Relating to school funding by establishing the state percent of growth and the categorical state percent of growth for the budget year beginning July 1, 2025, modifying provisions relating to the property tax replacement payments, and including effective date provisions

Description

Senate File 167 relates to public school funding by establishing the State percent of growth and the categorical State percent of growth for the budget year beginning July 1, 2025 (FY 2026), modifying provisions relating to the property tax replacement payments (PTRP) and transportation equity payments, modifying provisions relating to the regular program State cost per pupil (SCPP) and funding for shared operational functions, establishing a school district funding supplement, making appropriations, and including effective date provisions. Division I — State and Categorical Percent of Growth and Property Tax Replacement

Payments

The Bill modifies and establishes provisions related to the funding of school districts, including establishing a State supplemental aid (SSA) amount based on a State percent of growth rate and the categorical State percent of growth rate for the budget year beginning July 1, 2025 (FY 2026), and provides for other changes to the school aid formula.

Division I has three provisions with a fiscal impact, as follows:

• Establishes a 2.00% State percent of growth rate to be applied to the SCPP for FY 2026, for an SSA increase of $157 per pupil.
• Establishes a 2.00% State percent of growth rate to be applied to each of the State categorical cost per pupil amounts for FY 2026, with the exception of Transportation Equity that will increase by 5.00%.
• Provides additional property tax replacement funding based on the per pupil increase that results from the establishment of the State percent of growth in FY 2026. The Bill freezes the additional levy portion of the FY 2026 SCPP at $685 per pupil, regardless of the per pupil increase for FY 2026.

The Bill specifies that the current requirements that allowable growth rates must be enacted within 30 days of the transmission of the Governor’s budget submission, which is required by February 1 during the regular legislative session, do not apply to the Act. Division I takes effect upon enactment.

Division II — State Cost Per Pupil Division II provides an additional increase of $5 to the FY 2026 regular program SCPP and the special education SCPP, separate from the SSA.

Division II takes effect upon enactment.

Division III — Supplementary Weighting for Shared Operational Functions Division III increases the maximum amount of additional weighting for which a school district is eligible in a budget year from 21.0 additional pupils to 25.0 additional pupils beginning in FY 2026.

Division III takes effect upon enactment.

Background

State Cost Per Pupil. The school aid formula provides funding to school districts and Area Education Agencies (AEAs) through a mix of State aid and property taxes. In general, funding is generated on a per pupil basis, with the per pupil amounts providing an overall budget limitation (or spending authority). Five SCPP funding levels would be increased by a 2.00% State percent of growth for FY 2026 upon enactment of the Bill.

Figure 1 provides the SSA amounts (also referred to as per pupil growth amounts) and SCPP amounts for FY 2026 based on a 2.00% growth rate. The SSA amounts will be applied to all corresponding district and AEA cost per pupil amounts.

Figure 1 — SF 167 In addition to the State percent of growth and SSA amounts for FY 2026, enrollments, weightings, and taxable valuations within each school district have an impact on total school aid funding, including the amount of State aid and local property tax required to generate the total funding.

State Categorical Supplements. The State categorical supplements are funded entirely through State aid and generate funds for each school district and AEA through the school aid formula on a per pupil basis. The FY 2026 SCPP funding levels for the teacher salary supplement (district and AEA), professional development supplement (district only), early intervention supplement (district only), and Teacher Leadership and Compensation (TLC) supplement (district only) would be increased by a 2.00% State percent of growth for FY 2026.FY 2025 FY 2026 FY 2026 FY 2026 FY 2026 State Cost State Percent Supplemental Additional State Cost Per Pupil of Growth State Aid SCPP Dollars Per Pupil Regular Program 7,826$ 2.00% 157$ 5$ 7,988$ Special Education Program 7,826 2.00% 157 5 7,988 AEA Special Education Services 333.59 2.00% 6.67 - 340.26 AEA Media Services 62.19 2.00% 1.24 - 63.43 AEA Education Services 68.63 2.00% 1.37 - 70.00 FY 2026 State Cost Per Pupil Calculations Figure 2 provides the per pupil growth amounts and SCPP amounts for FY 2026 based on the Bill.

Figure 2 — SF 167 Additionally, there is a budget guarantee provision for each of the State categorical supplements that provides each district and AEA with a minimum of the previous fiscal year’s level of funding (net of the previous year’s budget guarantee amount). This provision for the State categorical supplements is funded entirely through State aid.

