STATE APPEAL BOARD
In Re: Van Buren County Community School District) Order
Budget Appeal )
FY2020 ) June 3, 2019
BEFORE THE DIRECTOR OF THE DEPARTMENT OF MANAGEMENT, DAVID ROEDERER; STATE AUDITOR ROB SAND; AND STATE TREASURER MICHAEL L. FITZGERALD.
A hearing on the above captioned matter was held pursuant to the provisions of Chapter
24 of the Code of Iowa on May 15, 2019. The hearing was before a panel consisting of Mr. Luke Donahe, Investment Officer, Office of the State Treasurer and presiding Hearing Officer; Mr. John Parker, School Finance, Department of Management; and Ms. Kathy Rupp, Manager, Office of the State Auditor.
The spokesperson for the petitioners was Mr. Dennis Gratz. The spokespersons for Van Buren County Community School District were Superintendent Pam Ewell, and Mr. Dan Smith, School Board Member.
Upon consideration of the specific objections raised by the petitioners, the testimony presented to the hearing panel at the public hearing, the additional information submitted to the hearing panel both before and after the hearing, and after a public meeting to consider the matter, the State Appeal Board has voted to reduce the Van Buren County Community School District fiscal year (FY) 2020 budget as described herein.
The FY 2020 Van Buren County Community School District proposed budget summary was published in the Van Buren County Register on March 28, 2019. The required public hearing was held and the budget was adopted on April 10, 2019.
A petition protesting the certified FY 2020 Van Buren County Community School District budget was filed with the Van Buren County Auditor on April 22, 2019 and was received by the State Appeal Board on April 22, 2019.
Through the petition, the petitioners protested the FY 2020 budget approved by the Van Buren County Community School District Board of Directors with the following objection:
Increase of the Management Levy to $1.17310 per thousand dollars of taxable valuation for the 2019-2020 budget year.
The petition stated the following grounds for the objection:
As per their budget worksheet, Van Buren County Community School District shows a need of $236,000 for FY 2020 Management Fund expenditures.
The petitioners and the representatives of the Van Buren County Community School District provided various written summaries, exhibits and verbal commentary in support of their positions. A summary of this information and the public hearing is as follows:
Mr. Dennis Gratz represented the petitioners as the primary spokesperson. In his presentation, Mr. Gratz provided comments in regard to the FY 2020 Van Buren County Community School District budget, summarized below:
- The School District, on their FY 2020 budget worksheet, adopted a need of approximately $236,000 in expenditures in the Management Fund for FY 2020.
- In the May 2, 2019 edition of the Van Buren County Register the district was quoted, “Part of the reason was to allow the new board to use the Management Levy as a tool to keep the total school levy constant over several years.” The petitioners feel this is a misuse of the Management Levy.
- Every year the budget is determined based on the information known at the time. The elected officials should make decisions based on what is best for the educational opportunities of our students and to be good fiscal stewards of the taxpayer’s money. An excessive ending fund balance does not impact the education opportunities for the students. Having a steady levy rate does impact the district taxpayer by taking more money out of their pocket then is needed. This may cause the levy rate to fluctuate, but a consistent levy rate is not and should not be a goal of the school district.
- The petitioners requested reducing the Management Levy to $196,000 from the adopted $500,000 to leave the district with an estimated FY 2020 Management Fund balance equal to the estimated FY 2019 ending fund balance.
VAN BUREN COUNTY COMMUNITY SCHOOL DISTRICT RESPONSE
Superintendent Pam Ewell, and Mr. Dan Smith, School Board Member were the primary spokespersons for the Van Buren County Community School District. Their comments are summarized below:
- Harmony and Van Buren Community School Districts will reorganize July 1, 2019 to become the Van Buren County Community School District. Through the transition period of whole grade sharing and into reorganization, the Board of Directors and staff from both historical districts have encountered many unknowns. During the planning and preparing the budget for FY 2020 many different financial considerations were reviewed. Some of the financial considerations were: property tax reduction, reorganization incentive money, staffing, and building usage.
- To meet the challenges of the loss of the reorganization incentives, as well as the ongoing pressures in other financial areas, the district believes it needs the flexibility to manage fund needs in different years. One of the tools the district believes will be a critical in addressing the loss of funding dollars is the use of an early retirement incentive to reduce cost. The Management Fund is a possible funding source for the early retirement plan. Since the publication of the FY 2020 budget both historical Boards approved an early retirement plan for their teachers and one district also approved an early retirement plan for their non-certified staff.
- Besides the Management Funds being used for general liability and property insurance, this fund can also be used for break fix insurance, but unknown if the district will purchase this insurance. Also, the Management Fund supports unemployment claims. With the district reorganizing and reviewing the use of each building, the need for staff will be closely evaluated. Unemployment claims is another unknown at this time.
- Planning for unexpected and unknown situations within the district or within the State can be achieved in different ways. Knowing that the property tax incentive will decrease over the next three years, Van Buren County Board of Education approved the budget with varying tax rates between different funds in mind. The Board of Education also reduced the Management Fund Levy due to concerns expressed by the patrons.
