Red Oak Board settles on budget numbers

The Red Oak School Board is continuing to take steps to finalize its 2026-27 fiscal year budget.
At the regular meeting March 25, board secretary and business manager Heidi Harris gave an update on progress thus far, saying that, keeping in line with the board’s wishes to increase the management fund, she and other administrators had been in contact with officials with Piper Sandler, the district’s financial advisor.
“Piper Sandler recommended a smoother, more moderate approach to increasing the management fund. So we did some numbers. We did increase the management fund and we looked at increasing it to $1.2 million dollars, though we’re still open to suggestion,” Harris said.  “With that, we had to increase the income surtax to 8%. The good news here is that puts us at a levy rate of $15.27, giving our taxpayers a little bit of relief. We did levy the full amounts to the cash reserve for the School Budget Review Committee. We could probably still increase that management fund a little more gently. We also have latitude in terms of adjusting our income surtax, which will have the opposite effect rather than raising it, we’ll lower the property tax rate.”
The board then moved into discussion of the proposed budget in light of recent legislative changes. Superintendent Ron Lorenz reminded the board that on March 3, the district submitted the proposed maximum tax levy statement to the Iowa Department of Management.
“I emphasize that word maximum because we’ve tried to be clear all along that that is the maximum amount that the levy could be. I don’t think anybody in the room expected it to be that amount. We set it there because that’s what we knew at the time prior to Supplemental State Aid being established. There were notices sent out and that rate of $15.56 per thousand as the maximum that the district had to work with,” explained Lorenz.
Lorenz said he and other administrators have been looking at things, and now that the state is going to cover the budget guarantee, that is going to deflate that amount.
“In order for us to move forward and to finalize a proposal to bring to the board, we need some direction regarding a couple of things. First and foremost, I think we’re clear on the board in terms of what it wants do with the surplus levy. I like talking about this because the board has saved nearly half a million dollars for the taxpayers and interest payments by levying that amount. The levers that the board has to pull are with the management fund. And I think we do have to levy a significant amount because that fund is currently operating in a deficit. So we need to get that back up,” advised Lorenz.
The management fund is used to pay for such things as natural gas, legal settlements, and insurance, If the district wants to fund any early retirement incentives in the years to come, it has to have money in that fund. While there was some uncertainty across the country regarding natural gas, one of the things helping the Red Oak school was that natural gas costs are on a decline. Costs initially started out around $89,000 for the district, but have dropped by more than 10%, with the new rate for the current year coming in at $74,714. By purchasing the natural gas through a special program, the school was provided with predictability, and knew the exact price the gas was going to cost, rather than having to deal with cost spikes due to cold snaps or other weather events. For the management fund, Lorenz said they kept sticking to a specific number.
“We’re kind of hovering somewhere in that one to $1.2 million area. For every $100,000 that the board increases the management levy, that increases the total levy rate by 20 to 21 cents, depending upon the rounding. So we have to keep that in mind. The other thing we have to be mindful of is the income surtax. We are currently at 4%. The board can raise that, but for every percent increase that the board raises that, that decreases the overall levy rate by about 11 cents. We’re currently at four. Last year it was at five,” stated Lorenz.
When comparing Red Oak to other area districts, Lorenz said their income surtaxes were quite varied.
“There are some that have an income surtax of zero, there are some that have an income surtax of 10% or 15%. The average is five, but we have levied here in Red Oak from 2010 through 2015, we were at 8%. And I think the reason that there’s such variability in income surtax is it’s a local preference to be sure. What the income surtax does is it distributes the tax burden to everyone in the community as opposed to simply landowners. If you have a smaller or a lesser income surtax, your landowners are paying more of the bill, so to speak. So that’s why some communities have an income surtax of 10%. I know in districts I’ve been in before, it’s been 15%. It’s local preference and that’s to be determined by the board,” commented Lorenz.
Lorenz was looking for input on what to settle on for the management fund and the income surtax. Lorenz broke down the numbers of the board opted for a 10% income surtax.
“If we went to 10% from 4%, that’s six percentage points, which means that would save us 66 cents on the current levy rate. It’s going to cost us 20 cents for every $100,000 in management, so we could go to 1.3 million. It would take the levy rate right back to $15.25,” said Lorenz. If we try to get the $1.3 in management fund, that does leave us some room, and it puts us in a position where if we want to start considering an early retirement incentive in the next year or two, that gives us the capacity to do that,” Lorenz stated.
Lorenz also added that the district was in a tough position, as taxpayers are expecting property tax relief, so the district has to be mindful of that, but on the other hand, the district is currently operating in a deficit in its management fund.
“We have to do something with management. I think it’s a question of how much of something because I think, in my opinion, it’s a no-brainer. We have to levy at least a million, but if we want to start getting into just having some flexibility, if we want to look at early retirement, we’re probably going to have to start bumping that up because we’ve been depleting that or whittling that down over the last few years. Last year, we didn’t levy anything there because we were trying to control our rate. The reality of it is all these costs we’re talking about are predictably going to go up another 10% like they have,” Lorenz advised.
The reason for the modest increases is because the state is really scrutinizing schools because many schools have a very heavy management fund. Red Oak does not, but many schools do, so the legislature is really keeping their eye on that. Also, there is a potential that there are going to be legislative changes that impact the management fund.
“If we don’t act this year, we could be somewhat out of luck in terms of the baseline that they use to calculate that moving forward. We don’t know that that’s going to happen because nobody has a crystal ball in terms of which property tax proposal will be adopted or how it will be amended,” Lorenz commented.
The board was in agreement that it should act to put at least $1 million in the management fund, but Lorenz needed guidance on how high to set the income surtax.
“As I said, it’s currently at four. We can, we’ll put it at whatever level you want us to. And if you ask me what the right number is, I can’t tell you because it’s all over the board. For this current year, Fremont-Mills, East Mills, and Glenwood are at 10. Clarinda is at 8%, and Bedford and Lewis Central are at 7%. If we go to eight percent we’ll reach $1 million in the management fund. If we went to 10% it would be $1.3 million. I would say, I think $1.2 million would be sufficient,” commented Lorenz.
Based on the comments from the board, Lorenz said the board seemed comfortable setting a management fund of $1,200,500, an income surtax of 8%, and a resulting overall tax rate of $15.27 per thousand dollars valuation.
“If we proceed with those numbers, that will result in a 22 cent decrease in the overall levy rate from this year,” said Lorenz.
The board agreed to have Lorenz proceed with the $1.2 million management fund, an 8% income surtax, and the $15.27 overall tax levy rate.