Property Tax Replacement Payment (PTRP). 2013 Iowa Acts, chapter 121 (Education Reform Act), included the creation of the PTRP provision to replace local property tax amounts with State aid. The provision froze the additional levy portion of the SCPP at $750. Based on the State percent of growth enacted during the intervening fiscal years, this provision created $15 per pupil in property tax relief in FY 2014 and up to $175 per pupil in FY 2023. The continual growth is a result of the requirement that the per pupil property tax relief of previous fiscal years carry forward into future fiscal years. Enactment of the Bill would freeze the additional levy portion of the SCPP at $685 for FY 2026. The per pupil property tax relief amount will be based on the State percent of growth enacted for FY 2026. Figure 3 provides details regarding the SCPP funding levels as provided by a 2.00% growth rate for FY 2026 in the Bill.FY 2025 FY 2026 FY 2026 FY 2026 State Cost State Percent Supplemental State Cost Per Pupil of Growth State Aid Per Pupil Teacher Salary – Districts 654.68$ 2.00% 13.09$ 667.77$ Professional Development – Districts 74.15 2.00% 1.48 75.63 Early Intervention – Districts 80.76 2.00% 1.62 82.38

Teacher Leadership and

Compensation – Districts 368.53 2.00% 7.37 375.90 Teacher Salary – AEAs 34.26 2.00% 0.69 34.95 Professional Development – AEAs 4.00 FY 2026 State Categorical Cost Per Pupil Calculations Figure 3 — SF 167 Pursuant to Iowa Code section 257.11, a school district that shares one or more specified operational functions with another political subdivision is assigned a supplementary weighting for each shared operational function. The maximum additional weighting that a school district may receive in one year is 21.0 additional pupils. Iowa Code section 257.11(5) allows for supplementary weighting for school districts and AEAs that share Iowa Code-specified job positions for at least 20.00% of the school year. Iowa Code section 257.11(5) sunsets the availability of supplementary weighting following the school budget year beginning July 1, 2034 (FY 2035).

Iowa Code section 257.11(5) establishes a list of operational functions and positions eligible for a supplementary weighting for school districts. Legislation in 2021 established a reduction in the number of pupils assigned for certain functions and positions, and 2023 Iowa Acts, House File 68 (Education Savings Accounts Act), extended the Program until the end of the school budget year beginning July 1, 2034. For school budget years beginning on or after July 1, 2022, until the end of the school budget year beginning July 1, 2034, each operational function assigned a supplementary weighting of five pupils will be assigned four pupils, and each operational function assigned a supplementary weighting of three pupils will be assigned two pupils. Iowa Code section 257.11(5)(d) specifies that college and career transition counselors or coordinators do not count toward this maximum amount.

Based on preliminary FY 2026 data, of the 325 school districts, 11 school districts exceed the 21.0-pupil additional weighting maximum, of which 5 exceed the 25.0-pupil additional weighting maximum. The remaining 314 school districts are utilizing 21.0 or fewer additional weightings, including 24 school districts that are not currently participating in operational sharing and 85 school districts that are at the 21.0-pupil additional weightings maximum. Transportation Equity Program. Iowa Code section 257.16C establishes the Transportation Equity Program. The Program was created to provide additional funding to school districts for public school transportation costs that exceed a statewide adjusted average cost per pupil. Unless otherwise provided, the appropriation increases at the categorical State percent of growth. Transportation equity payments may buy down transportation costs to the statewide average cost per pupil for providing transportation to public schools. If funding permits, school districts with transportation costs per pupil below the statewide average will receive transportation base funding payments on a per capita basis. The Bill provides for a growth of 5.00%, instead of the 2.00% categorical State percent of growth.Increase Due to Increase Due to

Supplemental Additional Dollars

FY 2025 State Aid Rate to the SCPP FY 2026 Regular Program 7,826$ 157$ 5$ 7,988$ Unadjusted Additional Levy 908.00 18 1 927.00 PTRP Portion 223 18 1 242 Fixed Additional Levy Portion 685 0 0 685 FY 2026 Property Tax Replacement Payment Calculation

