Some experts and legislators said they believe little was done to address school finance and property tax reform during the 85th Texas Legislature, despite meeting for a special session this summer.
On Aug. 16, Gov. Greg Abbott signed House Bill 21, which provides more than $300 million in state funding to schools through the next biennium. However, the initial version of the bill drafted by the House proposed $1.8 billion in additional funding while lowering recapture payments from wealthier school districts, commonly referred to as the “Robin Hood” plan, said Chandra Villanueva, senior policy analyst for the Center for Public Policy Priorities.
Local school districts and policy experts argue the bill is not enough to undo years of missteps.
“The version of HB 21 that the Senate ended up hearing and ultimately passing off the Senate floor—and then the House concurred with—is a completely and totally different bill than the HB 21 that the House passed on their own,” Villanueva said.
Even Sen. Larry Taylor, R-Friendswood, said HB 21 is only a short-term fix at best for what has become too intricate for one bill to solve.
“We have a system that was put together in the 1940s,” said Taylor, chairman of the Senate Education Committee. “It’s rocked on throughout the ’70s, early ’80s, ’90s and it started having lawsuits filed. It’d go to court, the [state] Supreme Court would make a ruling and give some descriptive fix that put a Band-Aid on it. That’s now been going on for about 30-40 years and we now have such a complex [system]. It’s so complicated and it wasn’t designed by any one person or one group.”
In Montgomery County, school district taxes account for as much as 46 percent of property owners’ annual tax bills, according to county officials. Some local officials and districts argue high property taxes are a result of increased population growth and decreased education funding from the state.
“Every time the revenue picture is good, [legislators] prioritize tax cuts over investing in our schools, and that’s just the wrong approach,” Villanueva said. “It’s really all about revenue, and that’s the thing that’s been missing from the discussions in the regular session and the special session. Everyone wants to lower property taxes and fix our schools, but nobody is talking about revenue.”
Struggle for property owners
While the special session continued in Austin, many local entities spent the summer working on their own local budgets, including setting local tax rates that will be charged to area homeowners.
In Montgomery County, Commissioners Court announced in July a 20 percent homestead exemption for homeowners in the county to provide tax relief, accounting for an overall 5.5 percent decrease in the county’s annual budget.
However, Montgomery County Judge Craig Doyal said the exemption is limited to only the county’s portion of the overall tax bill.
“The county portion of your property tax is only about 16 percent of your overall taxes. So we can do a 20 percent homestead exemption on the county portion; we can’t affect the school portion,” Doyal said. “That’s what I think a lot of people may not realize. So the impact that [the exemption is] going to have on the average homeowner is not going to be that great.”
Doyal said the court has called on legislators to ask for school funding reform rather than working to limit property taxes elsewhere as Senate Bill 1—authored by Sen. Paul Bettencourt, R-Houston—proposed to do to local cities and counties before it ultimately stalled in committee.
The bill 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.
Bettencourt said although school taxes are high, districts statewide have maintained steady tax rates.
“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.”
District constraints
The state’s share of funding for an average public school district has decreased from 46 percent in 2012 to 41 percent for an average district in 2017 as the local contribution from taxpayers has increased, according to research from the CPPP. 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. Conroe ISD’s tax rate of $1.28 per $100 home valuation has remained flat for the past four years, CISD Chief Financial Officer Darrin Rice said.
CISD’s tax base increased from $32.4 billion in 2016 to $33.8 billion in 2017, allowing the district to collect more tax revenue, even though the rate has remained flat.
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, 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].”
In August, Conroe ISD’s board of trustees approved a fiscal year 2017-18 budget of $473 million, up from the $448 million approved last year.
The district anticipates receiving $99 million in state funding, which equals 22 percent of the total budget. In CISD’s FY 2009-10 approved budget, state funding accounted for about 40 percent, or $121 million, of the total, Rice said.
“If we were funded at the same level dollarwise, that would be about $25 million in addition to our budget,” Rice said. “If we were funded at the same percentage—if we were at 40 percent again—it would [have] 80 million in additional dollars.”
Since the 2009-10 school year, CISD’s student population has increased by 11,731 students, or 23 percent. However, the district is receiving $22 million less in funding from the state, Rice said.
“That’s a huge disparity,” CISD board President Melanie Bush said. “We have everyone across the board asking for property tax relief, but that needs to come from the state. We need true public education finance reform at the state level for us to be able to do anything about that.”
Although CISD’s adopted tax rate of $1.28 per $100 valuation is lower than its peer districts, such as Klein and Humble ISDs, Rice said the rate is typically the most expensive entity on taxpayers’ bills, in part, because of the lack in state funding.
Rice said he hopes school finance and property tax reform will be better addressed during Texas’ next legislative session.
“That’s the 600-pound gorilla that’s in the room, and that’s what our legislators are actually discussing right now,” Rice said. “I understand that they’re devising a committee to study school finance to devise a way to help alleviate the property tax portion of it. Hopefully, [legislators] do that in the next biennium.”
Bush agreed HB 21 will not make much of a difference for the district, noting that until state contributions for public education increase to meet demand and enrollment growth, districts will not be able to afford to lower rates enough to provide significant savings for homeowners.
“I am disappointed that true school finance reform has not occurred this session. In order to give our taxpayers true tax reform, the way in which schools are financed needs to change,” Bush said. “Hopefully, in between sessions, they will be hard at work to overhaul the entire funding system.”
Moving forward
Although the Legislature is no longer in session, Texas lawmakers are expected to continue working to find a solution to the state’s school finance problem. Over the course of 18 months, a commission of legislators and educators will be tasked with finding sources of revenue for school finance as well as recommendations on how to spend it, Taylor said.
However, Taylor said he believes nothing from this session could provide an immediate fix for the ties between school finance and property taxes.
“Unfortunately, there’s no bill right now that would make a significant difference on that. That’s where the school finance commission can help us,” he said.
State Rep. Harold Dutton, R-Houston, said public education funding and property tax reform are inextricably connected, with as much as 50 percent of property tax bills—between $20 billion and $25 billion annually—going to local school districts for the maintenance, operations and debt service of school districts, according to state data.
“The state has to increase its funding [for public schools] to help taxpayers,” said Dutton, who serves on the House Public Education Committee. “Now you’ve got added pressure on financing public schools.”
Additional reporting by Anna Dembowski, Vanessa Holt and Chris Shelton
