Relating to certain amounts of school district funding for programs for at-risk students, secondary students who attend alternative programs or alternative schools, or returning dropouts and dropout prevention

Description

House File 579 modifies the maximum modified supplemental amount (MSA) calculation for school district requests to the School Budget Review Committee (SBRC) related to at-risk, alternative school, returning dropout, and dropout prevention programs. The Bill modifies the maximum MSA calculation for fiscal years beginning on or after July 1, 2026 (FY 2027), by increasing the MSA limitation of 2.50% of the school district’s total regular program district cost by 0.50% each fiscal year until reaching 5.00%. In each fiscal year thereafter, the maximum ratio percentage will be 5.00% for all school districts. An increase is only to take place if the voters of the district authorize the change as specified in the Bill. The authorization is to be for the years specified by the election or until rescinded at election.

The maximum ratio percent by fiscal year is as follows:

• FY 2026 – 2.50%
• FY 2027 – 3.00%
• FY 2028 – 3.50%
• FY 2029 – 4.00%
• FY 2030 – 4.50%
• FY 2031 – 5.00%

Background

Iowa Code section 257.31 provides that if a school district has unusual circumstances creating an unusual need for additional funds, the SBRC may grant supplemental aid to the school district from certain funds appropriated to the Department of Education (DE) for the use of the SBRC, or the SBRC may establish an MSA for the school district, or both. The SBRC does not currently have funds appropriated to the DE for this purpose. The SBRC must review a school district’s unexpended fund balance prior to any decision regarding these types of funding requests.

As part of the budget for a school district’s program for at-risk students, secondary students who attend alternative programs and alternative schools, or returning dropouts and dropout prevention, the school board may request to use an MSA. However, current law provides that the ratio of the MSA compared to the school district’s total regular program district cost must not exceed 2.50% or the school district’s highest ratio for any fiscal year beginning on or after July 1, 2009, but before July 1, 2013, whichever is greater.

Iowa Code section 257.41(1) provides that programs for returning dropouts and dropout prevention must be funded annually on a basis of 25.00% or more from the district cost of the school district and up to 75.00% through the establishment of an MSA. The MSA is funded by local property taxes, and program participation is discretionary. Some districts levy property taxes up to the district’s maximum capacity and others do not.

The SBRC’s authorization of an MSA increases the spending authority for a school district. An authorized MSA does not result in additional State funding. A school district may choose to utilize the additional spending authority by using resources it has available for this purpose and might result in funding from property taxes. A school district that elects to increase its additional levy for its dropout prevention program may elect to lower other levy rates to offset the increase. Applications to the SBRC for an MSA related to FY 2027 programing must be submitted after January 15, 2026, and before March 1, 2026, as specified in Iowa Code section 257.40(2). For FY 2025, 128 school districts are at the 5.00% statutory maximum ratio capacity for dropout prevention. The remaining 197 school districts are below 5.00%, including 51 districts that have a maximum ratio capacity of 2.50%.

Assumptions

• There will be no additional cost to the State as a result of the Bill.
• The DE will make modifications to the MSA application as part of the annual application update at no additional cost.
• All applications for an MSA will be for the maximum allowed percentage.
• Districts will levy the maximum amount.
• Districts will not decrease other levies (management levy or cash reserve levy).
• Certified enrollment and district costs per pupil will remain constant.
• School district carryforward amounts, which are required to be deducted from an MSA award, will be zero.
• Election costs for a district from the school district general fund can range from $8,000 to $18,000, with an average of $13,000.
• The regular program district costs remain the same as in FY 2025.

Fiscal Impact

House File 579 will have no fiscal impact on the State. The maximum estimated increase to school district spending authority is as follows:

Increased School District Spending Authority

(Dollars in Millions)

Fiscal

Year

Maximum

Capacity

Impact

Local

Match

Districts

Impacted

FY 2026 $ 0.0 $ 0.0 0 FY 2027 2.6 0.6 68 FY 2028 6.2 1.5 95 FY 2029 12.1 3.0 148 FY 2030 19.7 4.9 173 FY 2031 28.2 7.0 197 Additionally, if each of the 197 estimated impacted school districts holds an election, the estimated total election cost to the school districts’ general funds is $2.6 million.

Sources

• Department of Education
• Department of Management, School Aid File
• Iowa Association of School Boards
• LSA analysis and calculations