Assumptions

• Supplementary shared operational functions funding for eligible school districts will begin in FY 2026 and end after FY 2035.
• School districts that are not at or under the 21.0-pupil additional weighting maximum will not utilize the additional weighting authorized by the Bill.
• If a school district is not utilizing a weighting, it will not utilize the additional weighting authorized by the Bill.
• School districts using additional weighting will utilize all the additional weighting authorized by the Bill, subject to the overall cap.
• Any legislative changes to the SCPP will alter the fiscal impact.
• The FY 2026 SCPP is $7,988, with $7,061 funded from the State General Fund, $244 funded from Property Tax Replacement Payments funded from the State General Fund, and $685 funded from local property tax. The amount by which the district cost per pupil (DCPP) exceeds the SCPP is funded from local property tax.
• Estimates are based on October 2024 certified enrollments and supplementary weightings for estimated FY 2025, which were approved by the School Budget Review Committee (SBRC) in December 2024.
• A statewide taxable valuation growth rate of 3.64% for FY 2026 was previously agreed upon by the Legislative Services Agency (LSA) and the Department of Management. Based on this assumed rate, the statewide total for the uniform levy is estimated to account for an increase of $42.9 million (3.71%) toward the school foundation property tax change in FY 2026. The estimated increase in the uniform levy amount is not affected by the establishment of the State percent of growth rate. Property tax adjustment aid amounts are based on the statewide taxable valuation growth factor applied to each school district’s FY 2026 taxable valuation amount.
• Total State aid includes funding from the State General Fund and other funds appropriated to or deposited in the Property Tax Equity and Relief (PTER) Fund, which is used to provide additional property tax relief through the school aid formula.
• Establishing an FY 2026 State percent of growth will also affect the amount of funding generated for the Statewide Voluntary Preschool Program. Funding for the Program is provided by State General Fund dollars and is included in the overall State aid total.
• Districts eligible for the 101.00% budget adjustment will approve the use of that provision.
• Other legislation may have an impact on the amount of State aid and property tax generated through the school aid formula.
• The General Fund appropriation to the Transportation Equity Fund will increase by approximately $1.6 million. The appropriation may grow at the same rate as the State categorical cost per pupil rate in subsequent years.

Fiscal Impact

The estimated fiscal impact of SF 167, by division, is as follows:

Division I — State and Categorical Percent of Growth and Property Tax Replacement Payments relates to the State categorical percent of growth and PTRP.

Figure 4 provides the estimated fiscal impact of Division I. These provisions include the following:

• A $7.5 million reduction1 in State aid to the AEAs (current statute).
• $137.3 million in PTRP funding, an increase of $10.5 million (8.29%) compared to estimated FY 2025.
• $747.5 million for the State categorical supplements for school districts and AEAs, an increase of $59.3 million (8.61%) compared to estimated FY 2025. This includes the following:
• $468.9 million for the teacher salary supplement at the district and AEA levels.
• $39.4 million for the professional development supplement at the district level.
• $42.8 million for the early intervention supplement.
• $196.3 million for the TLC supplement.
• $91.1 million for preschool formula funding, a decrease of $276,000 compared to estimated FY 2025. The preschool formula funding is included in the State aid amount but is not included in the combined district cost total.
• $24.3 million in budget adjustment funding for 157 qualifying districts, an increase of $8.8 million (56.99%) compared to estimated FY 2025. The budget guarantee adjustment is calculated at the school district level so that school districts receive 101.00% of their previous year’s regular budgeted funding. The budget guarantee adjustment is funded entirely through property taxes.
• The total property tax funds generated through the school aid formula are estimated to be $1,803.3 million, an increase of $56.8 million (3.25%) compared to estimated FY 2025.
• The total State aid from the General Fund (reflecting the total school aid funding level for school districts and AEAs generated through the school aid formula) is estimated to be $3,940.4 million, an increase of $152.8 million (4.03%) compared to estimated FY 2025. Figure 4 also includes the FY 2026 General Fund appropriation of $32.7 million to the Transportation Equity Fund, which is not included in the total State aid estimate. Any legislative action affecting FY 2026 school aid provisions will have an impact on school aid amounts. Additionally, any variations in the assumptions noted may result in changes in the FY 2026 estimates provided in Figure 4.

