by County 2020 (est)

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Median Age by County 2030 (est)

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Median Age 1970 vs. 2030

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From LSA Factbook 2015

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From LSA Factbook 2015

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Limited English Proficient Percent of Enrollment 2008

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Limited English Proficient Percent of Enrollment 2015

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= those served in

LEP programs

Denison at 55.6%

Des Moines at 19.6%

State of State Revenues and the State Budget

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Revenue Estimating Conference

• Sets Revenue Estimate and revises quarterly (meet today)• REC Revised Estimate from Oct https

://www.legis.iowa.gov/docs/publications/QR/698747.pdf

• But look at this year in context of last year

FY16 = $266 million increase compared to actual FY 2015.

FY17 = $294.6 million increase compared to estimated FY 2016.

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FY 2016 Total Net Receipts ended 6.2% above FY 2015 actual.

REC revised FY 2016 to 4.0% estimated Net Receipts and 4.2% for FY 2017. Impact:

• CRF = $539.0M

• EEF = $179.7M

• Growing annually

Source: Iowa Legislative Services Agency Graybook, end of session analysis https://www.legis.iowa.gov/docs/publications/FR/680615.pdf

Governor’s veto of HF 666 included $57 million for schools, grows the ending balance surplus to $351.7M

State’s Cash Positionaka “don’t panic”

• Cash position: north of $1B– CRF full at $539 million– EEF full at $179 million– Surplus for FY 2016 $351 million

• Gloomy predictions of growth are hard to dispel – it depends on the date and what was happening this time last year, and the perception of not having any funds available.

• Today’s REC estimate binds the Governor’s budget request re., 99% expenditure limitation

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What percent of state budget is spent on Education?

• Any guesses?• Definitions and assumptions are important• Here’s a good example why:

Health Care Trust Fund: note $222 million that never touches the state general fund. Comparisons of PK-12 spending as a percent of state general fund over a few years ago don’t acknowledge this change.

Education in Iowa gets a Smaller Slice

• The National Association of State Budget Officers (NASBO) State Expenditure Report analyze all state expenditures excluding bonds (not just general fund.) In their analysis titled State Spending by Function, as a Percent of Total State Expenditures, Fiscal 2014

• “Iowa Elementary and Secondary Education for FY 2014 was 16.8% of total state spending.”

• That is below the 19.1% average for the plain states region, in which Iowa is categorized, and further below the national average of 19.5% for all states.

State Budget WoesPig through the Python

Commercial property tax phase in done after FY 16 ($132m) and FY 17 ($25 m)

TLC phase in done after 2016-17 budget $50m for year 3 grants and $50m to continue year 2 grants.

Economic Comparability

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Per Capita Personal Income

2014 2013 2012 2011 2010 2003

Iowa $44,937 $45,114 $43,935 $40,470 $42,040 $29,828

National $46,049 $44,543 $43,735 $41,663 $39,937 $31,472

Iowa Rank 24 22 24 25 28 33

www.bea.gov

In 2011, Iowa ranked 24th in the nation in Median Household Income, up to 23rd by 2012. LSA FACTBOOK does the ranking quoting U.S. Bureau of the

Census. 2013 doesn’t look remarkably different.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Iowa and USA Median Household Income

Iowa USA

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Nov. 19 DMR http://www.desmoinesregister.com/story/money/business/2015/11/18/wells-fargo-chief-investor-bullish-iowa-economy/76020522/

Wells Fargo chief investor bullish on Iowa economy

• Iowa’s economy has already weathered the commodity price storm and should strengthen with crop prices expected to increase slightly next year, said Darrell Cronk, Wells Fargo’s chief investor.

• “The good news about the Iowa economy is it is still a very balanced economy between manufacturing, services, as well as agriculture,” said Cronk, president of Wells Fargo Investment Institute, the financial giant’s investment arm.

• Amid strong consumer spending, a robust housing market and declining unemployment, Cronk said he expects wages to increase in the coming year.

• Asked if he expects cities in Iowa to start feeling the effects of crop prices, which dropped by more than half in 2013, Cronk said he thinks the worst has passed.

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Iowa Leading Indicators Index Report(Dec 3 release for October 2015)

• The Iowa Leading Indicators Index (ILII) fell to 106.3 (100=1999) in October 2015 from 106.7 in September. The Iowa non-farm employment coincident index recorded a 0.12 percent rise in October, which extends the streak of employment gains to 61 consecutive months.

• During the six-month span through October, the ILII decreased 2.2% (an annualized rate of -4.4%). The six-month diffusion index increased to 25.0 with six of the eight components experiencing a decrease of greater than 0.05 percent over the last half a year.

