Throughout the past six years, Frisco ISD’s state funding has been dwindling to the point that the district is considering significant steps to make up the difference.

By the 2017-18 school year the district will have lost a projected total of $125 million from the Additional State Aid for Tax Reduction fund since the state began reducing funding in 2011.

FISD, along with other Texas school districts, is preparing to lose all of its funding by the 2017-18 school year from ASATR, a fund established in 2006 that is set to expire in 2017.

ASATR funds account for about 10 percent of FISD’s operating budget.

To prepare for that revenue loss, the district is looking at different options— including increasing class sizes, cutting from the budget or calling for a tax ratification election, or TRE, to increase the property tax rate—as it begins the budget process for the 2016-17 school year.

“What we need is people to engage in working with us and understanding this complex subject of school finance,” FISD Superintendent Jeremy Lyon said. “We have lost money over the years that we allocate to the students of Frisco and that has created a problem.”

The gain and loss of state aid

In 2006, the Texas Legislature approved a plan to lower school property tax rates in the entire state by one-third but guaranteed that school districts would not receive any less funding as a result.

To ensure no district would see a loss of revenue caused by lowering the tax rate, a new section of the Texas Education Code was enacted to provide districts with payments of ASATR funding. This would ensure that school districts with low tax rates, such as FISD, could meet their target revenue.

According to the Texas School Coalition, each district is entitled to different target ASATR amounts based on different district-specific factors, such as property values at the time of tax rate reduction.

Money for the ASATR fund comes from the business margins tax and the state’s general revenue fund. The business margins tax was created in 2006 to help offset the property tax cut. Companies with annual revenue above $1 million paid the tax on gross receipts.

Between 2005 and 2007 school years, FISD’s maintenance and operations, or M&O, tax rate reduced from $1.32 to $0.96 per $100 of property valuation. To make up for the loss in revenue, the district received more than $15 million in ASATR funding for the 2006-07 school year.

In the 2010-11 school year, FISD received its highest ASATR payment of more than $59.8 million.

In 2011, the state significantly reduced funding for public eduction, including a substantial reduction in ASATR funding. Then the Legislature enacted a repeal of ASATR effective Sept. 1, 2017.

FISD lost approximately $4.3 million in ASATR funding in the 2011-12 school year.

Then the state applied a universal 2 percent reduction from the overall state funding that school districts receive plus a 7.65 percent reduction to ASATR in the 2012-13 school year.

That year FISD lost approximately $22.2 million in ASATR funds.

When the entire ASATR fund phases out in 2017, FISD is projected to lose approximately  $30 million in ASATR funding for the 2017-18 year, said FISD CFO Kimberly Pickens.

FISD will be one of the estimated 176 school districts in Texas affected by the ASATR cut, according to the Texas Education Agency.

There is no indication whether the Legislature will provide additional funding to help districts recover from the loss of ASATR funds, said Christy Rome, Texas School Coalition executive director.

“Our hope is that there will be a [Texas] Supreme Court ruling that will bring about change to the school finance system in the future,” Rome said.

Voters statewide approved a constitutional amendment in November called the Additional State Aid for Homestead Exemption, which was created via Senate Bill 1 during the 84th legislative session. ASAHE makes up the difference in local revenue from when the state homestead exemption was increased.

Once voters approved the amendment in November, funding went into effect this year.

FISD does receive ASAHE funding, but Pickens said the amount is minimal compared with what the district received from ASATR.

Pickens said this year FISD is projected to receive $130,000 for the M&O tax rate from ASAHE. For the 2016-17 school year, Pickens projects FISD will receive $140,000.

Fouche said there will be a need for long discussions about staffing during the budget process.

“When you figure that over 80 percent of our budget are people, it would be hard to imagine losing almost 10 percent of your budget and not affecting people somehow,” FISD Finance Director Todd Fouche said.

Lyon said the district will try to come up with solutions that do not affect staff. For instance, rather than adding more teachers as the student population increases, the district could increase class sizes.

“If we don’t have the funds to support hiring the teachers to accommodate growth because of a $30 million loss of revenue from the state, then you will see class size go up,” Lyon said.

Another solution would be calling for a TRE to ask voters to raise the property tax rate.

Possible tax increase

When the tax rate was reduced in 2006, the state placed a tax rate cap of $1.17 per $100 of valuation on district M&O tax rates. However since 2007 FISD has maintained a tax rate of $1.04 or lower, making it one of the lowest M&O tax rates in Collin County. Other districts, such as McKinney ISD and Plano ISD, are at $1.17.

To tax at a rate higher than $1.04 for M&O, state law requires a district’s voters to ratify a higher tax rate in a TRE.

“As we are developing the budget [an election] is something we are talking about because we know that it would take almost 13 cents to make up for the loss of ASATR,” Fouche said. “It’s odd how close it is.”

“We have lost money over the years that we allocate to the students of Frisco and that has created a problem.”

—Jeremy Lyon, Frisco ISD superintendent

Although the district has been losing funding in the past six years, district staff was still able to come up with cost cutting solutions to make sure staff and students were not affected, Fouche said.

“I think we’ve been very frugal at how we spend money outside of campuses, and when we lost money we reduced spending in some areas, but we always made sure to always keep money in the classroom,” Fouche said. “There has always been a concerted effort to keep the money in the classrooms and have other departments run as lean as possible.”

Lyon said he believes working with district staff with support of the city and community, FISD will a find a way to continue to keep money in the    classrooms.

“We have an incredibly supportive community who values this school district, and we are all going to work together to try and solve this problem,” he said.