SSB 1065

(REVISED Fiscal Impact — Division I)

Bill Description

Senate File 159 makes a variety of changes to the Iowa Code regarding education. A brief description by division is below, and the following pages include assumptions and fiscal impact where it can be estimated.

DIVISION I — Student First Scholarship Program: Establishes a Student First Scholarship Program under the direction of the Department of Education (DE) for eligible accredited nonpublic students, funded by a General Fund standing unlimited appropriation beginning in FY 2023. The Division further exempts these scholarship awards from Iowa individual income tax.

DIVISION II — Charter School Programs: Provides for two pathways to establish a charter school in the State. A charter school can be established through application by a founding group created by a local school board, thereby creating a new attendance center that would be part of a public school district. A charter school can also be established through application by a founding group not created by a local school board, thereby creating a charter school independent of a public school district and having no boundary lines within the State. DIVISION III — Voluntary Diversity Plans: Repeals voluntary diversity plans under open enrollment for school districts.

DIVISION IV — Education Information, Program Standards, and Funding: Creates a new, statewide student information system (SIS) for electronic transmission of student and staff data, including the ability to transmit individual student records between attendance centers, school districts, nonpublic schools, area education agencies, postsecondary institutions, and the DE. This Division also creates a flexible student and school support program to be administered by the DE and allows for two categorical sources to be eligible for use within the school district flexibility account.

DIVISION V — Education Tax Credits and Deductions: Increases the annual amount of classroom expenditures that Iowa elementary and secondary school teachers may deduct from gross income for income tax purposes from the current $250 to $500 and expands the Tuition and Textbook Tax Credit by doubling the allowed expense amount to $2,000 per qualified student, doubling the credit percentage to 50.0%, making the credit refundable, and extending the credit to students educated through private instruction.

DIVISION VI — School District Enrollment Working Group: Requires the DE to convene a working group to review the methodology and timings of certified enrollment. The Department is required to present its findings and recommendations to the General Assembly by December 1, 2021.

DIVISION VII — Open Enrollment: Expands allowances for permissible open enrollment, addresses open enrollment busing agreements, allows immediate eligibility in athletics for open enrolled students, and makes Iowa Code correction changes. The Division also includes retroactive applicability provisions for students unable to participate in varsity interscholastic sports based on a decision by a school board or superintendent of the student’s former school or school district.

DIVISION VIII — School Board Powers and Duties: Clarifies school board member responsibilities.

This Bill takes effect upon enactment with a retroactive provision in Division V and an applicability provision in Division VI.

Division I

Background

Student First Scholarship Program — The federal Every Student Succeeds Act (ESSA) requires public schools to be identified for Comprehensive Support and Improvement and Targeted Support and Improvement every three years. These identified schools are those that fall in the lowest 5.0% of all schools receiving Title I funds in the State when ranked on Iowa’s approved ESSA accountability index. There are currently 34 public schools identified for Comprehensive Support in 19 school districts in Iowa.

These schools have an estimated total enrollment of 10,240. The Student First Scholarship Program created in this Bill provides education savings accounts for students who attended or might attend Comprehensive Support schools in the State but instead enroll in a nonpublic school. The scholarships are funded by a standing unlimited appropriation from the State General Fund.

For the history of nonpublic school funding in the State, please read Issue Review: Nonpublic School Funding History.

