Iowa finance-reform bill in danger of derailment

By Peter Schmidt — April 05, 1989 4 min read

Negotiations in the Iowa legislature over a new formula for distributing $1 billion in state school aid could be derailed over a proposal to let school districts levy a special property tax without voter approval.

A finance-reform bill passed by the House in March would allow districts to increase their budgets for instruction by 10 percent, with 75 percent of the funds coming from the automatic property-tax hike and the remainder from the state.

The Senate, meanwhile, is expected this week to amend the bill to require districts to place the proposed tax increase on their ballots. The measure would then move to a conference committee, where it would face an uncertain fate.

According to the Senate’s majority leader, C. William Hutchins, lawmakers “put the gun to our own heads” in 1987 when they passed a bill requiring that the finance formula be revamped by the end of this year’s legislative session in May.

The debate over the proposed special tax is only the latest stumbling block that has obstructed the legislature’s efforts.

Lawmakers averted an impasse last month after Senate leaders agreed to House requests that they strike an amendment from their bill that would have drastically reduced property taxes and increased income taxes. Opponents of the amendment said it threatened to set off a fight between rural and urban interests.

But despite all the hurdles they have faced thus far, Senator Hutchins and other legislators expressed confidence in their ability to present a bill to Gov. Terry E. Branstad by their self-imposed deadline.

The House bill, which would take effect in the 1991-92 school year, counts on Iowa’s expanding economy to provide the state with additional revenues to enable it to relieve the property-tax burden on residents, whose taxes are now 25 percent above the national average. Economic growth is expected to pump $230 million, or 9 percent, more into the state treasury in fiscal 1990 than it received in the current year.

Under the current finance system, all districts have a permanent property-tax base of $5.40 per $1,000 of assessed valuation. The state provides districts with sufficient funds to cover 82 percent of the cost of educating their students. Districts must seek voter approval for an additional property tax to cover the remaining 18 percent.

The bill passed by the House would gradually increase the state’s share of costs to 85 percent, which would make districts less reliant on excess levies to cover their needs.

The House measure also would provide $30 million for new programs for talented and at-risk students. It also would increase funding for transportation and for the costs of new state educational mandates.

In addition, the bill would gradually end the practice of factoring ''phantom” students into the funding formula to cushion schools against the effects of declining en4rollment. Currently, schools can compensate for shrinking enrollments by claiming more than their actual number of students when applying for state funds.

Senator Hutchins said the only aspect of the House bill likely to be significantly altered by the Senate is the provision that would allow districts to impose the special additional property tax to increase their instructional budgets.

Under the House bill, the special tax would remain in effect for three years. It would then have to be placed on the district ballot for voter renewal or rejection.

The Iowa State Education Association and other proponents of the House measure argue that by imposing the tax for three years, districts would have an opportunity to demonstrate the value of programs funded under it to voters.

Voters have rejected “enrichment” tax proposals in almost every district except those in small rural communities, where officials have argued that rejection of a tax increase would force schools to close, said William I. Sherman, a spokesman for the isea

Garnering support for property-tax increases is made even more difficult, he added, by the fact that only about 18 percent of the state’s residents have school-age children.

Critics, however, counter that it would be difficult and expensive to dismantle programs after three years.

“That’s their rationale,” said the Senate’s minority leader, Cal O. Hultman, a Republican from Red Oak. “Once you do it, you can’t undo it.”

The House bill has drawn criticism from other quarters as well.

Representative Horace C. Daggett, whose southwest Iowa district is the most rural in the state, said the proposal to eliminate phantom students from the funding formula failed to take into account the fixed costs that rural districts must bear regardless of their student populations.

At the other end of the spectrum, Representative Mary C. Neuhauser of Iowa City said the plan to phase in the growth of the state’s share of districts’ costs would mean that urban districts with growing enrollments might not receive relief fast enough.

“Each year we have to go further into cutting our budget,” said David L. Cronin, superintendent of schools in Iowa City. “It has a more devastating impact.”

A version of this article appeared in the April 05, 1989 edition of Education Week as Iowa finance-reform bill in danger of derailment