Strategic Economics Group
Michael Lipsman and Harvey Siegelman
West Des Moines, Iowa
April 3, 2013
The analysis presented by Jon Muller of how school funding works in Iowa is correct, but it misrepresents the analysis done by Strategic Economics Group (SEG) and addresses side issues that were not the subject of the SEG study and that serve as a distraction from the larger issue related to the use of tax increment financing (TIF) for casino incentives.
School funding was not the focus of the property tax impact analysis done by SEG for the four Sioux City casino proposals. The SEG analysis focused on how future property tax revenues would be impacted by the different proposals assuming the existing property tax rates imposed by the various taxing authorities serving the area remain unchanged. The analysis was done in this way to allow apples-to-apples comparisons.
It is true that the Iowa School Foundation Formula does provide for equal funding on a per pupil basis (with some exceptions made for additional weighting allowed for students with special needs and with additional weighting to promote resource sharing).
Under the foundation formula general school operating costs are covered by a combination of property tax and State aid. At the present time 87.5% of the foundation funding is split between property taxes raised by applying a uniform levy rate of $5.40 per $1,000 of non-TIF taxable valuation and with the remainder of 87.5% of the foundation level made up with State aid. Therefore, to the extent those property taxable valuations are reduced through the use of TIF the State aid portion of funding increases. This means areas that make extensive use of TIF require an increased subsidy from the remainder of the State.The remaining 12.5% of school foundation formula funding generally falls back on local property taxpayers, but also in the case of property poor districts some may also fall back on the State General Fund.
So, when the use of TIF reduces a school district’s property tax base the additional levy tax rate must be increased to maintain the required funding level. Furthermore, in property poor districts (such as Sioux City), which are made property poorer through the use of TIF, State funded property tax relief must be increased, which increases the subsidy from the State’s other taxpayers.
There are some additional elements of school budgets funded with property taxes that are not backfilled by the State. These include the management levy (which covers costs related to unemployment, early retirement, medical insurance, and property losses), the playground levy, and the debt levy. The increased use of TIF may either cause the levy rates for these purposes to increase or cause the amount of funds for these purposes to be constrained when levy limits are reached.
Finally, it appears that the attention paid to school funding has distracted attention away from what should be the focus of the comparison of the casino proposals. Schools represent only one of the types of taxing authorities that would surrender the potential growth of future property tax revenue due to the overuse of TIFs.
For the two proposals that would require TIF financed incentive payments either tax rates would have to be increased to meet the future needs of the other taxing authorities, or alternatively property tax rates could not be reduced by as much as they otherwise could be in the absence of the use of TIF financing.
TIF has its place in helping to spur economic development, but when development would occur without having to use this form of incentive, not using TIF is the better course to follow.
Response to Muller Critique.pdf
