How Iowa’s Governor Will Pay for $918 Million Education Savings Account Plan

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As Democrats argue Gov. Kim Reynolds’ private school scholarship program would take away funding from Iowa’s public schools, Republicans are pointing to the governor’s proposed budget as proof that support for Iowa’s K-12 system remains strong.

Reynolds is proposing a budget of nearly $8.5 billion for the upcoming fiscal year, an increase over the current year of roughly $300 million. More than half of the state spending proposed is for education.

Over the next four years, the education savings account (ESA) program would cost $918 million, according to estimates by the governor’s office. Democrats and public school advocates say that is nearly $1 billion in state funds being diverted from public schools, but Republicans argue that it is new, unrelated spending.

In the same four year period, the state is estimated to spend $15.2 billion on public education, with expectations of increasing K-12 spending by roughly 2.5% each year. But Democrats said that Iowa has underfunded education for years, and that the money put toward the governor’s plan should go toward filling funding gaps in public schools.

Margaret Buckton, a lobbyist with the Urban Education Network and the Rural School Advocates of Iowa, told legislators Wednesday that Iowa’s education spending has lagged inflation for both per-pupil costs and the cost of “doing the business of school” in the past decade.

“Our major concern is a program like this, that phases in over four years with hundreds of millions of dollars of obligation on part of the state, that hits the balance sheet exactly when the historic tax cuts of last year reduce state revenues by 1.8 billion, means that our school districts are concerned there will never be increases in the state cost per-pupil adequate to provide the programs that our students in public schools need,” Buckton said.

Grassley said no matter how much money the Legislature designates for state supplemental aid to public schools, Democrats will always say its not enough.

“That’s a consistent argument that we’ve always faced,” Grassley said. “We’re spending more money on public education now than we ever have in the history of this state. … Clearly we’ve made it a priority as part of our budgets, I don’t see (ESAs) being one of those things that is a drain on that.”

Other priorities for 2023

While her private school scholarship program is a central focus this year, Reynolds has also announced plans to restructure Iowa’s system of government agencies and departments as well as enacting policies she said will help rural health care systems, from funding obstetrics fellowships to tort reform.

Here are some takeaways in the governor’s proposed budget for fiscal 2024, which begins July 1, 2023:

Overall spending: Reynolds is recommending Iowa increase its net spending from an estimated $8.2 billion in 2023 to nearly $8.5 billion in FY 2024. That 3.3% growth is greater than the previous year’s estimated growth of less than 1%. The rise was higher than in previous years because of increased federal aid disbursements, but the state government will still leave nearly $2 billion unspent from Iowa’s general fund budget.

Property taxes: A notable omission from Reynolds’ Condition of the State address and proposed budget was changes to Iowa’s property tax code, which legislative Republicans have highlighted as their tax policy focus in 2023. Replacements for property tax revenue were not included in Reynolds’ budget proposal this year, but Grassley said tax policy changes are typically one of the areas that take the most time for the Legislature to work through.

“I hope we didn’t build a false expectation of tax policy that it’s done immediately in every session that we did last year,” Grassley said. “… I think you’re gonna see us hopefully fund some bills sooner than later as well, that are going to begin that conversation around property tax.”

Reynolds did say she hopes to improve the “affordability of child care through property tax parity” for both commercial and in-home care providers, but did not mention other potential property tax reforms.

Education: More than half, 56.4%, of Reynolds’ proposed budget is appropriated to education.

Private school scholarships: The private school scholarship proposal Reynolds laid out as her top priority for this year’s session is built into her budget. She has allocated $106.9 million for the education savings accounts, or ESA, program, in its first year. The governor’s office calculated that amount using data on how many Iowa kindergarteners are enrolled in private schools and how many current private school students are under 300% of the federal poverty line. The governor’s office based its estimate on the assumption that about 1% of public school students in grades 1-12 are likely to transfer.

State aid:  The budget overall includes a 2.5% increase in funding for K-12 public schools. That includes an $82 million increase for the State Foundation School Aid and over $700,000 more for the transportation equity fund, but no other changes in PK-12 spending from the current fiscal year.

Higher education: The Iowa Board of Regents asked the Legislature to increase its budget by $34 million for the state’s three public universities, but Reynolds’ proposal would allocate less than half that amount, granting a $12.5 million increase. That’s more than the Regents received in previous years, but board members said they needed a greater increase this year to both keep up with inflation and make up for underfunding in previous appropriations cycles.

Agency consolidation: The governor also said she plans to take on a major internal project for Iowa’s government: restructuring the state’s system of agencies, with a planned consolidation from 37 to 16 cabinet-level departments. While she said this would not result in loss of funding or services, she said the government would save money through combining offices, selling land and cutting full-time equivalent positions that are currently vacant. The governor’s office estimates its reorganization will save Iowa more than $214 million in the course of four years, with an estimated $73.5 million in savings in  year one.

Rural health care: As the state continues to struggle with workforce shortages, Reynolds proposed expanding Iowa’s existing apprenticeship programs for in-demand fields that require training. A large focus was on the state’s Iowa Health Careers Registered Apprenticeship Program, which said will expand to cover more nursing programs, EMR, EMT, and paramedic and direct care professional certification, as well as behavioral health training. This expansion would be met with an increase in funding from $3 million to $15 million, the governor proposed.

Iowa also faces a shortage of OB-GYN health care providers specifically. The governor announced her plans to use $560,000 to fund four obstetrics fellowships for family medicine physicians, who would be required to commit to practicing in rural and underserved communities for five years following the fellowship.

Additionally, Reynolds called for the creation of two new regional “Centers of Excellence,” health care providers in rural Iowa that provide specialized services from cancer treatment, maternal health programs and surgery. Her budget would provide $575,000 to fund the new centers.

Abortion alternatives: While Reynolds and Republican leadership have said they plan to hold off on further abortion legislation until the Iowa Supreme Court makes a decision in the state’s law banning the procedure after six weeks, Reynolds did say she plans to increase funding available for abortion alternative organizations this year. Reynolds called for growing the “More Options for Maternal Support,” or MOMS program funding from $500,000 to $2 million.

Iowa Capital Dispatch is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: info@iowacapitaldispatch.com. Follow Iowa Capital Dispatch on Facebook and Twitter.

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