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The Texas Commission on Public School Finance Revenue Working group met to hear invited testimony on revenue related to Public School Finance. The next meeting is expected to occur on November 27th with the complete recommendations anticipated to be presented to the full commission at some point in December.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Members present: Bettencourt, Conley-Johnson, Brister

Visiting members: Rep. Bernal and Doug Killian

Opening remarks

  • Bettencourt – We have to wean off Robin Hood
  • Nicole Conley-Johnson – goal would see legislature to find $6 billion in new monies for public education
  • Next meeting 1 pm on Nov 27th is next scheduled
  • Full recs to be made at some time in Dec

Dale Craymer, Texas Taxpayers and Research Association

  • Reviewed presentation
  • Seeing overall state revenue grow but state support drifting downward
  • Bettencourt – so effectively talking about a freeze? Asked about growing property values
    • Yes
    • Consequence it does relieve some burden on the state as a result of taxes rising
  • Reviewing Supreme Court statements on Taxes and Revenue – focus on equity
    • If property tax is going to be used then it has to be equalized
    • If nothing was done, in 20 years could have a school system funded entirely by local property taxes
  • Options to eliminate or alleviate recapture
    • Increase basic allotment
    • Using $725 million to reduce the compression percentage
  • Elimination of recapture by itself will not be an option but there is a way to reduce it
  • Suggest a rider included in the appropriations bill to show all sources to the Foundation Program
  • Bettencourt – asked to go back to graph provided in handouts
  • Conley-Johnson – asked about suggestion one
    • Specifically would suggest as values rise would say take 6.7% value growth and use it to address compression rate
    • Thinks decision to raise basic allotment should be separate from addressing the rise in values
  • Bernal – wants to make sure he understands the other graph about recapture
    • Increase the basic allotment by $100 would increase $725 million to schools OR
    • Benefit of value growth would go to taxpayers and the schools would not see anything
    • Bernal – wondered if the third option even satisfies the role of the commission, more of addressing property tax than school revenue
  • Bettencourt – the state has to get out of the system of Robin Hood, thinks freezing it is a good way to start the conversation
  • Conley-Johnson – asked about extending transparency (rider suggested) to local tax payer bills
    • Does not have a problem with that suggestion
    • Bettencourt – one thing they understand is the bill they have to pay, they have to pay 100% of the bill regardless of the split

Chandra Villanueva, CPPP

  • Presentation – Don’t Get Distracted by Recapture: Our Biggest School Finance Challenge is a Lack of Revenue
  • Recapture one of best ways to level the playing field in districts
  • The only reason they are talking about recapture is because school funding has not been updated
  • Recapture has gotten out of hand because system is underfunded
  • System should be updated so it reflects the true cost
  • Need to slow the growth of charter schools in recapture district
  • Look at Copper pennies – yield has not bee updated for a long time
  • Ways to address concerns – scrubbing of tax code, looking at exemptions that are no longer needed
  • Perhaps a Sunsetting of certain taxes
  • Suggests a cost of education study
  • Brister – suggest property taxes and sales taxes do keep up with inflation
    • Does not suggest increase in taxes but expand the base
  • Brister – not sure if there is ever an answer on how much a quality education cost, there are just so many variables (gives example of teacher pay)
    • There are measures in statute on how much a quality education cost
    • Last time study was done it was not fully funded
    • Formulas should be updated routinely
  • Brister – competition keeps prices down and makes us more efficient, thinks there is a great case for fewer teachers who make more money
  • Brister – not sure about a study on the cost of education
    • It may be too hard to do in one session but perhaps an adequacy target that would take 10 years to get there
  • Bernal – agrees the cost of education may not be known but the state of poverty has a tremendous effect but there is an imbalance – tries to find balance out of both testifiers’ suggestion
  • Bettencourt – offers Dale ability to comment on testimony
    • Dale – What made Perot commission successful is that people knew what they were getting for the resources
    • Dale – Concern in the last few years is continuing adding funding
    • Bernal – is that what is happening?
    • Dale – Putting money in but not measuring results
    • Bettencourt – we are putting money in and not getting results
    • Dale – need a measurable goal for what dollars are achieving
  • Conley-Johnson – agrees tax policy is behind the times, thinks finding $6 billion is a short goal
  • Conley – Johnson – schools are doing more with less funding, 7% less – what the system has done is drag everyone down, we need to restore adequacy
    • Dale – saying raising the gas tax by 10 cents does nothing to help education system, what helps is what the money is being spent on
    • Dale – raising money doesn’t help public schools unless it is spent appropriately

Vance Ginn, Texas Public Policy Foundation

  • Presentation – Eliminating School M&O Property Tax in Texas
  • Spending more in education than increase in enrollment and inflation
  • Need to make sure money is being spent in the classroom
  • Need to slow growth rate of taxes over time, limiting the spending growth
  • If take certain amount of unspent revenue then could buy down M&O over time with state surplus dollars
    • Bettencourt – phase replacement over time?
    • Correct
  • Presented a study form Rice University of Baker Institute said their plan presented to the committee would work and increase job growth
  • Bettencourt – thinks this a novel concept, trying to make a major change
    • Wouldn’t consider certain exemptions failed because they are still on the books
  • Their plan could pair with the Governor’s plan capping the rate

