As CFISD and school districts across the state struggle to balance budgets for the upcoming fiscal year, a state task force is examining ways to change how schools are funded.
Over the past few years, the Texas public school finance formula has been plagued with legal battles and reform efforts that failed to pass in the Texas Legislature. House Bill 21 established the Texas Commission on Public School Finance in 2017 after state legislators once again could not come to an agreement on school finance reform in the 85th session.
State Sen. Paul Bettencourt, R-Houston, serves on the commission and said members are looking into a range of factors affecting public education statewide.
“We’re drinking from a fire hose on the commission,” he said. “The important thing is to eventually come together as a group and look at recommendations of best practices—what we know is working well.”
While Bettencourt has praised CFISD for its financial efficiency, even the district is facing a $40 million deficit in fiscal year 2018-19 as state revenue declines, Chief Financial Officer Stuart Snow said.
The state will fund about 40.4 percent of the district’s operating revenues in 2018-19, and federal funding is projected to make up less than 1 percent of revenues, so local taxpayers will make up the other 58.8 percent. The state funded 48.6 percent of the budget in FY 2014-15, according to district data.
As property values rise and state revenue for the district declines, local property tax revenue cannot offset the decrease in state funding, Snow said. He is projecting about $52 billion in taxable value in FY 2018-19—a 4.16 percent increase over the previous year.
“There are a number of factors that are influencing the budget process this year … [including] our state revenue declining every year due to increases in our taxable property values,” he said.
Projecting a deficit
In FY 2014-15, the state contributed $3,485 per student in CFISD’s operating revenue, and this number has decreased each year since—to a projected $2,662 per student next year. Even as state revenue declines, Snow said the district wants to maintain the quality of instruction and services, offer competitive compensation plans and prioritize student and staff safety.
In January when budget discussions began, Snow said the district was facing a nearly $60 million deficit. Since then, budget cuts have included renegotiating contracts, cutting positions through attrition and departmental-level cuts.
“At the time, we were considering a lot of things,” he said. “Among those considerations were not giving a salary increase this year [or] to go deep into the budget cut phase like we did several years ago when we cut $120 million over a four-year period of time.”
This year, expenditures were expected to increase by $33.1 million, but after identifying $21.7 million in budget cuts, the budget increase amounts to $11.4 million.
“Because of the impact of the flooding of Hurricane Harvey, a lot of our employees were hurt significantly, and a lot are not even in their homes yet,” he said. “We also felt it was important to provide a raise across the board to all our employees in light of health insurance premiums going up.”
Other potential additions include expenses related to the University Interscholastic League realignment, accommodating additional grade levels coming in at newly opened high schools and providing six additional officers, two dispatchers and two drug and weapon canines for the district’s police department.
Gov. Greg Abbott held a press conference May 30 addressing school safety in response to the May 18 shooting just south of Houston at Santa Fe High School.
“[Abbott] is recommending certain measures to be taken immediately, and there’s always a possibility he could call a special session to address the issue,” Snow said. “If the state finds money to be able to help out school districts, then there’s probably not going to be any desire to put any money in school finance.”
Balancing the budget
With a total of $931.9 million in expenditures and only $919.3 million in projected revenue, next year’s budget deficit is estimated at about $12.6 million.
Snow said the district had few options to bridge this gap in funding next year. Other districts in the area are using various strategies to cope with the drop in state funding, including withholding teacher salary increases and seeking voter approval to raise tax rates.
CFISD’s current $1.04 maintenance and operations tax rate is as high as it can be without holding a Tax Ratification Election, Snow said. However, he said the Texas Tax Code allows school districts to increase their M&O tax rates for one year if they were negatively affected by a natural disaster.
Taking advantage of this exception in response to Harvey, CFISD will increase its M&O tax rate to $1.06 for FY 2018-19 without holding an election. This will not negatively affect taxpayers because the interest and sinking rate would be lowered by 2 cents to keep the overall tax rate the same, Snow said.
This change will bring in an additional $28.2 million in operating revenue, Snow said. After transferring a portion of those funds to reimburse the debt service fund, the district is left with a $12.6 million deficit.
