The House Education Committee passed a bill this past week that would change the school aid formula for K-12 schools and could significantly lower property taxes for all Iowans. The basic concept of the bill was recommended by a legislative committee which met this past summer to discuss possible changes in the school aid formula in order to reduce funding inequities (property taxes) among school districts.
Iowa’s school aid formula sets a uniform, statewide, per pupil funding amount for K-12 education. The amount is set each year by the Legislature in what is referred to as the “allowable growth” bill. Funding is provided from a combination of local property and state taxes. The first portion of the funding is provided from local property taxes in each school district, based on a tax levy of $5.40 for every $1,000 of taxable valuation in the district. Because property tax values vary among school districts, the $5.40 Uniform Levy, as it is referred to, generates a different amount of money in each district.
The second portion of the funding is provided by state taxes (income and sales tax). This portion of the school aid formula attempts to equalize the funding for each student by funding up to 87.5% of the remaining amount of money for each student. Therefore, a district with lower property tax values per student receives a larger portion of state funding, and a district with higher property tax values receives less.
The third portion of the formula, the remaining 12.5%, is funded with local property taxes. Again, because of the differences in property tax valuations, the property tax asking fluctuates among districts. The combination of all three parts, however, funds the students in each district across the state at the same level. Besides the amount provided under the school aid formula, there is some additional funding from federal money and certain other dollars generated outside the formula by other tax levies voted by the school board and local voters, such as PPEL and debt service.
The bill passed last week attempts to reduce the property tax disparity in the funding formula among school districts by raising the second portion of funding by the state from 87.5% to 100% and eliminating the third portion of funding from local property taxes. This change would be phased in over a period of seven years. In Ankeny that could translate to a reduction in local property taxes of $3.80 per $1,000 of taxable value. With Ankeny’s current tax levy rate at about $17.00 per thousand, this would be significant property tax relief.
Besides the obvious advantage of lowering property taxes, this proposal should be considered because it reduces the property tax disparity between neighboring school districts, which can be a major impediment to consideration of an otherwise beneficial merging of two school districts. In addition, the change will help prevent the state’s school aid formula from being challenged in the courts because of equity questions.
While this legislation lowers property taxes needed to fund the school aid formula, it would require an additional $50 million in new spending each year for seven years. Some are also concerned that the effect of this legislation will result in decreased local control. This may be a valid concern; however, I contend the decision as to funding levels is already largely decided at the state level by the Legislature and the Governor. Local school boards would still have total control over other levies they have enacted outside of the school aid formula, and this would not change under this legislation.
The bill, which I voted for, passed in a bi-partisan fashion in the House Education Committee and now moves to the House Ways and Means committee. Because this legislation addresses one of the major problems identified by the committee that has studied property tax reforms for the past two years, I am most hopeful some form of it will become part of a package of tax reform proposals considered this year.
E-mail: carmine.boal@legis.state.ia.us
Home Address: 3301 SW Timber Green Road, Ankeny
Home Phone: 964-3335 · Capitol Phone: 281-3238
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