Last Week: The Physical Plant and Equipment Levy (PPEL) was created by the Iowa Legislature in 1989 and school districts have been using it to fund infrastructure needs over the past 25 years.
The Union Community School District, like virtually every school district in Iowa, includes a Physical Plant and Equipment Levy as part of the overall property tax rate it assesses district taxpayers. The Iowa Code provides for two distinct PPEL levies. The first levy, set at $0.33/$1,000 of taxable valuation, can be assessed by school districts without any taxpayer input. The second, referred to as a VPPEL (Voted Physical Plant and Equipment Levy), allows districts to assess up to an additional $1.34/$1,000 of taxable valuation, if approved by a simple majority of school district voters.
Nearly every school district in the state, Union included, assesses a PPEL at the lower level. Union, however, is one of a handful of districts across the state that does not currently have a VPPEL. On September 12, 2017, the Union School Board hopes to change that, putting the PPELquestion before the school district’s voters (see VPPEL: Q & A).
Over the past eight years, district leaders in the Union Community School District have grappled with shrinking enrollment. The district has around 170 fewer students today than it did in 2009. In response to this trend, the district has had to do more with less, cutting administrative, teaching and classified staff positions, as well as overhauling the transportation department by restructuring bus routes and outsourcing some maintenance work to local vendors in La Porte City and Dysart.
While the district works to minimize the impact of staff reductions on the quality of its educational program, difficult, costly decisions regarding the maintenance of its facilities are lurking on the near horizon.
“We’re talking about roofs. We’re talking about HVAC systems and tuckpointing,” Union Superintendent Travis Fleshner stated. “We have four buildings. The roofs average about 20 years old in all of those buildings. There’s really not money set aside that we can leverage to systematically replace them. [The buildings are] starting to reach the end of what would be considered a useful lifespan for a roof. We could be talking in the several million dollars range to get all of what needs to be done over time,” he added.
The district has worked with three different vendors to establish the planning and estimated costs for replacing the current roofing on all four buildings. “Once the VPPEL is approved, we will refine details of the roof replacement time line and have a better grasp of specific costs of each roofing section, once contractors can assess any underlying issues,” Fleshner noted, saying that a range of options are being considered.
“We know there are sections on buildings that we’re going to have to address first. Our thinking is based on the long-term,” he said, adding that the district certainly does not want to have to bring the issue of roof repairs to the voters in the form of a multi-million dollar bond issue. “Someone will ask the very fair question, “And you didn’t know this was going to happen?'”
“We do know it’s going to happen. If we can do [roof repair] in a smaller way, we’ll do it,” he said.
GIVE AND TAKE
If approved, the VPPEL could generate as much as half a million dollars for the district on an annual basis. The use of these dollars, though, are restricted. They cannot be used for staff salaries or benefits, for example. The amount of revenue the district receives and the corresponding tax rate could also change from year to year, set by the Board of Education on an annual basis when the district’s budget is certified in April, and never to exceed the cap of $1.34/$1,000 in taxable valuation.
While the Board of Education has very few line items in the budget that can be changed to significantly impact district patrons’ property tax burden, Fleshner is optimistic that the purposeful, strategic work that has been done in recent years will help make the PPEL vote very much a give and take proposition. Two areas, the Management and Cash Reserve levies, are where the Board of Education has the most flexibility to impact the property taxes it assesses.
“We have worked hard to maintain a stable tax rate. The plan to build up the management fund (used to pay for costs associated with liability insurance, certain early retirement benefits, along with mediation and arbitration services) began several years ago. We’ve built it up purposefully, to a point where we think it can sustain us for awhile,” Fleshner explained.
Union has used the Cash Reserve Levy to help regulate the district’s cash flow, as well as a tax stabilization tool. Fleshner explained that the dollars generated by a yes vote on the VPPEL question will make it easier for the district to consider reducing the Management and Cash Reserve Levies. Giving back by reducing these two levies would help reduce the overall impact of the VPPEL.
