The sunset for Iowa’s state-wide penny tax isn’t until 2029, but school administrators have plenty of reason to try to extend it now.
Representatives from every Area Education Agency (AEA) and about 100 school districts across the state were in Des Moines Tuesday to talk to legislators, according to a release from the Mississippi Bend AEA (MBAEA).
Pleasant Valley Superintendent Jim Spelhaug and North Scott Superintendent Joe Stutting attended.
The Secure an Advanced Vision for Education, or SAVE, tax is a 1 percent sales tax that is used primarily to pay for specific types of public school projects. Districts can vote to borrow against their revenue to secure funding for larger projects, as Pleasant Valley recently did to add a tower to its high school and an addition to Cody Elementary.
Most of the borrowed bonds are paid off over 10 years, so the 2029 sunset is starting to feel tight.
Dallon Christensen, Bettendorf director of finance and business services, said extending the tax needs to be an “extremely high priority” for state legislators.
“This is one of the highest priorities the state should have,” he said. “We’re talking about making sure that facilities that are housing our students and our education pursuits. … We want to make sure that our students statewide … have top-notch facilities.”
The Iowa House has overwhelmingly approved a bill that would extend the sunset to 2050, but it has not been passed in the Senate.
“There’s a lot of support for it in the state and it shouldn’t be controversial,” said Mike Maloney, Davenport school's director of operations. “For every legislature, it’s good to get a win. … Everyone, regardless of their party, could come home saying ‘we’ve accomplished something important.’”
More than $450 million is generated for Iowa schools each year through the tax. The money comes from a sales tax, so anyone who makes a purchase in-state — no matter where they’re from — contributes to it.
Davenport, Bettendorf and Pleasant Valley each face unique problems because of the sunset.
In Davenport, the district must cut $13 million from its general fund, by state order. While SAVE funds can't go toward the general fund, its loss would put more strain on the general fund.
“If roof repairs were needed, for example, and there were no SAVE funds, the only other choice would be PPEL (physical plant and equipment levy),” Maloney said. “We would have to resort to using general funds to do essential things, serious things.”
Davenport recently increased its PPEL to 1.34 percent per $1,000 of assessed value, but the revenue is small compared to what SAVE generates; it’s approximately 1:3.
“Our SAVE and PPEL combined is a little over $19 million a year,” Maloney said. “The list of things that need to be done is about $450 million. We’re not able to do everything that it would take right now.”
Bettendorf, on the other hand, just had a general obligation bond referendum fail; across the state, these bond referendum proposals have become more common as the 2029 sunset approaches, said Margaret Buckton, a partner at Iowa School Finance Information Services.
“It is forcing us to go back and take a hard look at what projects rate the most important for us,” Christiansen said. “The uncertainty around the SAVE extension is forcing us to look at how long can we wait until we can make a decision.”
“We want to eliminate uncertainty as much as we can," Christiansen said. "Where we’ve been over the last couple of years, is that the uncertainty of the extension makes it difficult for districts to plan.”
If Bettendorf wanted to borrow the money against its SAVE revenue, the time frame to borrow will narrow, which could turn off voters.
“There are two reasons: the repayment period is going to be shorter, so we have less time to repay the bond, so the principal and interest are going to be higher,” Christiansen said. “Two, once we know what the timeline is going to be for the extension for the SAVE, that gives us the revenue baseline to borrow additional money, 20 or 30 years into the future, rather than funds that we know are only going to be available for the next 10 years.”
With the growth Pleasant Valley has experienced in the last few years, chief financial officer Mike Clingingsmith said the district has “pretty much maxed out” its ability to borrow against the current 2029 sunset.
“We don’t have the capacity at the current time to borrow any more against that statewide penny,” he said. “There are some ways that we could get additional capacity.”
Pleasant Valley’s district enrollment and state sales are both growing, which could increase the district’s ability to borrow, but not as predictably.
The district did borrow $10 million three times, in 2015, 2016 and 2017.
“Just a few months ago, we borrowed $14 million more dollars against the state-wide penny,” Clingingsmith said. “That’s $44 million over the last four years or so. We’ve used that to help fund our projects, the big one being the … addition onto the high school.”
Even without concrete plans to borrow more before 2029, Clingingsmith said the district still supports the extension.
“The big advantage would be that it’d give us more latitude in being able to borrow for a longer amount of time, and more dollars eventually,” he said. “We’re still very much for having it extended. … At some point, it would give us much more and much longer potential.”