David Thompson, Individual 

  • If had just index a portion, etc recapture would have been just a portion and equalized
  • Effective rate system strips out dollar of value growth then don’t see benefit of rising value growth, so if even a portion were to be recommitted to the schools would lower effective tax rate while raising equity of the system
  • With regard to recapture, don’t see it as an isolated issue rather a visible manifestation of states reduction in funding
  • In regards to revenue sources points out two: need to look at internet sales in Texas (need to look at implementing collection by start of Jan 2020) – should generate in excess of $1 billion per year and it’s a rapidly growing sector AND need to look at gasoline tax in Texas (raise about $1.4 billion per year)
  • Last comment – one important issue around indexing, school finance is not set it and forget and believes issues come from not addressing so indexing should make it sustainable over time, it will take time to address

Tom Currah, Comptroller Office

  • Bettencourt – asked witness to provide information on testimony
  • Gas is about right around 8 cents
  • On Wayfair, agrees $1 billion estimate was floated around a few years ago so that number was state and local and does not see that amount being $1 billion
  • In rule making process currently on remote sellers
    • Bettencourt – that would be out in late fall of 2019
    • Thompson – if even half of his suggested amount with gasoline tax would be enough
  • Conley-Johnson – do you have similar estimate on natural gas tax exemption of $380 million
    • Does not have that with him
  • Conley- Johnson – agrees increase needed in motor fuels and index it, what about fee or registration for electric hybrid so no mechanism to account for its impact on the infrastructure
    • Don’t generally propose items but if someone does they will try to estimate it
  • Conley-Johnson – Texas has one of the lowest taxes on spirits and it impacts traumas in our schools, or opiate use, those types of substances that can be abused
    • If you have proposal then need to know how much you want to tax, they will provide an estimate

Zahava Stadler, Ed Build

  • Work on bringing common sense and fairness to way public school education is built
  • Recapture system is a model for other states but recapture system is a “creaky” and it may be time to improve the recapture system
  • Texas pioneered notion that local wealth should not determine local school budgets
  • Eliminating recapture would put burden on state budget
  • There are practical fixes for problems that have emerged
  • Brister – can tell if complaints are that property taxes are too high or if they don’t like taxes going to another district
    • Depends on who is complaining
    • Not seeing where funding is going or expectations on funding may impact
    • Bettencourt – agrees seeing dissatisfaction of when bill is not funding expectation
  • Conley-Johnson – is there a way to account for various poverty factors? Use to try this through CEI but now contemplating eliminating it
    • Its not about burden sharing but how big is the burden that is being shared
    • Are estimates being apportioned correctly in light of this
    • In re of accounting for revenue need in revenue model – one state factors free and reduced lunch into share, some states …hard to explain in limited time but brief version would be state to set a target in some areas higher than others
  • Bernal – would increasing weights and basic allotments reduce recapture
    • Yes

Jordan Scott, Reissa Foundation

  • Believes money matters and it should be spent well
  • Work on using robust evaluations to identify impact as well as conduct research
  • Foundations do not have funds to provide long term education programs, they are limited in funding
  • Challenge is to continue to fund program and communicating them to the legislature
  • Through research can inform some of this discussion
  • Gives background on TEGAC – believes they can fill data holes
  • Study found broad bi-partisan support for funding public education – spotlights some of the results
  • Bettencourt – may take organization up on filling in data holes at a later time

Stan Surratt – Superintendent of Lindale ISD

  • Would recommend using property value growth revenue and divide it into thirds (1) improving funding, equity and reducing recapture 2) provide some relief to homeowner by reducing M&O tax rate 3) let state plug it in where needed)
  • Equity center helped him provide details on the runs he gave to the committee