The temporary fix gives the district some breathing room for the upcoming year, but Snow said in an ideal world, the state would split the cost of public education equally with local taxpayers. He said he is not hopeful that things will change in the next legislative session.
“Right now, what they’re telling us is they don’t have the money to do that,” he said. “But certain legislators don’t believe that they’re not funding at a level of 50 percent. That’s one of the impressions I got from the commission—a lot of them don’t believe they are underfunding public schools.”
State Commission seeks solutions
The Texas Commission on Public School Finance is made up of 13 members appointed by the governor, lieutenant governor, speaker of the House and State Board of Education. Along with Bettencourt, members of the commission include state Rep. Dan Huberty, R-Houston, chairman of the House Public Education Committee, and Todd Williams, a Dallas-based education research firm executive.
“It’s clear that school finance is broken,” Williams said. “It’s incredibly complicated; it’s not focused as much as we would like on outcomes and goals as it is on just what money we have available every two years and how we are going to allocate it for the rich and the poor districts.”
In March, Bettencourt invited Snow and CFISD Superintendent Mark Henry to testify before the commission in Austin. Bettencourt said he thought the commission would benefit from the district sharing details about its low administrative expense ratio and the financial challenges that come with offering an optional 20 percent homestead exemption.
“They were very clear that they figured this has to be resolved in three to four years or they’re going to run their cash reserves down to zero,” Bettencourt said. “I wanted people to understand how much time we have to solve this problem.”
However, as districts are asking for more funds, officials have testified before the commission saying the state is also running out of money for public education.
Phillip Ashley, associate deputy comptroller for fiscal matters for the state, said at an April 5 commission meeting that half of the state’s allotted expenditures—about $9.9 billion—is distributed from September to November before property tax funds come in, and the other half has to be distributed throughout the rest of the year, which limits how much the state can fund public education.
“Although the Legislature passes a balanced budget every legislative cycle, certain key expenditures take place early in the fiscal year, whereas much of the state’s revenue to support those expenditures is not collected until later in the year,” Ashley said.
The commission has two additional meetings scheduled this summer. Dec. 31 is the commission’s deadline to prepare and deliver a report to the governor and the Legislature, including its recommendations to improve the school finance system.
“If we’re going to do this right, we’re going to have to adopt best practices we see out there and make everyone use them when it’s effective,” Bettencourt said. “But we also have to realize the financial limitations on this. Everybody’s saying it’s going to be a tough session, and it will be.”
Those who have testified before the commission have asked for more resources for special education, bilingual and pre-K programming, and higher teacher pay to increase retention rates, for instance. Recommendations range from shifting funding weights to increasing flexibility in how districts are allowed to spend funds and adopting property tax best practices from other states.
Bettencourt said one individual even suggested eliminating the senior year of high school and shifting those funds to early childhood education.
“The [funding] formulas are clearly out of date, and they have to be updated,” he said. “There’s nothing that is not able to be brought to the table for discussion.”
Snow said the common thread in all the testimonies the commission has heard has been that schools are not being funded adequately.
“There [are] so many more options when you have additional revenue,” he said. “There [are] things that we are not able to do now because of our lack of funding—programs we could implement, retaining staff at a higher level than what we can retain now.”
With more funding, Snow said the first place the district would look to improve would be programs that benefit economically disadvantaged and minority students. While federal funding—which last year made up less than 1 percent of CFISD’s revenues—helps, it is still not enough to provide resources to low socio-economic students, he said.
Unless the Legislature comes up with additional funds for public education, Snow said the district could be facing a Tax Ratification Election to increase the M&O tax rate by 13 cents to the maximum rate of $1.17 in the near future.
This would provide an additional $70 million in operating revenues, but it would also require CFISD to pay into the state’s recapture program under Chapter 41 of the Texas Education Code—a wealth equalization plan that would require CFISD to send a portion of revenue back to the state to share with poorer districts.
“I just don’t see the commission recommending adding additional money,” Snow said. “I don’t think they really believe there’s a need to provide [more funding], so I’m not holding out any hope that they’ll do that.”
Additional reporting by Gavin Pugh