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Finance Overview: AEA’s/LEA’s

Barb HarmsBusiness ManagerGrant Wood Area Education AgencyManagement Team Meeting – 11/3/06

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How AEA’s are Funded:

Per pupil funding based on LEA enrollments

Formula is separate for 3 service areas (Media, Ed Services, Special Education)

No direct taxing authority

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Other AEA Revenues:

Federal funds – IDEA, Part C, etc. Various other state, local grants Sales of non-mandated services (such

as printing, computer services, SEMS) AEA’s also receive State funding for

Juvenile Home/Shelter instructional programs

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“Show-through” concept:

Each district includes the AEA per pupil funds in their budget to generate the dollars earmarked for AEA’s.

Districts generate property taxes for the AEA’s through their levy rate

The funnel is on paper only – dollars actually are paid directly from the State to each AEA

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Finance Formula:

AEA cost per pupil X enrollment

Cost per pupil grows each year by the allowable growth amount (4% for FY 08)

Child-based: allowable spending is based on number of students counted

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Finance Formula (cont’d):

Special Education Services– Funding is a mix of State aid & prop taxes– Enrollment includes weighting for children

with IEP’s

AEA cost per pupil

X Weighted Enrollment

= Budget for Special Education services

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Finance Formula (cont’d):

Media/Technology and Educational Services– Funded entirely from property taxes– Enrollment includes approved nonpublics

AEA cost per pupil X Actual Enrollment (public & nonpublic)

= Budgets for Media/Ed Services

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Special Education $16,754,381

Media Services $ 2,927,692

Educational Services $ 3,213,132

State Reduction $ (1,999,562)

“Controlled Funding” $20,895,643

Finance Formula (cont’d):

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2006-2007 Budgeted Revenues%

Controlled Funding 20,895,643$ 53.7%Federal Revenues 15,189,010$ 39.1%Sale of Services 2,797,650$ 7.2%Other State Revenues 471,979$ 1.2%

Total 38,882,303$ 100.0%

2006-2007 General Fund Revenues

38.6%

53.1%

1.2%7.1%Controlled Funding

Federal Revenues

Sale of Services

Other State Revenues

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Funding for LEA’s: 5 basic principles

1. Funding based on number of students2. State “equalizes” funding through a mix of

state aid & property taxes3. Legislature sets allowable growth – the

annual increase in the “cost per student”4. Local property taxes are a critical part of the

formula5. Funding sources have restrictions on their

use

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Funding for LEA’s:

# 1: Funding based on number of students

Increases or decreases in enrollment affect district budgets.

– The count on October 1 is used to establish the district’s budget for the following year

– That means revenues are always a year behind the actual number of children we are serving in our classrooms

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Funding for LEA’s:

# 2: Equalization - the school aid formula relies on two sources of revenue

– State General Fund appropriations

– Locally raised property taxes

– Results in a maximum expenditure per pupil and therefore a maximum amount a district can raise and spend

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School Foundation Formula Three components

– Uniform Levy - Property tax levy of $5.40 per

thousand of taxable valuation.– State Foundation Percentage - Amount the

state pays in excess of $5.40 - varies by district (87.5% of cost per pupil).

– Additional Levy - Property tax levy which funds the difference between the Combined District Cost and the sum of the Uniform Levy and the State Foundation Percentage.

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School Foundation FormulaProperty Poor District Property Rich District

Additional Levy Additional Levy

State Aid State Aid

$5.40 Uniform Levy

$5.40 Uniform Levy

87.5% of Total

Cost Per

Pupil$4,067

Total Cost Per

Pupil

$4,648

Total Cost Per

Pupil

$4,648

87.5% of Total

Cost Per

Pupil$4,067

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School Finance - Spending Authority Spending authority is the sum of:

– Combined District Cost (property tax and state aid)

– Miscellaneous income – Unspent balance from previous years

Why important?– Districts cannot exceed spending authority– Not the same as cash

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Term Explanation Analogy TypeSpending Authority Total amount a school district can legally spend

during a year.Income + credit cards Recurring

Unspent Balance Remaining amount of spending authority at end of year (Spending Authority minus Actual Expenditures).

Credit cards One time

Term Explanation Analogy TypeCash On Hand Total cash on hand. Savings account One timeState Aid Amount received by a district from state General

Fund.Paycheck Recurring

Property Taxes Amount received by a district from local property taxes.

Paycheck Recurring

Miscellaneous Income

Any income which is not property tax or state aid (must be actually received).

Birthday money from Grandma

One time/ recurring

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Funding for LEA’s:

# 3: Allowable growth The Legislature sets the annual increase in the “cost per

student”.

– Growth rate is set over a year in advance to allow

schools to meet budget deadlines– Rate for 2006-07 was 4% ($5,128 per student)– Rate for 2007-08 is 4% ($5,333 per student)

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Funding for LEA’s: # 3: Allowable growth (cont’d)

– When is 4% allowable growth not 4%?• If a district has an enrollment increase, their

“new money” will be more than 4%• If a district has an enrollment decline, their

“new money” will be less than 4%• The budget guarantee has been used to

cushion districts that have enrollment declines – it is now being phased out

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Funding for LEA’s:

# 4: Local property taxes Why not remove property taxes from formula?

– Lawmakers would have to replace $1.1

billion dollars statewide with sales tax or income tax

– Property taxes add stability – if sales tax was used, funding would fluctuate based on spending

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Funding for LEA’s:

# 5: Restrictions on funding sources

– Finance formula revenues go to the

General Fund (salaries, supplies, etc.)– Other funding streams for facilities– Can’t be commingled or use excess in

general fund for facilities

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LEA Funding - FacilitiesFacility Related Levies

• Board-Approved Physical Plant and Equipment Levy (PPEL).

• Voter-Approved PPEL - simple majority vote required.

• Bonded Debt - requires 60% majority vote, then Debt Service levy used to repay debt

• Public Education and Recreation Levy (PERL). Public use playgrounds/recreation facilities.

• Local option sales tax - maximum of $0.01 additional local option sales tax for school infrastructure - 97 of 99 counties have this

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Funding for LEA’s: Program Levies

– Instructional Support Levy (ISL)• Maximum of 10% of Regular Program Budget.• Can be either property taxes or income surtax,

or combination.• Can be board-approved (maximum five years -

subject to petition) or voter-approved (maximum 10 years).

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LEA Funding - Other Levies Management Levy

– Used to pay unemployment benefits, property insurance and early retirement benefits.

Cash Reserve Levy– Used to generate cash for the General Fund of the

school district.– Generated by property tax via school board action

annually.– Used to fund spending authority but does not

directly generate spending authority.

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Summarizing AEA/LEA Finance

What is common?

– State funding based on number of students– Other revenues from grants, misc sources– Allowable growth– Weighted enrollment

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Summarizing AEA/LEA Finance

What is different?

– Schools have taxing authority, AEA’s don’t– LEA finance formula is more complex– Schools have separate funding sources for

facilities & other costs– AEA’s generate revenues from sales of

non-mandated services

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School Finance - Web Resources IASB: www.ia-sb.org IASBO: www.iowa-asbo.org Dept. of Education:

www.state.ia.us/educate/index.html Legislature - bills, amendments, etc.

www.legis.state.ia.us Dept. of Revenue and Finance:

www.state.ia.us/government/drf/index.html

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School Finance - Contacts

Iowa Association of School Boards (IASB)– Larry Sigel, School Finance Director

515-288-1991 ext. 235

lsigel@ia-sb.org