Klein ISD has joined more than 500 Texas school districts that have called Tax Ratification Elections since 2006 to raise their property tax rates to help accommodate enrollment growth without incurring significant layoffs. The election, scheduled for June 16, calls for a 9 cent tax rate increase that would raise the maintenance and operations portion of the district’s tax rate above the $1.04 permitted by state law. It would increase the overall KISD tax rate to $1.52 per $100 valuation. If approved by voters, the owner of a house valued at the district average, $200,000, would see an increase of $157.56 in his or her annual tax bill next year, KISD Chief Financial Officer Dan Schaefer said. Local taxpayers have shouldered an increasing portion of the tax burden in public school districts under state funding formulas that took effect in 2006, said Dax Gonzalez, division director for governmental relations with the Texas Association of School Boards. “What districts are contending with is they are having to choose which programs and services to start cutting as their budgets are starting to contract,” Gonzalez said. While KISD has used bond referendums to fund new construction—the most recent being a $498.1 million referendum passed by voters in 2015—the cost of daily operations, such as staff payroll and general operating expenses are funded by the maintenance and operations portion of the budget, Schaefer said. Rising property values in the district result in a higher amount of local revenue each year, but the state contributes less to the district’s budget as a result and the overall revenue remains flat, Schaefer said. “As property values rise, it contributes to the pot of public education money,” Gonzalez said. “The problem is that there hasn’t been an increase in the amount districts are entitled to per student.”

District needs

KISD officials said the election is needed because the district’s fund balance has reached a critical low point, while district expenses continue to increase because of enrollment growth and new facilities that have opened or will open in the next year. KISD enrollment has grown by more than 10,000 students since 2007 and is projected to grow by almost another 10,000 students in the next 10 years, Schaefer said. The district has built several new schools with funds from the 2015 bond referendum in response to this growth. Klein Cain High School, which opened in August, costs the district $7.5 million in additional annual maintenance and operations costs, and Hofius Intermediate School will cost the district $3.2 million in new annual operating costs once it opens in 2019, Schaefer said. Despite these new expenses, the amount the district receives in state aid is not increasing, and the amount of funding per student in the district has dropped as a result, he said. “It’s always a balancing act,” Schaefer said.  “We have seen a major shift in share of cost [from state to local funding] … so is important to bring it back into balance.” KISD’s fund balance—the amount it keeps in reserve to support operating expenses at the end of each calendar year—is projected to be $117 million, or 26 percent of annual operating expenses, at the end of the 2017-18 school year, KISD Superintendent Bret Champion said. District policy requires the fund balance to be more than 25 percent of expenditures to cover 2 1/2 months worth of operating expenses, but that balance will continue to diminish to 9 percent in the next three years unless the district can add $30.2 million in revenue during that time, he said. If the election is successful, Schaefer said the district will be able to maintain a healthy fund balance through 2021 as well as fund an additional $5 million in security projects. Those projects include secure vestibules, or entryways, at intermediate and high schools, entrance screening at intermediate school campuses and elementary school perimeter fencing that would otherwise have to be funded through a future school bond, Schaefer said. The district will still need to make about $8 million in cuts to shore up its reserve, mostly through attrition—not replacing positions that become vacant—or cuts to programs that will not affect classrooms, Champion said. The last resort would be layoffs, which would increase the student-to-teacher ratios in classrooms, he said. Under the tax rate proposed in the election, the district would raise an additional $28.8 million in revenue through state and local sources. A portion of that is possible because the first two cents of the tax rate above $1.04 are designated by the state as “super pennies,” Schaefer said, meaning they generate more than twice the usual amount of state aid—$9.2 million in this case. If voters reject the increase, the district will make $30.2 million in cuts—an amount equivalent to more than 500 staff positions, Champion said. “We would be looking at everything,” he said. “That is not a threatening statement, [but] 90 percent of our budget is personnel. We believe we are committed to prioritizing reductions that least impact the classroom.”

Statewide issue

The major metropolitan areas in Texas are home to many fast-growth school districts like KISD, said Guy Sconzo, executive director of the Fast Growth School Coalition, which advocates for funding in these districts. Fast-growth districts have more than 2,500 students in total enrollment and have grown in enrollment by at least 10 percent over the past five years. Klein is among those districts, Sconzo said. Because of this rapid growth, the mechanisms currently in place at the state level cannot keep up with the staffing and facility needs that such growth entails, he said. “The state funding systems for [maintenance and operations] and for facilities are severely broken and have been for some time,” Sconzo said. State funding accounts for about 38 percent of school district M&O revenue statewide, he said. “For a fast-growth district the problem and challenge is exacerbated, because they’re having to serve more children, hire more teachers and  support staff, and the revenue doesn’t come near to keeping up with the cost,” Sconzo said. State education funding since 2008 increased from $18.2 billion to $19.6 billion statewide through 2017, according to data from the Legislative Budget Board. However, local revenue for public schools in that time has increased from $18.2 billion to $26.2 billion, while attendance statewide rose from 4.3 million to 5 million, according to LBB statistics. Champion said he hopes next year’s legislative session brings solutions that will relieve districts struggling to maintain services. “Between now and 2021, there are two legislative sessions,” Champion said. “I am eternally hopeful that they will take a look at true school finance reform.”

Regional challenges

Budget challenges are not unique to KISD. Spring ISD Chief Financial Officer Ann Westbrooks said she expects state aid to SISD to continue to fall in line with an anticipated 1.6 percent drop in enrollment in the 2018-19 school year. However, the district does not plan to hold a Tax Ratification Election this year, she said. “We plan to use the provision in the tax code, which due to Hurricane Harvey allows us to raise our M&O tax rate for one year without a ratification election,” Westbrooks said. She said the district will propose a M&O tax rate of $1.06 per $100 valuation, but the  total tax rate will remain the same because the other portion of the tax rate—interest and sinking—will be decreased to 45 cents, allowing the total tax rate to remain $1.51. Growth in the SISD tax base may not be significant this year, she said, further limiting the amount of revenue the district can raise through taxes. The tax base grew by 4.61 percent in 2018 based on estimated values received by the Harris County Appraisal District, but Westbrooks said that number could drop after property value protest hearings are completed this summer. Westbrook said SISD does not anticipate considering any layoffs in the immediate future. “With the anticipated decrease in enrollment, our staffing allocations must be adjusted,” Westbrooks said. “We are closing positions via attrition where possible.”