- To maintain a stable and sustainable tax rate, the Van Buren County District will need not only a healthy Management Fund balance, but the discretion in setting annual tax levies and rates.
- The district provided exhibits with five year projection data for levy rates and dollars, income surtax rates and amounts, and projected ending fund balances for the next five years in the Management Fund.
MEMBERS OF THE PUBLIC
Various members of the public in attendance identified themselves and spoke during the public comment time. There was a comment in support of a maintaining a consistent tax rate. There was also support for the School Board in how the budget was developed and using a forecast model to create a multi-year plan. One citizen questioned the timing of the public meeting for the budget and the initial $1.0 million Management Levy proposed by the board. Another citizen questioned the discrepancy between the submitted budget documents and the prepared exhibits by the school district.
FINDINGS OF FACT
- The School District, subject to various state laws and administrative rules, shall prepare and adopt a budget, certify taxes and authorize expenditures. The School District met those requirements.
- Section 24.27 of the Code of Iowa provides persons who are affected by any proposed budget, expenditure or levy, or by an item thereof, may appeal. The petitioners met the requirements and, pursuant to Sections 24.28 and 24.29 of the Code of Iowa, a hearing was scheduled and conducted on May 15, 2019.
- Iowa Code section 24.30 states in part "It shall be the duty of the state board to review and finally pass upon all proposed budget expenditures, tax levies and tax assessments from which appeal is taken and it shall have power and authority to approve, disapprove, or reduce all such proposed budgets, expenditures, and tax levies so submitted ... ".
- The Van Buren County Community School District certified a budget which results in a $1,037,729 decrease in expenditures, a $223,927 decrease in property tax dollars levied, and a $3.11725 per $1,000 of taxable valuation decrease in the property tax levy rate for the former Harmony School District, and a $1.46464 per $1,000 of taxable valuation decrease in the property tax levy rate for the former Van Buren School District. A portion of the reduction in levy rate is attributed to reorganization incentives, $1.0000 reduction per $1,000 of taxable valuation for the former Harmony School District, and $0.44836 reduction per $1,000 of taxable valuation for the former Van Buren School District.
- The Van Buren County Community School District certified a Management Fund Levy Rate of $1.17319 for a total levy of $500,000 for FY 2020. This is an increase 0.51508 for the former Harmony School District and an increase of $0.60232 per $1,000 of taxable valuation for the former Van Buren School District compared to FY 2019. The levy dollars increased by $275,000 compared to the Management Levy of the prior districts for FY 2019.
- The Van Buren County Community School District projects to have expenditures total $314,316 for FY 2020 in the Management Fund.
- The Van Buren County Community School District projects to have an ending Management Fund balance of $713,986 for FY 2020.
- Based on a five year projection of revenues and expenditures the Van Buren County Community School District projects to have an ending Management Fund balance of $253,301 for FY 2024.
CONCLUSIONS OF LAW
The State Appeal Board has jurisdiction over the parties and the subject matter of this appeal, pursuant to Section 24.28 of the Iowa Code.
In 2017, Iowa school districts were granted statutory Home Rule, meaning they are now allowed to take actions not expressly disallowed by the state legislature. Previously, under Dillon’s Rule, school districts could only take those actions expressly allowed by the state legislature. Thus, school districts have been empowered with additional discretion and decision making power.
Iowa Code 298.4 creates and describes a school district’s management levy. It states that such a levy “shall be expended only for the following purposes,” and then lists at 298.4(1)(a)-(f) six allowable purposes. The use of “shall,” as well as “only,” limits the funds to use only for those enumerated purposes. Those six purposes are specific. No matter how construed, they cannot reasonably be read to include as an allowable use of a management levy efforts to stabilize tax rates over a period of years.
Also, Iowa Code 298.10 allows a school district to levy “a tax on all property in the school district in order to raise an amount for a necessary cash reserve for a school district’s general fund.”
BASIS FOR DECISION
Iowa Code section 24.28 states, in part, “At all hearings, the burden shall be upon the objectors with reference to any proposed item in the budget which was included in the previous year and which the objectors propose should be reduced or excluded…”. The Code continues: “…the burden shall be upon the certifying board or the levying board, as the case may be, to show any new item in the budget, or any increase in any item in the budget, is necessary, reasonable, and in the interest of the public welfare.”
The petitioners requested a reduction in the FY2020 tax levy. The objections from the petitioners focused on the published need of expenditures in the Management Fund, and the projected ending fund balance in the Management Fund.
The Van Buren County Community School District is using the Management Levy to maintain a stable tax rate. The district noted if capacity existed in another fund to raise the levy rate then the Management Levy may be reduced due to capacity in another fund. The Management Fund is use regulated and not rate regulated. Those uses, even under Home Rule, do not include stabilization of tax rates.
The Van Buren County Community School District projects a need of $314,316 in the Management Levy for FY 2020 for allowable expenditures under Iowa Code 298.4.
Based on the information provided by the parties involved and the Iowa Code, the State Appeal Board orders a decrease of $185,684 from the Management Levy for a total levy of $314,316 for FY 2020.
STATE APPEAL BOARD
Michael L. Fitzgerald David Roederer
Rob Sand Date