Assumptions

Student First Scholarship Program

• The DE may experience an increase in expenditures due to implementation of the scholarship program in relation to inclusion of the application to one of the current systems and reassignment of duties to current full-time equivalent (FTE) positions.
• Incoming first grade students may not be eligible for scholarships if the students did not attend kindergarten at a Comprehensive Support school.
• Incoming middle school or incoming high school students may not be eligible for grants if the school the students attended in the previous year was not under Comprehensive Support review.
• Under the provisions of the Bill, public schools may experience a decrease in enrollment.
• Of the 34 public school attendance centers under Comprehensive Support, 25 of those schools are located within its boundaries of a school district that also has one or more accredited nonpublic schools within the boundaries. The estimated enrollment of these 25 public school attendance centers is approximately 9,000 students. See Appendix A for a map of locations with an ESSA-identified Comprehensive Support school.
• For estimation purposes, it is assumed that 3.5% of the total number of eligible students will receive a scholarship in FY 2023, 5.0% will receive a scholarship in FY 2024, and 6.5% will receive a scholarship in FY 2025.
• There are an estimated 820 students entering kindergarten each year into the schools under Comprehensive Support. For estimation purposes, it is assumed that 3.5% in FY 2023 will receive a scholarship, 5.0% in FY 2024 will receive a scholarship, and 7.5% in FY 2025 will receive a scholarship. Students from the previous year will retain scholarships compounding these figures.
• Due to the timing of certified enrollment counts from the previous year, students approved for scholarships who attended a school under Comprehensive Support the previous year will generate both funding for a scholarship and funding for the school district through the school budget aid and levy for the first year. Funding through the aid and levy includes both State foundation aid and property tax levies. Any associated reductions in aid and levy funding will therefore be delayed by one year.
• Any decline in certified enrollment at a school under Comprehensive Support due to scholarships will reduce the school district’s allocation of Secure an Advanced Vision for Education (SAVE) funds. Associated reductions in SAVE funding will be delayed by one year.
• Section 3 of the Bill exempts the scholarship proceeds from the State individual income tax. For this estimate it is assumed that the average marginal income tax rate for scholarships will equal 5.3% for all years and that the impact will occur in the fiscal year of the award. Table 1 displays the estimated number of scholarships by year.

Table 1 Table 2 displays the estimated Student First Scholarship amount for FY 2023 and future years. District-specific costs per pupil, and any legislative changes to the State cost per pupil (SCPP), will alter these figures.Estimated Number of Student First Scholarships — SF 159

Fiscal

Year

Number of

Scholarships from

Public Schools

Number of Entering

Kindergarten

Scholarships

Total Number of

Scholarships

FY 2023 315 30 345 FY 2024 450 70 520 FY 2025 585 150 735 Table 2

Fiscal Impact

Student First Scholarship Program:

Table 3 displays the estimated net fiscal impact to the State General Fund and to school districts from the Student First Scholarship Program from FY 2023 to FY 2025. Table 3 Other potential fiscal impacts to school districts due to a reduction in certified enrollment may include, but are not limited to, funding for: Instructional Support Program, At-Risk Formula supplementary weightings, property tax relief provisions in the school aid and levy formula, Transportation Equity Program funding, and School Board Review Committee (SBRC) modified supplemental amounts (MSAs).

The DE anticipates programming costs to administer the program to be between $150,000 and $300,000. The Department notes that these costs could be incorporated into the costs associated with Division IV of this Bill.

Under the provisions of this Bill, a student may be eligible for the Student First Scholarship Program and be the beneficiary of a Student Tuition Organization (STO) grant.Estimated Student First Scholarship — SF 159 Base Scholarship 4,145$ Teacher Salary Supplement 606 Professional Development Supplement 69 Early Intervention Supplement 75 AEA Teacher Salary Supplement 32 AEA Professional Development Supplement 4 Teacher Leadership Supplement 341 Estimated Student First Scholarship 5,270$ Totals may not add due to rounding.

Exempting awards received through the Student First Scholarship Program from Iowa individual income tax is expected to reduce State General Fund revenue by $96,000 in FY 2023, $170,000 in FY 2024, and $205,000 in FY 2025.

Division II

Background

Charter School Programs — For information on charter school programs in the State, please read the DE report Legislative Report Charter and Innovation Zone Schools in Iowa.

Fiscal Impact

Charter School Programs — The LSA anticipates an increase in DE administration costs and the potential need for FTE positions to fulfill the oversight requirements in this Bill. Although charter schools would be subject to audit requirements, it is unclear if a charter school approved as an independent entity would be subject to fiscal reporting required under Iowa Code section 291.10. Federal fiscal and nonfiscal reporting requires inclusion of data for public charter schools. If a charter school is independent from a school district, determinations will be needed regarding allocation methods used for federal funds.

There is a potential for double counting of students for State funding. For the initial year of funding for a charter school, State funding is based on an estimate of enrolled students. The potential students included in the charter school estimate may not actually attend the charter school and would in turn be funded at the school where the student is actually enrolled.