For many years, taxpayers in the Union Community School District have enjoyed one of the lowest school tax rates in the state. In 2017, 243 of the state’s 360 school districts had a higher tax rate than Union’s. Even with the increase of a full $1.34/$1,000 of taxable valuation, Union’s new tax rate would still fall below the state average of $13.73.
Critics of the potential tax increase a VPPEL would levy point to recent improvements made to both elementary schools and the high school athletic complex as evidence the district’s infrastructure is in satisfactory condition. Those improvements, Fleshner replied, were bonded against sales tax money, the one cent local option tax, not property taxes. And while the district built the structure that houses a state-of-the-art weight room at the high school, all of the equipment and furnishings within it came as a result of donations and fundraising.
“It was a tough decision for the Board to bring this vote before the voters and I totally respect that,” Fleshner said.
“But over time, it offers the best incremental approach we can take to maintain what we have.”
VPPEL: Q & A
On September 12, voters in the Union Community School District will be asked to answer Question A, a measure authorizing the Union School Board to impose a voter-approved (VPPEL) physical plant and equipment levy. The public measure reads as follows:
Shall the Board of Directors of the Union Community School District in the counties of Black Hawk, Tama, Benton and Buchanan, State of Iowa, be authorized for a period of ten (10) years, to levy and impose a voter-approved physical plant and equipment property tax of not exceeding one dollar and thirty-four cents ($1.34) per one thousand dollars ($1,000.00) of the assessed valuation of the taxable property within the school district commencing with the levy of property taxes for collection in the fiscal year ending June 30, 2019, and be authorized annually, in combination, as determined by the Board, to levy a physical plant and equipment property tax on all of the taxable property within the school district and to impose a physical plant and equipment income surtax levy upon the state individual income tax of each individual income taxpayer residing in the school district on December 31 for each calendar year commencing with the calendar year 2018, or each year thereafter (the percent of income surtax not to exceed twenty percent (20%) to be determined by the Board each year), with the maximum amount levied and imposed by said combination limited to the amount that could be raised by a one dollar and thirty-four cents ($1.34) property tax levy, to be used for the purposes set forth in the full public measure language posted in the voting booth?
The Iowa Department of Education has prepared the following frequently asked questions and answers regarding implenting the physical plant and equipment levy.
Q: How can VPPEL be funded?
A: The levy may be funded in one of two ways- from a local property tax levy, or from a combination of a local property tax levy and an income surtax. The income surtax must be in whole percentage points. The combination of the instructional support income surtax and all other income surtaxes shall not exceed 20 percent.
Q: Can VPPEL be funded totally with income surtax?
A: No. The method of funding which includes income surtax requires a portion of the VPPEL be funded by a local property tax.
Q: If passed, the Union School Board has chosen to fund the VPPEL by a combination of property tax and income surtax. Can the mix between the two funding sources be changed each year?
A: Yes. The Board has the responsibility to establish the mix for each year.
Editor’s Note: The property tax and income surtax levels would be set annually when the School Board certifies its budget in April. Superintendent Travis Fleshner noted that he and members of the Board of Education have expressed concerns that relying solely on property taxes to fund the measure places an undue financial burden on individuals who own large tracts of land or a lot of property. He also stated the Board is looking closely at two other funds that impact the overall property tax rate- the Management Levy and the Cash Reserve Levy. Reducing the amount of money budgeted in these two areas would allow the Board to help offset a portion of the property tax increase the VPPEL would create.
Q: What is income surtax, and how is it applied?
A: A surtax is a tax on a tax. The surtax is imposed on the tax liability after tax credits on the Iowa Individual Income Tax returns of taxpayers residing within the district on the last day of the tax year. The surtax is not imposed on other income tax returns such as fiduciary or corporation income tax returns.
Q: When are the property tax and income surtax received by the district?
A: Property tax will be collected with other property taxes during the budget year. Income surtax will be paid in two payments during the fiscal year following the budget year, with approximately 75 percent paid December 1 and the remaining 25 percent paid February 1. Income surtax payment to the district comes from the income tax year two years previous, and the rates are established in the base year’s aid and levy worksheet.