SECOND IN A SERIES   By Mike Whittlesey

Last Week: Since 2009, Union Community Schools’ certified enrollment has declined by more than 170 students, which, in 2017, equates to a loss of nearly $1.15 million in state aid. To compensate, the district has downsized by reducing staffing in all areas of its operations. Doing more with less has allowed the district to maintain a relatively low property tax rate without compromising its educational program. As the Union School Board looks to the future, however, they know that significant resources will need to be invested in order to maintain the district’s buildings and grounds.

The Physical Plant and Equipment Levy (PPEL), has been a source of revenue for Iowa schools for more than 25 years. Enacted in 1989 and implemented for the first time during FY 1992, the legislation allows Iowa schools to assess a property tax levy at a maximum of $1.67/$1,000 of taxable valuation. Of that amount, school boards may approve the use of $0.33/$1,000 of taxable valuation at their discretion, without the approval of taxpayers. 

Like virtually every other district in Iowa, the Union Community Schools have assessed the Physical Plant and Equipment Levy for many years. During the 2017-18 school year, it is estimated PPEL, assessed at the $0.33/$1,000 level, will generate $137,724 in revenue for the district. There are restrictions, however, on how that money can be used (see sidebar).

When PPEL was introduced in the early 1990s, school districts had very relatively few options for funding capital projects, be it the construction of a new school or costly maintenance projects like repairing/replacing a roof or upgrading HVAC systems tied to aging boilers. 

The Iowa Legislature’s implementation of PPEL generally replaced three other levies commonly used at the time- the schoolhouse, site and lease-purchase levies. With the option of seeking a voter approved PPEL, which could more than triple the revenue collected, schools would no longer be forced to rely on the passage of a bond issue to fund aging infrastructure needs.

Taxpayers in the Union Community School District have traditionally enjoyed one of the lower property tax rates in the state, as the district’s tax rate has consistently ranked in the bottom third among all districts in the state for several years running.  Union Superintendent Travis Fleshner and the Union Community Schools’ Board of Directors would like to keep it that way, and see voter approved PPEL as the best way to address current and future maintenance needs, while minimizing the impact on taxpayers. 

On September 12, the district will ask voters to approve a Physical Plant and Equipment Levy that extends beyond the $0.33/$1,000 of taxable valuation taxpayers are already paying. The measure on the ballot, which will require a simple majority for passage, would allow the district to assess up to an additional $1.34/$1,000 of taxable valuation on an annual basis for a period of ten years, beginning with the 2019-20 school year.   

With approximately 80% of a school district’s budget devoted to the salaries and benefits of its staff, school boards have very few line items in the budget, beyond personnel, to make a significant difference in the overall tax rate assessed to their patrons.  Two areas where the Union School Board can adjust the budget to reduce its overall tax rate are the Cash Reserve Levy and the Management Levy.

Cash Reserve Levy

School districts may levy a property tax for cash reserves for district general fund purposes. The amount received does not increase the school district’s spending authority, though. For example, if a school district uses cash reserves in the previous school year, they may choose to use the Cash Reserve Levy to replenish those funds.  The Cash Reserve Levy was established, in part, to help school districts avoid the expense of borrowing money to meet cash flow purposes.School boards, however, do not have free reign to set the Cash Reserve Levy at whatever amount they desire. The maximum amount that can be levied is determined by a formula set by the state. The Cash Reserve Levy is also subject to review by the School Budget Review Committee (SBRC), a nonpartisan body established by the legislature, tasked with responsibilities related to school budgeting and accounting. The SBRC is an independent agency, separate from the Department of Education and Department of Management, and has the authority to reduce a school district’s Cash Reserve Levy. 

Management Levy

A second area where school boards have flexibility to reduce the property tax rate is through the Management Levy. The revenues from this levy may only be used to pay the costs associated with liability insurance and agreements, tort judgments, certain early retirement benefits and mediation or arbitration services. In recent years, Superintendent Travis Fleshner noted that the district has increased its Cash Reserve Levy to help offset the loss of state aid due to decreasing enrollment. The district has also used gradual increases of the Management Levy to help address increases in insurance premiums and early retirement benefits. Early retirement benefits, Fleshner explained, are an important fiscal tool, beneficial to both retirees and school districts alike.

“As we continue to look at proactive measures to right size our school district, this [management] fund is critical to that overall plan,” Fleshner stated. 

Of the 330 school districts in the state of Iowa, Union is one of just 70 that do not currently have a voter approved PPEL. If passed, the actual amount assessed to district taxpayers could change from year to year. Determined by the school board on an annual basis when Union’s budget is certified in April, the voter approved PPEL could never to exceed the cap of $1.34/$1,000 of taxable valuation. Using current property values and taxing rates, the maximum increase of $1.34/$1,000 of taxable valuation would generate $540,020 annually, money the district could be use to address school infrastructure needs.

Next Week: What are the infrastructure needs the Union Community Schools Board of Directors anticipates needing to address in the next ten years?