Division III

Background

Voluntary Diversity Plans — Voluntary diversity plans were enacted after changes made by the U.S. Supreme Court’s ruling in Parents Involved in Community Schools v. Seattle School District No. 1, 551 U.S. 701 (2007). A voluntary diversity plan had to be adopted by the school district within a certain time frame, could only concern a limited number of factors, and could not use race as a factor.

Five Iowa school districts currently have voluntary diversity plans, with three districts using socioeconomic status (Davenport Community Schools, Des Moines Public Schools, and Waterloo Community School District) and two districts (West Liberty Community School District and Postville Community School District) using English language learner (ELL) status as their metrics for denying open enrollment. There are no districts in Iowa currently under a court-ordered desegregation plan.

Assumptions

Voluntary Diversity Plans:

• Affected school districts will allow open enrollment out of the district for students who previously had been denied open enrollment under voluntary diversity plans.
• Districts that previously adopted a voluntary diversity plan will have an increased amount of open enrollment out, equal to the number of the previous year’s requests denied due to the diversity plan.
• Affected districts may have a number of open enrollment requests similar to the number they had during recent school years, as reported to the Urban Education Network of Iowa.
• The open enrollment window for pupils entering grades 1 through 12 for FY 2022 closes on March 1, 2021; the first year affecting school districts may either be FY 2022 or FY 2023 depending on the effective date of this Bill. The deadline for open enrollment for pupils entering kindergarten is September 1, 2021, and the changes may impact FY 2022 program costs for the pupils’ resident districts.
• Estimated fiscal impact of Division III will average FY 2018 and FY 2019 survey data.

Fiscal Impact

Voluntary Diversity Plans — Division III has no fiscal impact to the State. Districts that have denied previous open enrollment requests based on the districts’ voluntary diversity programs may experience a decrease in per pupil funds equal to the cost of the previous year’s SCPP and teacher leadership supplement, as well as a decrease resulting from any additional ELL weighting for the applicable pupils. The following table shows the possible fiscal impact by district based on survey information from previous school years’ open enrollment survey data. The data has been averaged where applicable.

Table 4 It is unknown into which districts pupils may choose to open enroll; therefore, the fiscal impact to the receiving districts cannot be determined. This estimate does not include any additional enrollments due to previously denied open enrollments from prior fiscal years. Any additional pupils previously denied under the voluntary enrollment plans from previous fiscal years who choose to open enroll may increase the fiscal impact on the resident school districts.

Division IV

Background

Education Information, Program Standards, and Funding — The DE currently collects multiple data sets using multiple systems including the Basic Educational Data Survey (BEDS), Student Reporting in Iowa (SRI), and the EdInsight – Education Data Warehouse. Any change in data collection systems would need to meet requirements within the federal Family Educational Rights and Privacy Act (FERPA).

All public and nonpublic schools currently use their own data reporting system, often with substantial customization to serve the needs of the school. These needed customizations are used in the areas of school food service programming, email, gradebooks, and data reporting tools.

2017 Iowa Acts, chapter 154, increased district flexibility in how unexpended and unobligated amounts from certain categorical funds can be used through the creation and utilization of a flexibility account within a school district’s general fund. Use of this flexibility account requires formal action by the district’s school board.Fiscal Impact to School Districts Due to Increased Open Enrollment — SF 159 Est. Number of New

Open Enrollment Out

of Resident District

Open Enrollment

Funds Per Student**

Estimate of Total

Funds Leaving

Resident District

Davenport 106 7,389.0$ 783,234$ Des Moines 192 7,389.0 1,418,688 Postville 2 7,389.0 14,778 Waterloo 57 7,389.0 421,173 West Liberty* 0 7,389.0 0 * No voluntary diversity open enrollments denials for the years examined. ** Open enrollment funds included the previous year's SCPP and teacher leadership categorical. Statewide in FY 2020, 276 school districts carried forward $45.0 million in teacher leadership funds, an average of $163,000 per district. Statewide in FY 2020, 240 school districts carried $9.7 million forward in teacher salary supplement funds, an average of approximately $40,000 per district.