1 Since FY 2018, the General Assembly has further reduced funding to AEAs by an additional amount per year. Historically, the additional reductions have been included in the annual Standing Appropriations Act. Figure 4 — SF 1672.00% Set a State Percent of Growth 157$ 5$ Set additional dollars to SCPP separate from the SSA 5$ Yes Select if the PTRP is renewed ("No" is current law) 162$ 0$ Select AEA reduction in addition to current law ($7,500,000) 7,988$ 0$ Transfer from Taxpayer Relief Fund FY 2026 7,500,000$ Program Funding: FY 2025 Est. FY 2026 Est. Change % Change Regular Program District Cost 3,790.5$ 3,844.0$ 53.5$ 1.41% Regular Program Budget Adjustment 15.5 24.3 8.8 56.99% Supplementary Weighting (District) 129.7 141.8 12.1 9.34% Special Education Instruction (District) 536.7 552.7 16.0 2.99% Teacher Salary Supplement (District) 401.1 450.1 48.9 12.19% Professional Development Supplement (District) 38.0 39.4 1.4 3.75% Early Intervention Supplement (District) 41.3 42.8 1.5 3.75% Teacher Leadership Supplement (District) 189.2 196.3 7.1 3.74% AEA Special Ed Support District Cost 188.9 191.8 2.9 1.55% AEA Special Ed Support Adjustment 0.8 1.2 0.3 40.50% AEA Media Services 33.1 33.6 0.5 1.39% AEA Ed Services 36.6 37.1 0.5 1.40% AEA Sharing 0.2 0.2 -0.0 -0.48% AEA Teacher Salary Supplement 18.6 18.9 0.3 1.72% AEA Professional Development Supplement 0.0 0.0 0.0 AEA Statewide State Aid Reduction -32.5 -7.5 25.0 -76.92% Dropout and Dropout Prevention 149.5 149.5 0.0 0.00% Combined District Cost 5,536.3$ 5,716.2$ 179.9$ 3.25% Statewide Voluntary Preschool Program 91.4$ 91.1$ -0.3$ -0.30% State Aid: FY 2025 Est. FY 2026 Est. Change % Change Regular Program 1,989.4$ 2,025.4$ 36.0$ 1.81% Supplementary Weighting 108.4 119.6 11.2 10.36% Special Education Weighting 473.8 488.0 14.2 3.01% Property Tax Adjustment Aid (1992) 6.4 6.2 -0.2 -3.64% Property Tax Replacement Payment (PTRP) 126.8 137.3 10.5 8.29% Adjusted Additional Property Tax - General Fund 24.0 24.0 0.0 0.00% Statewide Voluntary Preschool Program 91.4 91.1 -0.3 -0.30% Minimum State Aid 1.3 1.2 -0.1 State Aid from General Fund 3,787.6$ 3,940.4$ 152.8$ 4.03% Transfer from Taxpayer Relief Fund 13.9$ 0.0$ -13.9$ -100.00% Transfer from Economic Emergency Fund 8.0 0 -8.0 -100.00% *Adjusted Additional Property Tax - SAVE Fund 29.0 31.6 2.6 9.06% Foundation Base Supplement (FBS) 9.7 10.2 0.5 5.66% Total State Aid (Includes Non-General Fund) 3,848.2$ 3,982.2$ 134.1$ 3.48% Local Property Tax: FY 2025 Est. FY 2026 Est. Change % Change Uniform Levy Amount 1,156.5$ 1,199.3$ 42.9$ 3.71% Additional Levy 590.1 604.0 13.9 2.36% Total Levy to Fund Combined District Cost 1,746.5$ 1,803.3$ 56.8$ 3.25% Comm/Ind - Uniform Levy Adjustments 23.9 19.3 -4.7 -19.56% Comm/Ind - Additional Levy Adjustments 10.1 0.0 -10.1 Miscellaneous Information: FY 2025 Est. FY 2026 Est. Change % Change Budget Enrollment 483,699 480,665 -3,033 -0.63% Number of Districts with Budget Adjustment 140 157 17 12.14% Percentage of Districts with Budget Adjustment 43.08% 48.31% Statewide Categoricals Total 688.2$ 747.5$ 59.3$ 8.61% Property Tax Relief Payment Per Pupil 223 242 19 8.52% Foundation Base Supplement Per Pupil 5 10 5 100.00% Statewide AEA Funding 245.7 275.3 29.6 12.03% Transportation Equity Program 31.1 32.7 1.6 5.00% Notes:

Professional Development Supplement (PDS) Area Education Agency (AEA) *Secure an Advanced Vision for Education (SAVE) Fund Sources: Department of Management (School Aid File), LSA analysis and calculations. Totals may not sum due to data duplication and exclusion. For example, other funds are provided by State Aid but not included in the State Aid section because they are represented in the Program Funding section listed above. The Transportation Equity Program is not included in State Aid totals.

The provision for Minimum State Aid requires that the State provide at least $300 per student.

Total AEA Reduction

Legislative Services Agency: FY 2026 School Aid Estimates (Statewide Dollars in Millions) State Supplemental Aid (SSA)

Additional Dollars

Total Change

FY 2026 State Cost Per Pupil (SCPP) Division II — State Cost Per Pupil provides an additional increase of $5 to the FY 2026 regular program SCPP, separate from the SSA. This results in an increase in appropriations from the General Fund totaling an estimated $2.9 million, beginning with FY 2026. The expenditure will result in an estimated additional $1.5 million being expended for additional support for pupils and an estimated $1.4 million property tax reduction. These amounts are included in Figure 4.

Division III — Supplementary Weighting for Shared Operational Functions is estimated to increase the operational function sharing supplementary weighting by a total of approximately 129 pupils for 46 school districts at a total annual cost of $1.0 million beginning with FY 2026 and ending after FY 2035. The estimated increase will be funded with an appropriation from the General Fund of approximately $942,000 and $91,000 from local property tax through the school aid formula. These amounts are not included in Figure 4.

Sources

• Department of Education, Certified Enrollment and Enrollment Projections File
• Department of Management, School Aid File
• Department of Revenue
• LSA analysis and calculations