Some experts and legislators believe the 85th Legislature did little to help public schools and taxpayers despite meeting for a special session this summer and passing education funding legislation.
Sen. Paul Bettencourt, R-Houston, authored the Senate’s property tax reform bill, Senate Bill 1, which failed to pass during the special session that ended in August. House Bill 21—which transfers $351 million from Health and Human Services to public education—did pass this session and was signed by Gov. Greg Abbott.
However, the bill—which provided $1.5 billion less than in its original version—did not provide much relief to taxpayers or large districts like Cy-Fair ISD, officials said.
“It’s extremely disappointing that the Legislature couldn’t provide any real support for public education,” CFISD Chief Financial Officer Stuart Snow said. “Although I knew it was going to be a long shot, I wanted to see additional significant funding for public education as well as the beginning of the restructuring of the school finance system that’s severely outdated and archaic.”
Local officials agree school taxes are often the largest portion of a property tax bill; however, they are divided on how to provide relief to taxpayers.
“Depending on where you live, it is generally true that school taxes are the largest portion of your property tax bill, but not always,” Bettencourt said. “However, local ISD revenues have been the slowest-growing portion of tax bills over the last decade.”
Reforming school finance
State education spending—including higher education costs—grew 82 percent overall between 2004-05 and 2015-16, according to data from the Texas Education Agency. However, the state’s share of funding for an average public school district has decreased from 46 percent in 2012 to 41 percent in 2017 as local taxpayers’ portion has increased, according to research from Austin-based Center for Public Policy Priorities.
As property values increase and new properties are developed within school district boundaries, districts are receiving more property tax revenue each year, regardless of any change in property tax rates, education experts said.
Yet, because of the state formula for public school funding, more local property tax revenue does not mean districts receive additional revenue overall every year, CPPP Senior Policy Analyst Chandra Villanueva said.
“Every time you put a new local dollar in your bucket, the state takes away a dollar, because the state fills up that bucket if you can’t fill it yourself,” she said. “[The state is] shifting the reliance on funding our schools to local [residents].”
The House and Senate concurred on HB 21, a bill authored by Rep. Dan Huberty, R-Houston, to reform the school finance system.
As it was passed by the Legislature, HB 21 provides more than $300 million in state funding to schools throughout the next biennium. However, the initial version of the bill drafted by the House proposed $1.8 billion in additional funding, and Snow said CFISD could have received $15 million each year of the next biennium if that version had passed. As CFISD is a suburban district, it is not expected to benefit from the bill.
Funds are divided between charter schools, property-poor districts, geographically small districts, health care for retired teachers, and grant programs for autistic and dyslexic students.
The bill provides about $60 million statewide in facility funding for charter schools and creates a commission to study school finance and find a long-term solution to the problem.
“We’ve been studying [school finance] for 40 years,” Rep. Kevin Roberts, R-Spring, said. “At some point you’ve got to begin acting.”
According to the CPPP, Huberty’s version of HB 21 proposed increasing funding per student for small districts and for English language learners.
“At the end of the day, large urban districts and large suburban districts get pretty much zero [additional] dollars,” Villanueva said. “Charter schools are the big, big winners in all of this and a handful of very rural areas.”
Property tax reform
Snow said at one time, the state funded about 50 percent of the district’s operations, and that number has since dropped to about 38 percent.
Local revenue—which is largely made up of property tax revenue—makes up nearly 60 percent of CFISD’s general fund revenue for fiscal year 2017-18, according to budget data. In contrast, property tax revenue made up 49 percent of all revenue in FY 2010-11, according to budget data.
“The problem is that as [districts] get [more revenue] because values come up ... the state is pulling back,” said Wayne Pierce, Texas Children Advocacy Project director at the Equity Center, an Austin-based school finance research and advocacy group. “[Districts are] having to use that money not to lower taxes but to fill in what the state has taken back. Basically, the state is living off of local school property taxes, and it’s not going to public education at all.”
Snow said he believes the existing school finance system is set up so property value increases benefit the state rather than the school district.
“If our state revenue is declining at the rate it is, then districts similar to us have to increase their tax rate,” Snow said. “The relationship here is that if you provide more funding to public education, then you’re going to see tax relief overall.”
CFISD’s share of the tax bill in Harris County varies depending on the property’s location, but generally makes up 45-55 percent of the burden.
“I believe significant property tax relief can only come by changing the way we pay for public education in this state,” Rep. Tom Oliverson, R-Cypress, said in a statement. “We’ve been talking about it for far too long.”
To provide taxpayer relief, Bettencourt authored SB 1, which would have required cities or counties to hold elections if their property tax revenue increased by more than 4 percent from the previous fiscal year. The Senate passed SB1, but the bill went no further during the special session.
Bettencourt said he believes property tax reform is more pressing as municipal tax rates are increasing faster than the public portion of a tax bill and a substantial amount of the state’s budget goes to education costs. About $50 billion of the state’s $209 billion budget for the 2016-17 biennium went to public education, an increase from the $48 billion allotted for 2014-15, according to the Legislative Budget Board.
“From 2005-15, tax levy revenue for taxing entities other than school districts has grown two times faster than ISD tax levy revenue,” he said. “The data shows what Texans already know: Property taxes are rising too quickly.”
According to county data, Harris County’s property tax rate increased from 39.986 cents to 41.923 cents per $100 valuation from 2005 to 2015.
Local challenges
A district can charge up to $1.04 for its maintenance and operations tax rate to fund day-to-day operations before voter approval is required to increase the rate. CFISD’s M&O tax rate is $1.04, and if it were any lower, it may not receive sufficient funding to operate.
Without receiving additional funding from the state, a district can only increase revenue by raising its M&O tax rate up to $1.17 per $100 valuation with voter approval or by growing student enrollment.
Although taxable values have steadily increased for CFISD, district officials said inadequate state funding challenges district objectives.
“[Low funding] provides us with an opportunity to make really hard choices every year during the budget process to recruit and retain teachers to stay competitive,” Snow said. “Every year when we see a lack of funding and a reduction in state revenue … we have to limit the programs that we’re offering but yet be able to provide the state mandates that are also put on us.”
The district offers an optional 20 percent homestead exemption, which Snow said is a benefit to taxpayers but causes the district to forgo about $71 million annually in tax revenue.
Snow also said CFISD is one of the lower-funded districts in the state on a per-student basis. In 2015-16, the district spent $7,731 per pupil from its general fund compared to Houston ISD’s $8,491.
Because successful school districts are economic drivers of communities like Cy-Fair, Snow said he believes school finance reform should concern all taxpayers—not just parents with children enrolled in local schools.
“We have a great place to live, the crime rate is lower than average because of our school system, and we have residential and commercial development burgeoning across our district,” he said. “If we didn’t have a good school system, then people wouldn’t want to live here, development wouldn’t occur and the community would essentially dry up.”
Additional reporting by Vanessa Holt and Chris Shelton
