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The Elbert Files: A school finance problem


Iowa school districts are in something of a pickle. The problem involves the way they pay for new facilities and repairs to old buildings, including the installation of modern security systems. 

Like anything that involves school finances in Iowa, the situation is convoluted. It boils down to the need to extend and update a key section of the Iowa Code that allows the use of a statewide, one-cent sales tax for construction and repair of school buildings.

To better understand the problem, it helps to know a little about Iowa’s local-option one-cent sales tax.

The local-option sales tax was created during the 1980s farm crisis as an alternate source of revenue for cities and, to a limited extent, schools.
In 1998, lawmakers expanded the local-option sales tax, decoupling schools districts from cities, to give education its own local-option one-cent sales tax.

The school version of the tax was to help cover the cost of repairing and replacing outdated buildings. As soon as the tax was created, voters in school districts across Iowa approved the much-needed revenue source.

In Des Moines, the tax was used to support an elaborate, multi-year plan for updating schools. Geothermal heating and cooling were installed at many local schools, along with updated classrooms, cafeterias and libraries. In a few cases, old buildings were demolished and new ones erected.
In suburban districts around Greater Des Moines, where the repair backlog was not as urgent, some of the new money was used to build performing arts auditoriums, football stadiums and baseball fields.

By 2008, lawmakers recognized a fairness issue had developed. Virtually every school district in the state had approved the one-cent tax, but distribution of the revenue was not equal, because money that rural residents spent at urban malls, benefited urban schools, not their own.

So, the law was rewritten. Instead of each district receiving the sales tax spent in its community, all of the school sales tax money was collected, pooled and redistributed under a formula that allowed smaller, more rural districts to receive more benefit.

The 2008 law extended the one-cent school sales tax for 20 years, until 2029. The extension was important, because it made it possible to borrow against anticipated future sales tax revenue. It allowed schools to obtain the cash they needed immediately, instead of fixing buildings on a pay-as-you-go schedule.

Schools borrow money by issuing bonds that are repaid in a specific period, often 10 or 15 years.

That worked well for a while.

But with the 2029 expiration date only 10 years away, the financing for building repairs has tightened considerably. For reasons too complicated to explain here, bonds of shorter duration are rarely sold for building projects.

The solution is simple: Extend the sales tax law beyond 2029. That’s what school officials have been proposing for some time.

Last year, an extension until 2050 passed the Iowa House 95-3, but did not make it through the Senate.

This year lawmakers are trying again with changes designed to make the law more equitable.

One change would use a larger portion of the sales tax revenue to directly offset property tax collections in school districts that have the highest property tax rates.

Another change creates a mechanism for initiating referendums when bond issues involving the sales tax are needed.

A third change would allow referendums when sales tax money is spent either directly or for bonds to build off-site facilities, like a football stadium or baseball field.

Like many issues that involve taxes, this may not be resolved until near the end of this year’s legislative session. But right now, it appears lawmakers are on track to cure this particular pickle.


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