Editor's note: This story has been updated to clarify how the basic allotment per student is calculated.

Frisco ISD, for the first time in its history, will hold a tax ratification election, or TRE, asking voters to raise the district tax rate by 13 cents to make up for a loss in state funding.

The district held multiple meetings leading up to calling for the Aug. 27 election. During those meetings, residents voiced concerns, and district staff worked to explain the complicated school finance system.

“There have been a lot of questions and concerns, but that gives us an opportunity to have a conversation to educate the community on why we made this decision to have a TRE,” board of trustees Vice President Bryan Dodson said.

In June, the FISD board of trustees approved a $471.4 million budget for the 2016-17 school year that is based on a 13 cent property tax rate increase.

However, the budget is not contingent on the passage of the TRE. If the TRE fails, FISD will have to dip into its fund balance to make up the difference.

FISD Chief Financial Officer Kimberly Pickens, however, said the district would not be able to depend on the fund balance for too long without calling for another TRE.

By the end of the 2016-17 school year, FISD will have lost $125 million since 2011 in legislative cuts to a special fund known as the Additional State Aid for Tax Reduction. In the 2017-18 school year, the fund will be completely eliminated.

FISD Superintendent Jeremy Lyon said the district has done all it can to absorb the cuts by shrinking resources before coming to the voters.

“The quality of this community has been defined by the quality of the schools and the [district] partnership with the city in creating a community that is a great place for families to raise their children and to live,” Lyon said. “That quality [of schools] requires resources, and in order to continue that investment in a quality educational system, we must ask our voters to approve the [tax rate increase].”

As property valuations have increased in Collin County, some residents have expressed concerns about increasing the tax rate.

“My property value on my home has skyrocketed, and I understand that [FISD] may need these additional funds, but to tax us even more—I just don’t get it,” Frisco resident Scott Forst said.

Funding the district

The state public school funding system relies heavily on property tax revenue that is generated in the form of levying a combined tax rate. The combined tax rate is made up of two rates: the maintenance and operations, or M&O, tax rate and the interest and sinking, or I&S, tax rate. [totalpoll id="163984"]

The M&O tax rate generates funds for the general operations of a district. The revenue pays for all district personnel, utilities, supplies and all the costs associated with running schools.

The I&S tax rate generates funds to pay off debt generated by issuing bonds. Bonds pay for new schools, renovations and infrastructure improvements.

The TRE election in August affects the M&O tax rate. If approved by voters, the M&O rate would increase from $1.04 per $100 valuation to $1.17, which is the maximum allowed by state law. The district’s I&S tax rate, which is 42 cents per $100 valuation, would remain the same.

If the TRE passes, the district’s total tax rate would increase from $1.46 per $100 to $1.59 per $100 valuation.

The extra 13 cents means residents would pay $443 more a year in property taxes on a home valued at $365,463, which is the district’s average home value.

Because of the state’s funding formula, the school district does not significantly benefit from increasing property values, but it would benefit from raising the M&O tax rate, Pickens said.

The reason increasing property values will not have the same effect as increasing the tax rate is that as property values go up and the school district collects more tax dollars, the state’s aid contribution decreases. This state funding formula keeps the district from being able to benefit significantly from increased property values.

Although FISD keeps 100 percent of the property tax revenue generated  from its I&S tax rate revenue, a portion of the M&O tax rate revenue goes back to the state.

The state’s funding formula provides $5,140 in M&O revenue per student, a term that is known as a district's basic allotment, to be paid for by a combination of the district's tax collections and state aid, Pickens said.

The basic allotment is considered the amount needed to provide a basic level of education for a district's students.

Because of its current tax structure, FISD receives 88 percent of the basic allotment allowed by the state, or $4,523 per student. The formula allows for some additional funds to be added to the basic allotment for each district, bringing FISD closer to $7,100 per student. Federal grants and other local resources bring FISD's M&O revenue per student closer to $7,500, Pickens said.

“...to continue that investment in a quality educational system we must ask our voters to approve the [tax increase].”

—Jeremy Lyon, Frisco ISD superintendent

Increasing the tax rate would change the funding formula the state uses to calculate the basic allotment, allowing the district to receive the full basic allotment per student allowed by the state.

TIRZ funds

FISD also receives funds through a tax increment reinvestment zone, or TIRZ. The TIRZ in Frisco was established in the late 1990s, and it is composed of 713 acres in the Stonebriar Centre area.

All of the property and sales tax revenue generated in the TIRZ area go into a special fund that allows the district to participate in public-private partnerships with the city, such as The Ford Center at The Star, Toyota Stadium, Dr Pepper Arena and Dr Pepper Ballpark.

The TIRZ fund is what FISD used to enter into the $30 million partnership with the city of Frisco and the Dallas Cowboys to use The Ford Center. The $30 million will be paid over 25 years, so FISD will pay $1 million-$2 million every year for the use of the stadium, Pickens said.

By law school districts cannot mix TIRZ revenue, M&O revenue or I&S revenue together. This means the $30 million used for the use of The Ford Center at The Star could not have been used for new teachers or to pay for school infrastructure.

ASATR

The elimination of the ASATR fund is what led FISD to call an election to raise the tax rate, Pickens said. ASATR is a special fund that the state provided when it required school districts to compress their M&O tax rates in 2006. This fund helped school districts, such as FISD, that were taxing below the tax rate cap of $1.50 and provided additional funding to the district’s operating fund.

The money for the ASATR fund comes from the state business margins tax and the state’s general fund.

In 2011, however, the state reduced funding for public education, including a reduction in ASATR funding, and enacted a repeal of ASATR effective Sept. 1, 2017. With the elimination of ASATR, FISD is projected to lose $30 million for the 2017-18 school year. The extra 13 cent tax rate increase would help FISD make up the loss of those funds, Pickens said.

“This [tax rate increase] is a way to get us back to a level par to where we need to be to continue to provide the best educational experience,” Dodson said.