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Published in Print: April 27, 2016, as Funding Showdown in Iowa

Iowa School District Vows to Break Law to Tap Reserve Funds

Arthur Tate, the superintendent of the Davenport school district in Iowa, visits J.B. Young K-8 School. The school will be closed at the end of this academic year because of budget cuts and underenrollment.
Arthur Tate, the superintendent of the Davenport school district in Iowa, visits J.B. Young K-8 School. The school will be closed at the end of this academic year because of budget cuts and underenrollment.
—Stephen Mally for Education Week
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Fed up with years of political battling over the fairness of Iowa's education funding formula, Arthur Tate, the superintendent of the Davenport public schools, says in order to balance his books next year, he will illegally pull $2.7 million out of the district's reserves. It's an amount he bases on the state's 1971 funding formula, which leaves Davenport $175 less to spend per student compared to some other districts.

The state tightly controls how much districts can spend, and dipping into emergency savings accounts without state permission is strictly forbidden. Officials say Tate could lose his superintendent's license given by the state if he goes ahead, and the district's board members, who unanimously approved the plan this month, could be charged criminally.

"I'm tired of the inequality," said Tate, the head of a district whose 15,500 students are mostly low-income, Hispanic, and black. "I think there's a higher philosophy and principle at stake here. Every student should be worth the same, and the state is saying ours are worth much less."

But Jeff Berger, the state's deputy education director, said Davenport's problems stem from the fact that its administrators have failed to cut their spending fast enough as 1,000 students left the district.

"If you know you're going to be losing kids, don't spend more, spend less," said Berger, who conceded that the formula has disparities. "We're way more equitable in Iowa than most other states."

If Davenport follows through with its threat, the state will decide how to handle the situation in September when the district sends state officials its budget, said Staci Hupp Ballard, a spokeswoman for the state education department.

It could be a potentially lengthy process, said Berger.

Jousting Over Funding

The jousting over how states should distribute billions of dollars to school systems has intensified in recent months as many states end the fiscal year with budget surpluses, and governors tout big increases in education spending, yet districts in a number of states lay off teachers and close schools because of funding problems.

"The norm is that states are getting budget increases, but it's not translating down at the local level," said Noelle M. Ellerson, the associate executive director of AASA, the School Superintendents Association.

Memphis school administrators sued Tennessee last year after years of laying off hundreds of teachers and closing several schools despite state funding increases to its K-12 budget. Boston students staged a mass walkout last month after district officials, despite a $13 million increase in city and state funding, said they'd need to cut $30 million out of their budget.

And Chicago Teachers Union President Karen Lewis last week compared Republican Gov. Bruce Rauner to an "ISIS recruit" for pushing a proposal to increase the state's K-12 budget by $120 million, a spending plan that would at the same time result in the Chicago district losing $74 million.

Michael Griffith, who tracks school finance for the Education Commission of the States, said a number of factors can lead to a situation where districts have to cut spending even when a state increases overall K-12 funding. They include the particulars of a state's funding formula, changes in a district's student population, and local property-tax values.

"We're seeing these increases in states in the 4 to 7 percent range, and some districts are getting increases of just 1 to 2 percent," Griffith said. "Citizens are asking, 'How is it that you're getting more money this year, but you're cutting services?' "

Although superintendents regularly criticize what they say is the unfairness of state funding formulas that are heavily dependent on local property taxes, few go as far as Davenport's intends to do when the district's spending account runs dry this summer. Tate refers to the potential withdrawal of reserve funds as an act of civil disobedience.

State's Perspective

Republican Gov. Terry Branstad boasted this year that education spending has increased from $1.3 billion to $2.7 billion in the past 20 years. It consumes more than half of Iowa's budget.

While he's made improving education outcomes a central theme in 22 years as governor spread over various terms, he in recent years has voiced a lack of faith in the effectiveness of school district spending.

"Academic achievement in Iowa has dropped in comparison to other states," Branstad said in an editorial in The Des Moines Register published last October. "It is clear that just spending more money has not improved academic achievement."