Assumptions

Education Information, Program Standards, and Funding:

• School districts will increase transfers to the flexibility account of unobligated or unexpended teacher leadership supplement funds and teacher salary supplement funds. In FY 2020, 40 school districts made expenditures from their flexibility account.
• Additional school districts may submit an adopted resolution authorizing expenditure from their flexibility account.

Fiscal Impact

Education Information, Program Standards, and Funding — Based on previous estimates, the DE anticipates a cost of $4.0 million for initial establishment of the SIS. The State could use set-aside funding from the federal Elementary and Secondary School Emergency Relief (ESSER II funds).

After the first year of statewide implementation of the proposed SIS, the Bill provides that the cost of operating the system may be funded through the collection of a fee by the DE. This fee would be charged to each school district and accredited nonpublic school and is not to exceed $7 per student for the first year of the fee. The fiscal impact to school districts would be an estimated $3.5 million based on 2020-2021 public school district enrollments and an estimated $260,000 based on 2019-2020 nonpublic school enrollments. Additional school district and nonpublic school costs cannot be determined but would be anticipated for the following:

• Substantial data transition from existing systems to a new SIS.
• Statewide training for implementation of a new SIS.
• The Bill is unclear whether customizations would be allowed in the proposed SIS and whether the system could be used for functions beyond State reporting. Educational institutions may be required to customize the SIS to meet local needs or maintain a dual SIS.

Changes to districts’ flexibility accounts under the provisions of this Bill will have no fiscal impact to the State. School districts may increase expenditures from their flexibility accounts; however, the extent cannot be determined.

Division V

Background

Education Tax Credits and Deductions — For information on the Tuition and Textbook Tax Credit, please read Fiscal Topic: Tax Credit: Tuition and Textbook. Information on the Teacher Expense Deduction is available here.

Assumptions

Teacher Expense Deduction:

• Current Iowa law allows teachers to deduct up to $250 in qualified classroom expenses from their Iowa income. The deduction is per taxpayer, so married taxpayers are each allowed to deduct up to $250 each. This deduction lowers Iowa taxable income and therefore the income tax paid by teachers utilizing the deduction. The Bill increases the deduction maximum to $500 per taxpayer. The deduction increase is first effective beginning tax year (TY) 2021.
• The Iowa Department of Revenue (IDR) utilized a model of Iowa tax returns to develop the fiscal impact projection for this provision. The model is based on actual tax returns filed for TY 2019.
• For TY 2019, 33,628 households claimed a total of $8.6 million in Teacher Expense Deductions (an average of $256 per household).
• In determining the fiscal impact of the change, it is assumed that increasing the deduction will not increase the number of households utilizing the deduction and will not cause current claimants to increase their classroom expenses.
• Modeled tax returns in which the TY 2019 deduction was $250 (the maximum for a single taxpayer) or higher (indicating two eligible taxpayers) were randomly assigned projected deductions between $250 and $1,000.
• Modeled tax returns in which the TY 2019 deduction was below $250 were assumed to have deductions for future years equal to their TY 2019 deduction.
• The fiscal impact of teacher expense deduction was computed by comparing the model results under current law (maximum $250 deduction) to the model results assuming a maximum $500 deduction.
• The tax reduction associated with the enhanced deduction is assumed to occur when tax returns are filed (decreased final tax payments and increased tax refunds). Tuition and Textbook Tax Credit:
• Current Iowa law allows taxpayers to claim a nonrefundable tax credit equal to 25.0% of up to $1,000 in qualified elementary and secondary (K-12) school expenses paid by the taxpayer for each dependent attending an accredited K-12 public or nonpublic school. Qualified expenses include:
• Tuition to an accredited school.
• Textbooks.
• Specialized play, concert, and sports clothing.
• Driver’s education fees paid to a K-12 school.
• Certain dues, fees, and admission charges.
• Materials for extracurricular activities.
• Rental of musical instruments and other music expenses.
• Required supplies for shop and other specialized classes.
• Fees and charges for transportation if paid to the school.
• Band and athletic uniforms.
• The Bill expands the Tuition and Textbook Tax Credit by: