Representative Vander Linden Weekly Update – January 13, 2016

Rep. Guy Vander Linden (R) (photo by Candace Allsup/Oskaloosa News)

SAVE Education Funds for Water Quality?

This session, not even a week old, has seen considerable discussion already around Iowa’s SAVE fund. Many of you have contacted legislators concerning this fund, so here is some background information. The Governor has introduced the idea that any extra money from this SAVE fund be used for his water quality proposal. No details concerning this proposal have been released thus far. As the legislative session moves forward and this topic continues to be a key discussion point, a bit of information on the fund might be helpful.

In the late 1990’s the Iowa Legislature determined that too many of Iowa’s schools were crumbling and in need of serious infrastructure repairs. Repeated failures by school districts to pass 60% super-majority bond issues left many without options. In response to this situation, the School Infrastructure Local Option (SILO) sales tax was created.

1998 – SILO was a county-wide, simple majority-passed 1-cent (or 1%) local option sales tax specifically meant to address the needs of school infrastructure. A Revenue Purpose Statement was required, which told voters what the additional sales tax would be used for. All 99 counties in Iowa passed SILO, which by FY09 was generating around $375 million. But the wide disparity between sales tax revenues in differing districts, primarily urban vs. rural, led to a significant overhaul of SILO in 2003. This is when the SAVE fund entered the picture.

2003 – SILO was significantly amended in 2003. Several big retail counties were generating much more revenue compared to low volume retail counties, leaving a widening gap in revenue generated. The legislature created the Secure an Advanced Vision for Education (SAVE) fund and the 575 rule. If a county generated more than $575 per pupil, the excess would flow into the SAVE fund and be redistributed to the low sales tax counties with the end goal being to bring those counties up to the $575 level.

2008 – The legislature’s next move was to phase out SILO and make SAVE the de facto fund here, which was accomplished in 2008. Legislation phased out the local option portion of the school infrastructure tax, instead creating a state-wide 1-cent (or 1%) sales tax, taking the sales tax rate from 5% to 6%, with all revenue from the new penny going to the SAVE fund and being distributed to school districts on a per-pupil basis. This 1% sales tax is set to expire in December 31, 2029 (Iowa Code 423F.6).

What’s being generated for districts? In the latest reported fiscal year, FY15, SAVE is generating $451 million annually. By the statutory repeal date, this is estimated to be $679 million, a $228 million increase. Proposals to extend the sunset by 20 years would mean the fund would be generating an estimated $1.175 billion by 2049, a $724 million increase over today.

A portion of the funds generated flows into the Property Tax Equity Relief (PTER) fund to help districts with high property taxes due to low taxable valuations. In FY15 this amount was $9.4 million, leaving $442 million to be distributed to districts on per pupil basis. That amount is $923 per pupil this year.

How is it being used?

Statutorily the SAVE fund is required to be used for infrastructure or property tax relief. Specifically Iowa Code 423F lays out a priority list:

1. Buy down the Debt Service Levy and General Obligation Bonds

2. Reduce the Physical Plant and Equipment Levy(PPEL)

3. Reduce the voter-approved PPEL

4. Reduce the Public Education and Recreational Levy (PERL)

5. Or use for School Infrastructure

If a district did not pass a Revenue Purpose Statement, then the fund must be used in the statutory order. However, districts can pass Revenue Purpose Statements to change the order in which they expend the funds.

A report on expenditures compiled by the Department of Education every year shows in FY14 every district had a Revenue Purpose Statement (RPS):

98.6% (341) included School Infrastructure in their RPS
89.0% (308) included Property Tax Relief in their RPS
89.6% (310) included PPEL relief in their RPS
44.8% (155) included PERL relief in their RPS

But including it as an eligible expense does not mean the funds were used in that way. The report also shows how many used the funds from SAVE to reduce levies:

60 districts reduced their Debt Service levy

($25.8 million reduction state-wide)

14 districts reduced their PPEL levy ($2.8 million state-wide)

0 reduced their PERL levy

As for bonding for infrastructure projects, 128 districts issued revenue bonds and in FY14 and used $112.3 million to pay revenue bonds. 220 districts also noted that if SAVE funds were not available, the district would have increased property taxes though other means to gain additional revenue.

What is the future of the fund? The future at this point is uncertain although considerable debate around the fund is expected. The fund is due to sunset in 2029. Districts are asking for an extension as soon as possible for two primary reasons. 1) it guarantees the revenue stream will continue, and 2) the 13 year timeframe until the sunset poses bonding problems for districts.

The Governor has already stepped forward with a proposal for an extension that he has labelled as one of the boldest proposals of his storied tenure. His plan would divert a portion of the estimated growth in the fund to be used for water quality purposes, guaranteeing the first $10 million of growth in each year to go to school districts first, with the remainder of the growth addressing his water quality plan. Details of the plan have yet to emerge, but he has provided overview information.

Other plans floating around that have yet to be fleshed out but include using the growth in the funds for school funding inequities, budget flexibility or for property tax relief. Expect more information from other plans to emerge soon.

For more information, view:

The Department of Education report:
https://www.legis.iowa.gov/docs/publications/ DF/660959.pdf

The Department of Education’s FAQ: https://www.educateiowa.gov/sites/files/ed/doc uments/SAVE%20%20FAQs%20final.pdf