Kara Belew, Texas Public Policy Foundation

  • Presentation – An Accurate School Finance Revenue Picture
  • Decline in constant dollars is less than 1%, do not have TRS benefits and local I&S in those amounts
  • Need very clear data on state amount and local amount, amount spending on TRS so there is a very good picture on what is being spent
  • Spending about $61 billion per year in state and local funds, wants to talk about what state piece should be
    • Formula figures out how much the district is entitled to and how much will be raised locally
    • Texas Supreme Court has never held that State needs to be increased to match local funding
    • If state paid as much as the locals – local taxpayers putting in $31 billion and state, comprised of the same taxpayers, would need to increase $11 billion in funding
    • Increasing taxes at state level without compression at a local level will be problematic
  • Pointed to her comparison chart of Edinburg CISD is spending about $2,300 less than Dallas ISD but getting similar or better outcomes
  • Bernal – in state as large as Texas, won’t they always be able to pick out varying districts and Dallas and Edinburg could not be in any different – what is threshold to look at why differences?
    • Could be many reasons such as offering charter school options
    • Bernal – are there not any charters in Dallas?
      • Yes and they are needing to respond
    • Bernal – if answer is adding more charter schools, is it economically more efficient
      • Many students have high level of achievement at low cost
    • Bettencourt – to follow up, if did more logical groupings of districts
      • Has spent time do many comparisons, TEA has done a lot of work, and there is currently not a lot of connection between spending and outcomes
    • Bettencourt – is there a difference in Tier 1 and Tier 2 to help?
      • Not familiar with question
    • Bettencourt – would like more data on causality
      • Maybe uncoupling Austin Yield
      • Bernal – taken a bit aback on charter school statement, maybe provide more data to back up testimony provided
    • If taking taxpayers money then need to have answers to questions on current spending results
      • Bernal – to some degree no mystery about what works in some cases
      • Bernal – does not think anyone has said answer is more money and walk away
      • Bernal – believes commission has said where funding would be spent, not just thrown to piggy banks
      • Bettencourt – if Edinburg is doing something, then they need to see it
      • Bernal – caution Commission on need to find what explains success of comparison districts before moving forward
    • Can provide results of every single school district
    • Bernal – ACE model in Dallas has been to get results without changing students and part of their TRE is to pay for the program, cannot do it on the cheap
    • Bernal – relationships with any institutes of higher learner is a lot less scalable
    • Stan – those numbers may include bond indebtedness
      • Bettencourt – what programs are recognized as best practices
        • No one answer for every district
        • Maybe address bonded indebtedness first
      • Bernal – thinks past conversation on best practices, we know what they are
      • Bettencourt – just wants suggestions if they are out there
      • Bernal – thinks we are the point where we need to move
      • Killian – Valley was successful even before the charter school revolution so that does not ring true
      • Killian and Bernal (non-voting members) excuse themselves from the panel

Tommy Williams, Governor Abbot Office

  • Abbott focus on paying teachers and reduce property taxes and does agree more state revenue will be needed
  • Believes there are 3 essential elements needed: rebalance state share, slowing growth of property tax bills, and must treat all students equally based on individual needs
  • Reduce projected growth of recapture to keep property tax dollars local
  • Argues current system will see recapture grow to over $5 billion
  • Bettencourt – this project will happen unless changes are made, the need for tax reform is clear as is what happens without tax reform
  • Solution is not just about putting in money although money is a part of the solution
  • Compression of property taxes is suggested
  • To solve problem state must do more – need to improve student outcomes with data driven solutions, reduce overreliance on property taxes, compress rates as local values rise and restructure recapture
  • Charter attendance credits could be key, charter schools would not received any additional funding it would be just a change in finance
  • Brister – said he heard about over 80 slide presentation but this is only 44
  • Bettencourt – said it is the three goals stated are very positive
  • Bettencourt – asked Tom Currah if estimates provided were from his numbers
  • Tom Currah – provide an estimate of property value growth of 6.2% and predictions of 4% in the next year
  • Gov’s office used long term trend of 6%
  • Tom Currah and Bettencourt review further economic numbers
    • Texas has had strong growth but they are predicting moderate growth and will review as it gets closer to end of tax year
  • Jason Clark from Railroad Commission addresses Bettencourt’s question regarding oil and gas and likelihood of getting another pipeline
    • Does not speculate – only take about what is current situation
    • Numbers are available on website, can also provide numbers
    • 896 million barrels would be in current report
    • Bettencourt would like base data to get more details on a public policy case to possibly getting a pipeline
  • Bettencourt – see other possible upsides from presentations, such as additional state resources
    • Want to work with stakeholders to determine the numbers
    • Don’t want to see them back into the number from available revenue, may have to do that in the end
    • If you take a look at what expenditures workgroup has come up with and put a price tag on it, thinks that is a god thing
    • Next how would you distribute, would argue the current formula system is out of date
    • What do you want to do to current method of finance, what do you want to do
    • Then will have the right number, there are a number of sources and willing to work with them all to come up with something
  • Bettencourt and Conley-Johnson talk about revenue available for public education – recommendations on the expenditure committee
  • Conley- Johnson – so there is not new money
    • Bettencourt reviews amounts from the expenditure
  • Conley-Johnson – trying to figure out the amounts needed to fund public education and buy down property tax relief, how much is needed to buy down tax?
    • Williams – don’t have that answer, not prepared to answer today
    • Bernal – let’s break it up, it’s a tax plan and education plan – arguably a tax plan
    • Williams – that maybe you but I don’t think so
    • Bernal – arguably out of the 4 pillars of the plan, most is tax, what is price tag for compression?
    • Williams – not prepared to answer today
    • Bernal – not sure that is in their scope to answer questions
    • Williams – reviews charge to Commission and said it is squarely in scope
  • Bernal – if knew how much compression cost would help inform but they will try to figure that out
  • Bernal – asked about popcorn slide (pg 41), if there is incentive rewards are for schools that do better but schools that do better have higher income level students then sees this as tipping the scale
  • Conley-Johnson – asking about compression rate
    • It compresses it down to 2.5%