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Rural school districts drop challenge of local option sales tax

Monday, October 18, 2004

A lawsuit challenging the state's local option sales tax for school infrastructure was dismissed Friday, with backers saying they will monitor a 2003 revision of the law to ensure rural schools get their fair share of revenues generated by retail sales.

"It's not perfect yet; but, it's getting much better," said Al Steen, the Hinton School District superintendent, this morning.

The state's 1998 local option sales tax law allowed counties to levy an additional penny tax (besides the local option sales tax) on retail purchases, with the money intended to help repair school buildings.

Rural school districts argued the system was inherently unfair since the state's retail centers were located in urban counties. Rural residents essentially were subsidizing urban schools when they shopped, while their own share of the tax money was nominal, they maintained.

"It was just an issue that the rural districts in the large sales areas felt was very inequitable and there had to be something done to make sure it was more equitable," said Steen.

"It shouldn't make any difference. For example, here we sit in Hinton and a lot of people shop in Sioux City. Why should our sales tax dollars go to Sioux CIty schools when Hinton schools need some infrastructure help? Or Le Mars schools? Or wherever the case may be? It shouldn't make a difference whether you shop in Woodbury County or Plymouth County, it should benefit all the schools," he said.

Attorney Steven Wandro of Des Moines, who represented the 161 rural school districts, including Hinton and Remsen Union which challenged the tax as inequitable, said the lawsuit was dismissed Friday.

"If there are things that happen with the legislation that do not bring the disparity between retail-rich counties and retail-poor counties together, then we'll be back in court," he said.

"It's much more equitable than it ever was before and it's getting better so we're hoping the legislature will continue to address the issue," observed Steen. "It's much better than it ever was before."

Gary Battles, superintendent at RU, one of the early schools in the lawsuit, said the idea was to find a way to raise money for infrastructure.

"Our push for it, as a group of small schools, was to put some pressure on the legislature, because at that time, when we started, it appeared the state and most counties were not going to be in favor of it (the sales tax). However, it's kind of like a domino effect. As counties got into it, realized it was a way to generate income and not impact property tax, more and more counties went for it," he said.

So far, 91 of Iowa's 99 counties have approved a local option sales tax, Wandro said.

The lawsuit prompted the Legislature to revisit the system in 2003, according to Associated Press reports.

Revisions allow counties to keep proceeds during the first 10 years of the tax. After that, a portion above a statewide threshold will go into a special pool from which smaller counties could seek funding, as long as they have approved their own local option tax.

The revisions also set up a $10 million pool, funded by gambling revenues, from which poor counties could draw in the meantime.

"Our clients wanted to give the legislation a chance to work," Wandro said. "It seems to be doing that ... before litigation, there was approximately $93 going to each student in Louisa County. Today, there's $368, so that's a 400 percent increase."

Margaret Buckton, government relations director for the Iowa Association of School Boards, said the local option tax has been a boon to many Iowa urban districts, including Des Moines, Davenport and Sioux City -- some that had schools dating back a century or more.

"Irving Elementary was built the year Geronimo surrendered," she said. "How would you foresee wiring technology through walls?"

Buckton said she thinks the districts that were parties to the lawsuit no longer see a need for litigation because of the changes.

"The philosophy of the law is that the Legislature agrees with equity. It's just a matter of degree now," Buckton said.

She said additional changes in the 2003 law allow local option tax revenue to be used for such things as equipment, maintenance and school buses, while it initially was earmarked only for school buildings and relieving debt on school buildings.

All these things, she said, are a step closer to providing "safe schools designed with technology for student learning."

According to Battles, "I think the idea behind the lawsuit was to push the state to go statewide. That didn't come about; however, because a majority of the counties in the State of Iowa have voted favorably, the bottom line is most counties and schools in those counties are getting what they need."

(Information from an Associate Press report by Carol Riha is included in this article.)

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