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The Texas Taxpayers and Research Association held a webinar to give an overview of the Texas school finance system, specifically noting changes that came as a result of HB 3, 86th Texas Legislature. Sheryl Pace, of TTARA, detailed the ways school districts can receive funding and gave an overview of funding formulas. The presentation can be found here.

 

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.

 

Sheryl Pace, TTARA

Texas Public School System

  • More school districts and school employees than any other state
  • 20 Regional Education Service Centers
  • 4 million enrolled students in 2018, 52% Hispanic, approx.. 60% eco disadvantaged

Public Education Funding in the State Budget

  • Funding comes from local property tax, state tax, and federal revenue
  • The more taxable property value per student that a district has, the less state aid it receives
  • Districts that collect more property tax than their formula entitlement must remit excess to the state or choose another option to reduce their access to the additional revenue
  • Funds dedicated to public education:
    • Available School Fund (ASF): Earnings from Permanent School Fund are transferred to ASF
    • Motor fuel taxes, occupation taxes, lottery
    • Property Tax Relief Fund-
    • Tax Reduction & Excellence in Education (TREE) Fund (regulated and permitted)
  • Property tax rate components
    • School district property tax rate components levied per $100 of value
    • Maintenance and operations (M&O) tax rate provides funds for maintenance and operations (employee salaries, utilities, supplies, etc.)
    • Interest and sinking (I&S) tax rate provides funds for payments on the debt that finances a district’s facilities
  • HB 3 authored by Rep. Huberty
    • Provided $6.5 billion in additional funding for schools
    • Increased school employee compensation
    • Provided $5 billion in tax relief
    • Estimated reduction in recapture of 47% due to formula changes
    • State share of public education funding increased to 44% (from 38%)
  • Public education is 29% of biennial budget, 42% of general revenue budget
  • The legislature has the most discretion over the general revenue budget, will be hard to not cut public ed in the upcoming session

Funding Formulas

  • Enrollment- # of students enrolled in public schools
  • Average Daily Attendance (ADA)- Average # that attends each day
  • Weighted Average Daily Attendance (WADA)- Calculated # of funded ADA, after weights and adjustments are applied
  • When calculating how much per student- clarify if it’s by ADA or WADA
  • Foundation School Program
    • Tier 1 determines majority of school district entitlement
    • Tier 2 Enrichment- SD can levy up to $0.17 in addition to tier 1 rate for enrichment purposes- state equalizes each penny levied
    • Facilities tier financed by I&S rate- equalized by the state for low wealth districts
  • HB 3 repealed:
    • Cost of Education Index (CEI)
    • 1993 Hold Harmless: Allowed some property wealthy districts to keep more than others
    • Early Agreement Credit for recapture payments
    • Gifted & Talented Weight
    • High School Allotment
    • Staff Salary Allotment for nonprofessional staff
  • Basic Allotment is the starting # in formula calculations= $6,160
    • BA = $6,160 X (District’s Tier 1 Rate/Tier 1 Maximum Compressed Rate)
  • Any year the BA is increased, school districts must use 30% of additional revenue for employee salary increases (75% to teachers, librarians, counselors, and nurses)
  • If the legislature reduces the BA, a school district can increase its M&O tax rate to recoup
  • There is a minimum salary schedule linked to the BA- increased by 19.8% following HB 3
  • Student weights and allotments: weights and allotments for districts that meet specific criteria
    • Examples: Fast Growth Allotment, Early Education Allotment, College, Career, and Military Readiness Outcomes Bonus, Technology and Instructional Materials Allotment, etc.
    • Small and mid-size district allotment- fiercely guarded allotment- for those with less than 1,600 ADA or 1,600-5,000 ADA
  • Title I Formula Entitlement
    • Allotments-Current Yr. Certified Property Value
    • State makes up the difference or district sends excess to the state (recapture)
    • HB 3 went from prior year for calculation to current year

M&O Tax Rate/Reduction

  • 2019-20 school year: maximum compressed tier 1 rate (MCR) = $0.93 (from $1.00)
  • M&O tax rate cap is &0.93 + $0.17 = $1.10 statewide
  • 2020-21 school year: value growth above 2.5% used to compress rates
  • Maximum compressed tier 1 rate = $0.9164 (Statewide @ 4.01%)
  • HB3 limits variation in rates to 10% “equity band”

Tier 2 Enrichment

  • Districts can levy additional $0.17 M&O tax rate above maximum compressed rate
  • Revenue raised by each penny is equalized by the state to provide equity
  • “Golden Pennies”- First $0.08 above compressed rate
    • Equalized to the greater of 0.016 x the basic allotment ($98.56) OR the yield per penny per weighted student in a school district at the 96th percentile of wealth
    • Revenue above that level is not recaptured
    • As values grow in the state, rates may increase
  • “Copper Pennies” – Remaining $0.09 up to the M&O rate cap
    • Equalized to $49.28 per penny per weighted student
    • Yield increases as BA increases
    • Revenue above equalized level is recaptured

Facilities

  • Existing Debt Allotment (EDA)- State equalizes to $40 per ADA for up to $0.29 I&S rate for bonds on which payments were made in the last year of the previous biennium
  • Instructional Facilities Allotment (IFA)- State equalizes to $35 per ADA
    • Limited to the lesser of: Actual debt payment, $250 per ADA OR $100,000 (whichever is greater)
  • “The $0.50 Test”- Before a school district can issue debt, it must illustrate to the AG that it can service the new debt and all existing debt with a tax rate of $0.50 or less

Tax Ratification Elections (TRE)

  • If a school board adopts a tax rate that exceeds its voter approval rate, they must call an election
  • If voters reject the rate, the voter-approval rate is the school district’s tax rate for that year
  • A school district located in a disaster area is exempt from having to schedule a ratification election in the year following the year in which the disaster occurs
  • Also exempt from efficiency audit requirement for two years if scheduling a TRE
  • Voter Approval Rate:
    • District’s maximum compressed rate [tier 1] (MCR) +
    • Greater of (a) district’s prior yr. enrichment rate or (b) $0.05 ($0.04 in TY20 if Board vote is not unanimous) +
    • Debt (I&S) Rate

Recapture “Robin Hood”

  • State recaptures because of property value disparities in the state
  • Legislature required to have efficient school funding system and no state property tax
  • Districts have five options to reduce their local M&O revenue level
  • All districts choose to purchase “attendance credits”- can make equal payments throughout the year or one payment Aug 15th

Charter Schools

  • Charter schools cannot levy a property tax
  • Charters in good standing qualify for EDA facilities funding based on the average statewide I&S rate

Audience Questions

Where could funding be cut in public ed budget during next session?

  • They cut public ed funding in 2011- they put a multiplier fraction in there that reduced basic allotment
  • The first place they would look would be at temporarily reducing the basic allotment

For last several years, you have put out school finance primer- are you updating for reforms passed in HB 3?

  • I am updating and concentrating on that now-hope to get out before next session