Texas’ School Finance System Is Unpopular and Complex. Here’s How It Works.

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Callie Richmond for The Texas Tribune

Tatum Roberts (left) and Olivia Mah work on their toothpick cubes in Melanie Martin's kindergarten class at Johnston-McQueen Elementary.

Despite their political rifts, Republicans and Democrats, House and Senate lawmakers, and rural and urban Texans all agree the State needs to change the way it funds public schools. That consensus is the culmination of decades of lawsuits against the State claiming Texas schools are not adequately or equitably funded.

The political machine is in the process of churning out a number of proposals to overhaul the way schools get money and how they are required to use it. But the average person – and even many lawmakers – can easily get tangled up in the formulas and numbers that pump dollars into public education. In 2018, $52.3 billion in state and local money went to 5.4 million students in 1,019 traditional school districts and 171 charter districts.

So, how does school finance work?

Texas guarantees every school district a certain amount of funding for each student. State lawmakers determine the base number per student, which is currently $5,140. Many educators argue that the State should regularly increase that base number, at least with inflation, to get all schools the money they need. But the amount has not changed in four years.

School districts get money from two main sources: their own local property taxes and the State. (The exception is charter schools, privately managed and publicly funded, which get all their money from the State and cannot levy taxes.)

To cover their base budgets, districts first use local property tax revenue, and the State pays the balance. And as local property values have grown, the State’s share of public education has shrunk. Currently, local property owners foot about 64 percent of the bill, according to the Texas Comptroller. Some education advocates argue that the State should cover half the cost of public education. But doing that would be extremely expensive and could cost more than $7 billion dollars per year going forward.

On top of the base funding per student, school districts can get more money based on geographic factors, like whether the local cost-of-living necessitates higher teacher salaries. Although many school districts have seen their rural communities turn into bustling suburbs and their costs-of-living skyrocket, these calculations have not been adjusted in decades.

Texas also guarantees school districts extra money for students considered more expensive to educate, including low-income students and those with disabilities. For example, districts receive an additional 20 percent for each low-income student. Many of these calculations haven’t been adjusted in decades, either.

School boards set school districts’ tax rates, within state regulations on how much they can increase those rates and when to ask approval from voters. Most school districts are required to set a tax rate of at least $1.00 per $100 of property value – meaning a house with a taxable value of $250,000 would pay at least $2,500 in school district taxes.

School boards may tax at a slightly higher rate without community input, originally intended to let them fund extra programs and extracurricular activities as they choose. They must ask voters for permission to tax above $1.04 per $100 of property value, and they hit a maximum rate at $1.17 per $100 of property value. That means the maximum school property tax bill for a house with a taxable value of $250,000 would be $2,925.

Tax rates haven’t changed very much over the last decade; the median school district tax rate has hovered around $1.04 since at least 2006. But Texas’ economy is thriving, property values have skyrocketed and local property tax revenue has risen with them, meaning the State hasn’t had to chip in as much money. And state lawmakers have chosen not to adjust many of the measures – including the cost of educating a low-income student – that could provide schools with more.

As schools see their budgets increasingly strapped, more are using the money from higher tax rates for basic operations instead of for special programs.

Wealthier school districts, which have homes and business within their boundaries that are more valuable, generally tax at lower rates. Poorer school districts often tax at much higher rates. Around 400 school districts, the vast majority of them poor, cannot raise their tax rates any higher under state law.

Since 1993, the State has given poorer school districts a financial boost through a controversial program called “Robin Hood” or recapture, which takes excess funding from wealthier school districts – that is, from districts that raised more than required for their full student allotments from local taxes – and redistributes it to poorer districts and charters. In recent years, more urban and suburban school districts with large populations of low-income students have been required to pay recapture, as their local property values grow.

So what has people so upset?