• Average manufacturing hours increased and joined the national yield spread as the only components to show any positive growth in the past 6 months.

Iowa K-12 School FinanceLarry Sigel, Partner

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History of the Finance Formula• Until the early 1970’s schools were funded almost

exclusively by property taxes.• The property tax base varied widely around the

state (and still does).• The purpose of the formula was to (257.31):– Equalize educational opportunity– Provide a good education for all Iowa children– Provide property tax relief– Provide reasonable control of school costs

• The formula we have today is basically the same formula passed in 1971 (with some changes who pays)

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History

• During the same time period the formula was created, there were other significant changes made by the Legislature:– Created the Area Education Agencies– Created the Community College System– Enacted binding Collective Bargaining and

eliminated the right for public employees to strike– Significantly changed the income tax and property

tax systems

General Fund• Basic Principles:– Student driven, amount per student set by

legislature.– Schools are budget limited, not rate limited.

Doubling property value = property tax rate falls – no more $’s to spend.– Tax rate driven by formula more than district

actions.–District can only spend funds on allowable

purposes. 55

Funding Sources• School districts have restricted funding

sources - not all funds can be spent on anything the district decides.

• Where does this restriction come from?– State/federal law– In conjunction with Dillon’s rule:

“…municipal governments only have the powers that are expressly granted to them by the state legislature, those that are necessarily implied from that grant of power, and those that are essential and indispensable to the municipality's existence and functioning.”

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Fund

sGeneral Fund

Management

PPEL

Capital Projects

Debt Service

PERL

Child Care

Funding Sources

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Fund

s

Activity

Nutrition

Trust & Agency

Other

Funding Sources

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32.8%

46.3%

20.9%General Fund Revenue by Type

Property TaxesState AidMisc. Income

General Fund• Very important concept: Spending

Authority• State controls maximum amount of district

spending• Why? Equity – basic principle is that every

child should receive the same amount of funding – no matter where they live

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General Fund• Restriction of Spending Authority only

applies to the General Fund – all other funds allow spending if you have the cash to spend

• District must account for two things in their General Fund:– Fund Balance (cash)– Spending Authority (credit card limit)

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General Fund• So what’s the big deal with Spending

Authority?– It is illegal for a school district to exceed it’s total

spending authority– Ever heard of Russell or Farragut school districts?– Phase II Financial Viability Audit– The State Board of Education has the ability to

close a school district for no other reason than financial unviability (not educational reasons)

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General Fund

• So where does spending authority come from?– It’s set by the legislature as part of the State

Supplementary Assistance (SSA) rate– The rate sets the amount the credit card limit can

grow. For example, 1.25% SSA meant that the prior fiscal year’s credit card limit of $6,366 per student could grow by 1.25%, or $80 per student.

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So What’s the Big Deal?• Remember this:

• Because schools are required to collectively bargain, districts cannot just say “no raises”. Average salary increases are 3.5%

• Salaries average 80% of district General Fund spending

• Also because the formula is per pupil, districts with declining enrollment actually see less new resource from one year to the next (over 200 districts)

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What if?

• If increase in cost per pupil had averaged 3.5% since 1993, per pupil cost would be $920 higher today.

• If increase in cost per pupil had averaged 4.0% since 1993, per pupil cost would be $1,775 higher today.

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FY 1974

FY 1975

FY 1976

FY 1977

FY 1978

FY 1979

FY 1980

FY 1981

FY 1982

FY 1983

FY 1984

FY 1985

FY 1986

FY 1987

FY 1988

FY 1989

FY 1990

FY 1991

FY 1992

FY 1993

FY 1994

FY 1995

FY 1996

FY 1997

FY 1998

FY 1999

FY 2000

FY 2001

FY 2002

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

13.59%

2.10%

0.00%

Allowable Growth Rate no longer set by

formula

Timing

• In 4 of the last 6 Sessions, the legislature did not set the growth rate in the year preceding the budget year, required Iowa Code Section 257.8,(1): “The state percent of growth for each subsequent budget year shall be established by statute which shall be enacted within thirty days of the submission in the year preceding the base year of the governor’s budget under section 8.21.”

• In the 2010 Session, the legislature delayed setting the cost per pupil for the first time, for the 2011-12 school year (great recession, lower state cash reserve and economic emergency funds, federal assistance pending, etc.) In 2012, no rate was set for the 2013-14 school year. In 2014, did not set the rate for the 2015-16 school year. In 2015, did not set the rate for the 2016-17 school year.

There is a cumulative impact to low funding and several years with no time for planning: 8 of the last 14 years, the increase in the cost per pupil has fallen short of cost increases typically experienced in schools.

