Georgetown ISD officials are unsure how reforms to the state’s property tax and school finance systems will affect the district’s bottom line as lawmakers continue to iron out the details of proposed legislation that includes a cap on annual increases in maintenance and operations tax revenue for cities, counties and school districts.
Senate Bill 2 and House Bill 2 would trigger automatic elections when taxing entities seek to adopt tax rates that allow for more than a 2.5 percent revenue increase over their effective rates, which calculate the rate needed for revenue equal to the previous year. The existing threshold for jurisdictions is set at 8 percent. But since property taxes are only a portion of the Texas public school funding formula, GISD Chief Financial Officer Pam Sanchez said lawmakers still have a host of issues to address on school funding.
“[School finance reform] is difficult, and that’s why it’s never been done,” Sanchez said.
Gov. Greg Abbott in February declared property tax and school finance reform to be emergency items for the 86th Legislature, which frees lawmakers from a constitutional limit on bringing bills to a vote within the session’s first 60 days.
Rep. Terry Wilson, R-Marble Falls, said he wants to work to provide true relief to property owners while also addressing school funding. He said the two issues work hand-in-hand.
“The state of Texas is increasing its responsibility of funding public education,” Wilson said. “We just don’t want to do it on the backs of property owners as we have done year after year.”
Rep. James Talarico, D-Round Rock, said he opposes the 2.5 percent proposal and instead wants to address recapture, which seeks to equalize statewide school funding by collecting money from property-wealthy districts and redistributing the money to boost poorer districts. He said he would like to increase the amount of tax revenue districts are able to keep.
“Voters in Williamson County are pretty astute, and they know the reason their property taxes are going up is because we have broken school finance system,” Talarico said.
Taxes and schools
School districts differ from other taxing entities both in their tax rate limits set by law and the fact school districts’ are not allowed to keep all of their tax revenue.
Georgetown ISD’s designation as a property-wealthy district under Chapter 41 of the Texas Education Code makes GISD subject to recapture. About 25 percent of Texas school districts were subject to recapture in 2018 and sent about $2.6 billion in tax revenue to the state, according to the Texas School Coalition, an organization that advocates for Chapter 41 schools.
GISD will send nearly $18.4 million to the state through recapture in fiscal year 2018-19. If nothing changes at the state level, the district projects its annual recapture costs will top $47 million by FY 2023-24.
Williamson County Judge Bill Gravell said he understands the need for property tax reform but said he believes inserting a property tax revenue cap of 2.5 percent is not the way to do it. Instead, he suggests the end of the Robin Hood tax to allow districts to keep more money locally.
“School taxes are through the roof and are through the roof candidly because the state of Texas underfunds education,” Gravell said. “If they would fund education appropriately, school taxes would drop, and then that tax bill will not look as significantly as it does now.”
State funding’s past
Texas legislators created the Additional State Aid for Tax Reduction program, or ASATAR, in 2006 to increase state funding to school districts in need. At the time, the state imposed stricter tax rate limits on districts to give relief to property owners. However, since the lower tax rates led to less revenue, the state boosted its ASATAR funding.
Sanchez said that while the ASATAR program decreased taxes for property owners, rising property values drove taxes back up. Higher values also led to fewer school districts qualifying for the funding program.
When ASATAR was phased out in 2017, districts that relied on the program had to find ways to cover the state funding they would no longer receive.
“Voters in Williamson County are pretty astute, and they know the reason their property taxes are going up is because we have broken school finance system.” — Rep. James Talarico, D-Round Rock
Sanchez said without a comprehensive fix to the state’s school-funding formula, the inequities that ASATAR sought to address a decade ago could return even if legislators approve stricter tax-rate limits and boost state funding to schools.
She added that the Texas Commission on Public School Finance has been working to find alternate solutions to fixing the education formula.
“They’re saying that if you don’t fix the formula, you’re going to go right back to ASATAR,” Sanchez said.
Lawmakers are still working out details of proposed legislation. The 86th Legislature’s 140-day regular session ends May 27. Sanchez said she is hopeful for change in the school-finance formula, but it is too early to tell how new funding measures might affect GISD.
“We have the support of the governor; we have the support of the lieutenant governor; we have the support of the house speaker. … They’re talking about it in tandem, which is hopeful because if they weren’t, I’d say I have no hope,” Sanchez said. “We’ve got these components working for us that we haven’t seen in many, many years.”
How school taxes work
Texas school districts follow different taxing laws than municipalities when it comes to collecting taxes.
Setting the tax rate
While cities and counties set annual tax rates based on their effective rates—defined as the rates needed to generate the same amount of revenue as the previous year—state law dictates that school districts can set a tax rate for their maintenance and operations, or M&O, budgets up to $1.04 per $100 valuation but no less than $1 per $100 valuation, or they will lose their share of state funding, Georgetown ISD Chief Financial Officer Pam Sanchez said.
If a district’s board of trustees wants to set a tax rate above the maximum threshold, voters must approve the increase in an election. State law also sets a hard cap on M&O tax rates of $1.17 per $100 valuation, Sanchez said. Bond rates are not subject to the same limitations and are determined by voters in an election.
Distributing tax payments
For jurisdictions such as cities, all annual tax revenue is kept locally, but school districts, particularly property-wealthy districts like GISD, are not able to keep all of the revenue collected, Sanchez said. Recapture—also known as the “Robin Hood” system—applies to Chapter 41 school districts in Texas. Chapter 41 districts are those with property wealth per student as measured through a calculation called the weighted average daily attendance, or WADA, according to the Texas Education Agency.
If the WADA is above a certain threshold, districts must make recapture payments to the state, which determines how that money is distributed through the Texas public school system. About 25 percent of Texas school districts are subject to Robin Hood, amounting to about $2.6 billion in annual recapture payments in 2018, according to the Texas School Coalition, an organization that advocates for Chapter 41 schools.