With a current state budget surplus of $150 million and projections that tax revenue will increase by 4 percent next year, the legislature approved a 2.25 percent increase in K-12 spending for the 2016-17 school year.

The governor, who originally proposed a 2.4 percent increase for K-12, set aside $150 million for a teacher-training program.

"This is a way that will increase student achievement rather than just simply appropriating more money for districts to spend," Branstad's spokesman Ben Hammes said.

But district officials say local and statewide economic factors complicate their fiscal situations.

They say, for example, that any increases in state aid of less than 3 percent will, in effect, result in cuts because teachers' unions typically ask for—and typically get—an annual 3 percent bump in salaries.

In addition, thousands of workers in the Hawkeye State's agriculture industry were laid off in recent years. Poverty has increased, and the birthrate has declined. Districts have had to cope with a loss in per-pupil funding, and the needs of poorer students can present additional financial burdens.

At least 60 of the state's school districts were warned that they will likely end this year in a budget deficit. In an unusual move, the state will fully dissolve Farragut, a shrinking district in the southwest part of the state with 167 students, that, for years, overspent and refused to consolidate with its neighbors.

Funding-Formula Concerns

The state's funding formula, passed in 1971, establishes a spending floor and a spending cap for every district to ensure that the gap between what districts spend per student doesn't spin out of control, according to Berger, the state's deputy superintendent. As a floor, districts are mandated to spend about $6,500 annually for every student. Based on 1971 local property evaluations and the tax rate when they were brought into the formula, some districts can spend up to $175 more per student using their own local tax dollars. In effect, that means that some districts get to spend more per student than other districts.

Unlike in most states, Iowa districts aren't allowed to increase their local levies for their general fund without state authority.

"One of the functions of our formula is to protect the taxpayers," said Ballard, the state department's spokeswoman, who pointed out that the state supplements much of the base funding for poor districts. "Before it was in place, it was all local and very uneven."

Tate and other local superintendents see the formula as unfair. But Iowa is one of just five states where district officials haven't sued their legislatures over the constitutionality, fairness, or adequacy of their funding formula.

One reason: Unlike most states, Iowa's constitution does not ensure an "equitable" or "adequate" education—provisions on which districts in other states often base their legal claims. Some school leaders, such as Tate, have lately said more extreme measures need to be taken.

"Suing is on the back burner right now," he said.

Davenport has lost 1,000 students in the past decade, though the student population has stabilized in the past two years.

To cope with the loss, its board has made $17 million in cuts in the past five years, including closing several schools and annually laying off teachers and slashing away at his central-administration staff.

Cuts next year will amount to $5 million, Tate said.

Taking A Stand

Over the years, as the spending cuts got deeper, Tate ramped up his protests against the funding formula, culminating in an emotional rally at the state capitol last year with several of his high school students who wore T-shirts that read "I am worth-less."

By his calculation, the amount the state's funding formula leaves the district short is close to the amount the district has had to cut in the past five years.

"It is hard for me to even conceive how a state government could have allowed this discriminatory practice to exist for so long," he said in a rousing speech to his board in March of last year when he originally proposed the idea of breaking the law by pulling money from the reserve account. The speech went viral among urban superintendents across the country.

A board member described the speech as akin to a church revival.

This year's legislative session frustrated Tate even more. While the state's funding formula took center stage, lawmakers regularly accused district administrators of mismanaging state funds. They didn't agree on a budget plan until early this month—a year late. (State law forces legislatures to set spending limits a year before the budget year.) That forced district budget directors to make last-minute changes. The legislators will likely miss that deadline again this year for the 2018 budget.

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That all led to the showdown between Davenport and the state.

By pulling that $2.7 million out of the district's $30 million in reserves (the district spends about $200 million a year), Tate says he will avoid having to close another school, cut transportation for several hundred students, and shutter several music, art, and college-preparation programs.

He has the backing of his board.

"It's ethically unfair that the formula, as it exists, rewards some over others based on ZIP code," said board member Richard Clewell. "This is the first step we need to take to reach equality."

Vol. 35, Issue 29, Pages 1,20

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