AMES, Iowa – Money collected through a one-cent statewide sales tax has helped Iowa schools make significant progress in addressing overdue facility and equipment needs, according to an economic analysis by Iowa State University researchers. The study also found that school districts used the Secure an Advanced Vision for Education (SAVE) Fund to provide property tax relief.
Dave Swenson, an associate scientist of economics; Liesl Eathington, an assistant scientist of economics; and Mack Shelley, University Professor and chair of political science, conducted the study for the Iowa Association of School Boards. The legislation allows school districts to use SAVE dollars to build new or improve existing school buildings, upgrade technology and fund other equipment needs.
The analysis covered SAVE spending from 2009 to 2015. During that time, SAVE has generated nearly $2.8 billion – or $2.93 billion when adjusted for inflation – much of which went to school infrastructure construction. Districts can also borrow, based on future SAVE revenues, for capital improvements and have taken on a combined $2.42 billion in debt, which brings the total resources available during the first seven years to $5.4 billion. Swenson says the amount is telling.
“The evidence suggests that there was substantial pent-up demand for school infrastructure needs, and that pent-up demand was just to update schools to modern levels,” Swenson said. “Urban school districts have also used the money to deal with growth pressures.”
The analysis also found that districts are matching use of funds to their different needs. Urban and suburban school districts are taking on a greater share of debt to keep up with facility needs. Rural districts with declining enrollment are investing more on maintenance, to enhance technology and offset equipment costs.
The Iowa Legislature created the SAVE Fund in 2008 to replace the School Infrastructure Local Option Sales Tax Act (SILO), which required local voter approval for a 10-year period. SILO funding helped address similar needs, but allocations were based on county sales tax receipts. As a result, researchers say it caused significant inequities between urban and rural school districts. SAVE was designed to fix this imbalance for rural areas that were at a disadvantage, because people traveled to larger cities to do their shopping.
In the report, researchers estimated the financial impact for rural districts without SAVE dollars. Based on each county’s sales tax revenues for 2015, only 17 of Iowa’s 99 counties showed a surplus. Had SILO continued, larger, urban districts would have received more than $54 million in extra revenues at the expense of smaller districts.
With equitable distributions from SAVE, school districts spent slightly more than $1,000 per student on capital needs. However, researchers still found differences in urban and rural districts based on how that money was used. Larger, growing schools dedicated SAVE dollars to new construction and building upgrades. Smaller, declining districts utilized the money for equipment, such as classroom technology.
Property tax impact
Addressing infrastructure needs was a primary impetus for SAVE, but Swenson says the promise of property tax relief was also an important selling point for the local option sales tax.
Of all the funds collected through the sales tax, 2.1 percent is allocated by state law directly to targeted property tax relief. In addition, school districts may allocate SAVE funds to “buy down” property tax rates from other infrastructure levies.
Initially, school districts weren’t required to report how much went to property tax relief, which has since changed. The analysis found that 30 percent of Iowa school districts used SAVE funds for direct property tax relief in 2011. However, that level dropped to just under 17 percent four years later.
Eathington says there are a couple of possible explanations for the shift – schools may be using the money to pay down debt or have growing needs.
“Even though SAVE has generated a lot of money, it’s still not enough money to satisfy the capital needs of these districts. Ultimately, districts are having to use this money directly for capital needs, rather than property tax relief,” Eathington said.
It is important to note that without SAVE funds, schools would be forced to defer needs or look at other funding options, nearly all of which would come from property taxes. In that regard, SAVE has indirectly provided property tax relief.
Future funding for SAVE
The SAVE fund is set to expire in 2029, unless extended by the Iowa Legislature. A key reason for the study was to assist the school boards association in determining its position on legislative proposals that would extend the funding stream but divert a portion of funds to other purposes.
ISU researchers were asked to project future tax revenues and address whether SAVE can adequately meet ongoing needs. They estimate the statewide tax will generate anywhere from $2.83 million to $14.96 million a year, with the average around $8.24 million. These projections, coupled with the decline in property tax relief, indirectly suggest this will not be enough to meet future needs. Shelley says to guarantee schools have adequate resources, policymakers must treat education funding as a top priority.
“Reducing or altering the flow of funds from SAVE will have negative consequences regarding safety of school facilities as well as property tax relief and tax rate stabilization,” Shelley said.