As the Marshalltown Cmmunity School District (MCSD) finalizes its budget for the 2026-27 fiscal year (FY27), it is important to provide clear context on how school funding works in Iowa and why adjustments to the local tax rate are sometimes necessary. School finance is driven by a combination of state formulas, enrollment trends, and mandated programs, all of which play a role in shaping the final tax rate.

First, it’s important to understand that local school tax rates are largely driven by the state funding formula, not local discretion.The majority of a district’s tax rate is determined through Iowa’s complex “Aid & Levy” system, which calculates a mix of state aid and property taxes based on enrollment and property valuation. Local school boards have control over only a limited portion of the overall rate.

Iowa school districts operate under a fund accounting system, meaning that different portions of the tax rate are tied to specific funds that can only be used for designated purposes. For example, Physical Plant & Equipment Levy (PPEL) can only be used for infrastructure, technology, and equipment; Public Education and Recreation Levy (PERL) supports community recreation; and Debt Service Funds are restricted to paying off voter-approved bonds. These funds cannot be shifted to cover general classroom expenses, which limits flexibility when addressing funding gaps.

For FY27, the State of Iowa set Supplemental State Aid (SSA) at 2%, which equates to about $160 more per student. While any increase is helpful, this amount falls well below inflation and does not keep pace with rising costs districts face, particularly in areas like special education and English Language Learner (ELL) services.

Because these costs are not fully funded by the state, districts must rely on local property taxes to fill the gap. In the case of Marshalltown, this has led to an increase in the tax rate. The district is specifically using the cash reserve levy to support expenditures that are legally required but not fully funded, such as special education deficits and additional ELL costs. A key factor in this pressure is that the federal government has historically committed to funding up to 40% of special education costs but has not met that commitment for many years, leaving local districts to cover the difference.

It is also important to note that this is the first time in several years Marshalltown has needed to rely on the cash reserve levy. In prior years, federal COVID relief funds helped offset these costs, allowing the district to keep the tax rate lower. As those funds have expired, the underlying funding gap has re-emerged.

At the same time, MCSD has taken proactive steps to lessen the impact on taxpayers. For FY27, the district is making over $2 million in budget reductions and continues to scale back expenditures where possible. These reductions include adjustments to programming, operational efficiencies, and a careful review of non-instructional costs, demonstrating a commitment to fiscal responsibility while preserving core educational services. These reductions allowed us to scale back the original estimated tax of $18.23 down to $17.96 for FY27.

Finally, it’s worth remembering that tax rates and tax bills are not always the same. Because property taxes are based on valuation, a homeowner’s total tax bill can increase or decrease even if the rate changes differently .

In short, the increase in Marshalltown’s school tax rate reflects a broader challenge facing districts across Iowa: balancing rising educational needs with state and federal funding that has not kept pace. Even so, MCSD has taken meaningful steps to control costs, make reductions, and remain a responsible steward of taxpayer dollars while continuing to support student success.

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Randy Denham is the Executive Director of Finance & Operations for the Marshalltown Community School District. He can be reached at rdenham@marshalltown.k12.ia.us. The district educates over 5,000 students to have the skills for a rapidly changing world. Learn more by visiting www.marshalltown.k12.ia.us.