Despite meeting for a special session this summer, some experts and legislators said the 85th Texas Legislature provided little relief to schools and taxpayers in regard to school finance and property tax reform.
“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.”
Sen. Paul Bettencourt, R-Houston, authored the Senate’s property tax reform bill, Senate Bill 1, which failed to pass during the Legislature’s special session. 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.
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.”
The state’s share of funding has decreased from 46 percent of funding for an average public school district in 2012 to 41 percent for an average district in 2017 as the local contribution from taxpayers has increased, according to research from Austin-based Center for Public Policy Priorities.
However, state education spending—including higher education costs—grew 82 percent between 2004-05 and 2015-16, according to data from the Texas Education Agency.
As property values increase statewide and new properties are developed within school district boundaries, school districts are receiving more property tax revenue each year, regardless of any change in the district’s property tax rate, 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].”
Funding formulas
A funding formula created by the state Legislature determines how much revenue a district may receive per student, Villanueva said. The allotment begins at $5,140 per student and may increase according to district characteristics, she said.
According to the TEA, the allotment is based on factors, such as average daily attendance, career and technology programs, student groups, debt payments and facility construction.
“Each time the Legislature meets we have high hopes of an increase on a per-student basis to perhaps elevate Texas to a level that’s a little more at least average compared to the other states in terms of funding per student,” said Erich Morris, Magnolia ISD assistant superintendent of operations.
Texas is ranked 38th out of 50 states plus the District of Columbia in funding per student, according to the National Education Association’s Ranking of the States, which was released in May.
“As the property values rise, it doesn’t mean that the school district is getting any more money,” Morris said. “It just means that the percentage makeup of the school district’s money is changing and the burden is heavier on the taxpayer.”
Local revenue—which is largely made up of property tax revenue—amounts to 60 percent of MISD’s general fund revenue for FY 2017-18, Morris said. Local revenue accounts for 86 percent of TISD’s FY 2017-18 budget, according to budget data.
In contrast, local funding made up 45 percent and 66 percent of revenue, respectively, for Magnolia and Tomball in FY 2008-09, according to TEA data.
“The problem is that as [districts] get [more revenue] because values come up—and [while] you would expect them to lower the tax rate because they don’t need all of that money—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 organization. “[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.”
Property tax reform
Without taxing residents at the highest rate allowed by law, some districts may not receive sufficient funding to operate, TISD Chief Financial Officer Jim Ross said. A district can tax up to $1.04 for its maintenance and operations tax rate—which funds day-to-day operations—before voter approval is required to increase the rate any higher.
“The state funding formulas are designed to encourage a tax rate at the maximum rate and discourage any tax rate below that maximum,” Ross said. “The formulas themselves would need to be changed along with an increase in state funding for a local tax rate decrease.”
Additionally, because school taxes account for 46 percent of the average property tax bill in Montgomery County, any property tax relief local officials are able to provide only has a slight, if any, effect on the average taxpayer, Montgomery County Precinct 2 Commissioner Charlie Riley said.
“I could take your county tax bill and cut it in half, and it would not affect your total taxes that you pay for the year,” he said. “All the other [entities] are your tax problem. It’s not Montgomery County.”
TISD’s share of the tax bill in Harris and Montgomery counties—depending on where the property is located—amounts to about 48 percent of the average bill, Ross said.
However, Bettencourt said property tax reform is more pressing as municipal tax rates are increasing faster than the public school portion of a tax bill.
About $50 billion of the state’s $209 billion budget for the 2016-17 biennium went to public education, which is an increase from the $48 billion allotted for the 2014-15 biennium, 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.”
Legislative efforts
To provide taxpayer relief, Bettencourt authored SB 1, which would have required cities and counties to hold an election if property tax revenue increased by more than 4 percent from the previous fiscal year. SB 1 was passed by the Senate but went no further during the special session.
However, both chambers did concur on HB 21, authored by Rep. Dan Huberty, R-Houston, to reform school finance.
As it was passed by the Legislature, HB 21 provides more than $300 million in state funding to schools throughout the next biennium, although the initial version of the bill drafted by the House proposed $1.8 billion in additional funding, Villanueva said.
Funds are divided between charter schools, property-poor districts, geographically small districts and grant programs for autistic and dyslexic students, she said. The bill provides about $60 million statewide in facility funding for charter schools. As TISD and MISD are suburban districts, the districts are not expected to benefit from the bill.
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.”
The bill also creates a commission to study school finance and find a long-term solution to the problem.
“[The school finance system has] been added on to by different people, different groups for different reasons. It’s outdated and messed up,” said Sen. Larry Taylor, R-Friendswood, chair of the Senate Education Committee. “That’s what the school finance commission is tasked with. How do we raise the money, how do we spend the money [and] updating the cost of education index.”
Local challengesAlthough taxable values have steadily increased for both Tomball and Magnolia ISDs, district officials said inadequate state funding challenges district objectives.
“The overall impact of no state funding increases is that the district is now at the M&O tax rate maximum, and the only way revenues can be increased is with additional students,” Ross said. “That is one of the reasons for limited open enrollment.”
TISD implemented its limited open enrollment option this fall, allowing students from other area districts to enroll in select TISD campuses, saving the district more than $600,000 of its tax revenue for FY 2017-18.
Morris said a district can increase its revenue in three ways: raising its M&O tax rate—up to $1.17 per $100 valuation with voter approval; increasing its student enrollment, as the district receives additional funds per student; or receiving more money per student.
“The way the school funding system works, the best position a district can be in is growing enrollment and growing property value,” he said. “Yet we’re still trying to come up with funds to remain competitive with salaries and things of that nature.”
Villanueva and Pierce offered various means to provide adequate funding for public education: Commit property tax revenue to public education and use the surplus to lower tax rates; broaden the tax base; limit tax exemptions and cuts; or implement a state income tax.
“It’s a difficult setting to try to meet our needs and continue to expand our programs. We have a great vision for what we want to accomplish,” Morris said. “Our slogan is ‘We’re dedicated to be the best district in Texas,’ and we are. It’s just our hands are tied.”
Additional reporting by Vanessa Holt and Chris Shelton