Adequacy

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Enrollment• Following 16 years of declining enrollment,

growth has commenced. • From 2010-2016, enrollment has grown 7,279

students statewide. • 5 of those 6 years had very low increases in

cost per pupil.

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What’s the buzz about increased $$ for schools?

“Portion of the state’s general aid fund from public school has gone up from 37.8% to 41.9%.”* Two thoughts:– Tobacco and alcohol tax is not in the GF anymore– Property tax portion of school funding has shifted: • 50% of school funds in 1985• 43% in 1990• 39% in 1995• 33% in 2015

Remember NASBO 2014 report says: “Iowa Elementary and Secondary Education for FY 2014 was 16.8 % of total state spending.” That is below the 19.1 % average for the plain states region, in which Iowa is categorized, and further below the national average of 19.5 % for all states.

*Governor’s letter to Des Moines Register, 10.21.15 titled Education Facts Speak for Themselves.

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Student and Achievement Changes“. . . During that same period, academic achievement in Iowa has dropped in comparison to other states.” NAEP test scores for Iowa students are up compared with 20 years ago, despite significant growth in number of low income students, as measured by FRL participation, (from 25% to 41% of all students.) Over this same time, the number of students learning to speak English has increased from 3,785 (0.8%) in 1994 to 26,990 (5.3%) in 2014. Iowa has PK for four-year-olds, Teacher leadership for improved instruction, all-day kindergarten, increased participation in higher level math and science, college credit in HS, more STEM courses, increased graduation requirements, and the highest graduation rate in the nation (>90% of high school students graduating with their class in four years.)

Are Iowa Schools Adequately Funded?• UEN Op Ed piece from the DSM

http://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2015/10/26/branstads-education-facts-miss-whole-story/74648020/

• What does the money buy? (student attention, programs for students, additional opportunities, lower class sizes, technology, STEM and Career/Technical Programs, fine arts)

• What will continued low funding deliver? • Considerations: Return on investment, cost of

doing business, lack of state funding shifts costs to local taxpayers.

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Iowa’s Formula

• At-risk funding in the formula, plus dropout prevention (local property taxes) plus $10 million “high needs schools grants” not yet appropriated add up to less than 10% additional funding for low income students.

• National average* is .29 weighting (29% additional funding per low-income student)

• Iowa’s ELL funding is .22 weighting for up to 5-years. National average* is .39 and some students require up to 7 years of ELL support.

*Study of a new method of funding for public schools in Nevada, San Mateo, CA: American Institute for Research Study.

ROI

“A suggestive benefit-cost analysis reveals that investments in school spending are worthwhile. Increasing spending by 10% for all school-age years increased wages by 7.25% each year (Table 4). . . .This implies a benefit-cost ratio of 2.01 and an internal rate of return of 8.9%. This internal rate of return is similar to those estimated for pre-school programs (Deming, 2009), smaller than estimates of the internal rates of return for class size reductions (Fredriksson et al, 2012), and larger than long-term returns to stocks. In sum, the estimated benefits to increased school spending (that go toward productive inputs) are large enough to justify the increased spending under most reasonable benefit-cost calculations.”

National Bureau of Economic Research, educational spending does impact educational and economic outcomes. The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms, written by C. Kirabo Jackson (Northwestern University), Rucker C. Johnson (Northwestern University) and Claudia Persico (University of California-Berkeley), concludes:

“Money alone may not be sufficient, but our findings indicate that provision of adequate funding may be a

necessary condition. Importantly, we find that how the money is spent may be important. As such, to be most effective it is likely that spending increases should be

coupled with systems that help ensure spending is allocated toward the most productive uses.”

http://www.nber.org/papers/w20847

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Ongoing Study of School Funding Legislative School Finance Inequities Study Committee met Dec. 2Charge: review current provisions of the school finance formula and consider alternatives for achieving a more equitable application across all public school districts in the state.

– Transportation funding with a particulate emphasis on small and rural school district transportation funding levels,

– School district property taxation levels, – At-risk student funding challenges, and – Other school finance formula provisions which may result in funding disparities between

school districts.

Based on stakeholder input from the DE, school districts, education-related organizations and associations, and other interested stakeholders, the committee shall submit recommendations, if deemed appropriate, to the General Assembly by Jan. 1, 2016.

https://www.legis.iowa.gov/committees/committee?ga=86&session=1&groupID=24164

Questions or Comments?Larry Sigel, ISFIS – Partner

Cell: 515-490-9951Larry.sigel@isfis.net

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Iowa School Finance Information Services

1201 63rd StreetDes Moines, IA 50311Office: 515-251-5970

www.isfis.net

Margaret Buckton , ISFIS – Partner

Cell: 515-201-3755margaret.buckton@isfis.net