According to EISD Superintendent Tom Leonard, more affluent districts such as his will still be paying more in Texas’ recapture system but could soon be hamstrung by tax revenue caps enacted this year.
In June, Gov. Greg Abbott signed into law Senate Bill 2, effectively curbing the property tax revenue growth of local governments, municipalities and school districts.
The cap, referred to as a rollback tax rate, limits property tax revenue growth at 3.5% year over year for taxing entities in the state, with any increase over that amount requiring voter approval in a rollback election.
The requirements of SB 2 begin in fiscal year 2019-20 and have the potential to put a strain on independent school districts, according to Leonard.
To add to the potential financial strain, Leonard said other costs imposed on taxing entities and their employees have not been given equal consideration.
“They want to cap [3.5% on] us, but they’re not capping our health insurance costs [at 3.5%],” Leonard said. “They’re not capping our employees’ rent [at 3.5%]. There are a whole lot of costs that are not going to be capped [at 3.5%].”
Leonard said he understands why the Legislature wanted to put a cap on school districts and municipalities—as the value of homes increases, so do property taxes.
“I also like it when my taxes go down,” Leonard said. “But it’s also appealing to voters to have very good schools. I also think it’s appealing to voters to reasonably and fairly compensate employees.”
Leonard and the Eanes ISD board of trustees have expressed in meetings the importance of offering competitive salaries and benefits in order to attract and retain talented staff.
Leonard said a 3.5% increase does not necessarily amount to 3.5% growth in the district’s available revenue, as the majority of local property tax revenue does not go to EISD.
“Even though that’s what it says on the tax bill, it’s actually gone to the Legislature because of the high percentage of recapture,” he said.
Texas’ recapture system, often referred to as “Robin Hood,” was enacted in 1993 and requires districts with a value per student higher than $541,000 to pay a recapture rate based on the district’s taxable value, according to the Texas Education Agency. The money is collected by Texas’ education fund and redistributed to districts with a lower socio-economic status in an attempt to equalize funding.
Following redistribution, every Texas school will end with a value per student of $514,000.
EISD’s recapture rate was set at 66% of its revenue for FY 2018-19, but Leonard said that could increase even though it has lowered for FY 2019-20.
“The percentage has dropped slightly for this upcoming year, but in the future it will continue to grow, and it will surpass where we were last year,” Leonard said of the recapture rate EISD pays back to the state.
EISD contributed $101.7 million of its property tax revenue to the recapture system and kept $59.5 million in FY 2018-19, according to district information. Leonard said the percentage of recapture paid to the state for 2019-20 will be around 60%, but that is a figure that is likely to grow beyond 2018-19 numbers in coming years.
As property values increase and the state continues to look for additional funding, EISD can anticipate an increase in its recapture percentage.
“At some point, this is going to be a house of cards that’s going to collapse,” Leonard said. “That’s why the Senate talked about at one point raising the state sales tax. That was their idea; I’m not for that idea; but at least they had an idea. Now there’s currently no idea how to sustain [the cap].”