No easy solution

Monday, May 7, 2007

After the school infrastructure local option (SILO) sales tax was approved bu the state legislature in 1998, it was found that the revenue from the tax is much more lopsided than legislators had expected.

The revenue is collected for each county where the tax has been approved and divided up among school districts based on where students who live in the county attend school.

School districts in a county with a metropolitan retail area receive several times the revenue per pupil that districts in the most rural counties receive.

Woodbury County receives a good deal of sales tax revenue from shoppers who live in other counties, including Cherokee County.

For many years, a lawsuit was threatened by a coalition of school districts in counties that would benefit by a more even distribution of the revenue from the SILO tax collected in the state.

State legislators averted the lawsuit through legislation that phased out the original method of distribution. In counties that approved a SILO tax after the change in the law four years ago, the revenue goes into a pool for distribution rather than remaining in the county.

All 99 counties now have a SILO tax and if they all retain the tax, all school districts will eventually get the same per pupil amount.

Woodbury County, the first county to approve the tax, is the first county for the tax to expire through the 10-year automatic sunset. Voters have already approved an extension of the tax to take effect when the original approval expires in 2008 but this extension will not generate the present level of revenue.

The Sioux City School Board has now announced its intention to sue the state because of what the Sioux City Board members see as tax inequity.

Rural school districts that have a great deal of farm land and little population tend to be property rich districts. The amount of property valuation per pupil is higher in the most rural districts so the property tax rate doesn't need to be as high to generate the same per pupil revenue as in property poor districts.

The SILO tax, as originally designed, helped retail rich districts that could generate a good deal of revenue from a sales tax. The lawsuit promised by the Sioux City School District attempts to restore the advantage of the tax in districts that are retail rich but property poor.

What about districts like Cherokee that are both retail poor and property poor?

The Cherokee District would be more retail rich than neighboring districts like Marcus-Meriden-Cleghorn and Aurelia except that the SILO tax was never retained within the district, just within the county. The tax revenue is distributed countywide so MMC and Aurelia get the same per pupil amount as Cherokee from SILO, which is much less than in Woodbury County school districts.

However, MMC and Aurelia are relatively property rich districts that have a lower property tax rate for the general fund than Cherokee. This results from the state's formula that establishes a uniform amount per pupil throughout the state, coming from a combination of local property tax and state aid. The state formula dictates that the property tax rate is higher in the Cherokee District than in the MMC or Aurelia District.

There is no easy way to make tax more equitable. Farmers and other high value property owners understandably feel burdened with property tax. But a high corporate income tax would discourage businesses wanting to build or expand in Iowa and a high personal income tax would discourage young professionals from living in the state. A high sales tax can hurt retail businesses, especially in towns near the border of states with a lower sales tax.

Perhaps the state can take over more of the burden of school funding, giving relief to property owners, but too much of a shift could have other unexpected negative consequences.