The State has changed over time: Wealthier and poorer districts alike are enrolling more students with more educational needs – but not feeling they have the requisite funding. Public education is primarily funded by local property tax revenue, and lawmakers can’t decide on any other source of money to replace it. Homeowners see their tax bills ballooning, with the majority going to schools, but can’t be sure their public schools are improving.

Most agree that the patchwork set of calculations for how to distribute money to Texas’ schools is ready for a major facelift.

4 thoughts on “Texas’ School Finance System Is Unpopular and Complex. Here’s How It Works.

  1. I think a very important part was omitted which amounts to a state property tax on some property owners. The state has a formula that decides how much a property rich district pays in recapture. The state has another formula that decides how much recapture goes to property poor districts. This creates a situation where the amount of recapture the state takes in is not the same as the amount of recapture the state pays out. The state does not pay out all of the recaptured money because the formulas don’t require so. So in theory, the state can take in money, let’s say a fake figure of $1.5 billion but only has to pay out a fake figure of $1.1 billion. What happens to the extra $0.4 billion? The state puts it in the general fund and gets to use it as they please. Most likely that money will be put into education through the state’s budget but it wasn’t money generated by the state’s revenue streams. It’s money generated by local property taxes so the state is stealing property tax money. How is this legal? Why is this not being addressed and fixed?

  2. ALIYYA, thank you for excellent information on Texas school financing.

    And, thank you to the organizations, Texas judges, and Texas court officials who have worked to enhance Texas school financing laws over many years.

    You state “The State has changed over time: Wealthier and poorer districts alike are enrolling more students with more educational needs – but not feeling they have the requisite funding. ”

    Are charter schools the solution for “students with more educational needs”? You did not discuss where charter schools fit in.

  3. Your next article should be on class sizes in k-12, resources for testing and educating special ed students, impacts of state testing, and the difficulty schools seem to have in dealing with disruptive students and the impact disruptive students have on the education of all students. If you really want to hear some informative stories survey or talk to teachers on anonymous basis.

  4. Northside ISD has instituted an exit survey that is optional for parents to state why they are taking their kids out of school. There are many reasons, but the one most concerning is losing kids to Charter Schools.

    Why are the parents taking kids out? My observation is that schools in poorer areas have higher rates of violence, illness and older facilities. Parents are tired of their kids being bullied but the district keeping bullies in the school to increase the Average Daily Attendance numbers to limit the loss of state revenue.

    The second reason is sick kids. Poorer parents do not have access to childcare for sick kids and may not have sick days from their employer. Therefore, sick kids come to school. Un-vaccinated kids are also is schools. Some due to parental concerns and others due to lack of access to medial care or lack of time off to take kids to get immunizations. Many of these examples also have lack of dental care which can be problematic.

    The final reason is older facilities that are not efficient or do not have clean duct work causing “sick building syndrome.” Districts say they need more money, but there are many options on the facilities side to help reduce expenditures on utilities. Properly running systems are more efficient than poorly maintained systems. Districts that enforce behavioral compliance for conservation also saves money. How many extra items are plugged in that tax payer money is being used to operate?

    The solutions are not simple but achievable. Low income families need access to care outside of normal business hours. The municipalities may need to adjust work schedules for immunization clinics. This will cost more to run than just being open 8-5 or some 9 hour variant.

    Districts must enforce discipline on students and staff. This will reduce bullying and utility costs.

    Districts must maintain their facilities where they run efficiently. There are several schools that run constantly because of mechanical issues. Why do they run when students are not there? Because it is cheaper to let it run and pass the cost off to the utility budget.

    Finally, the public school districts must do better at providing a safe (reduced bullying) and healthy environment (healthy kids and buildings) to encourage parents to choose public education. Northside may be the “destination district,” but charter schools have figured out that engaged parents are tired of having their kids exposed to aggressive behaviors and unimmunized students and are capitalizing on the lack of engagement of the District Leadership to address campus level issues exacerbated by the District Leadership’s lack of backbone to enforce law, code and policy that may reduce state aid in order to keep students safer.

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