School Finance 101 Midland Independent School District December 10, 2008

School Funding Sources Shared Arrangement State Funding - sales tax revenue, business taxes, etc. Local Funding - property taxes Federal - smallest source, usually dedicated to specific purpose

Sources of Revenue cont. School Year 2007 Estimated state versus local funds for Local share = 51% State share = 49%

Basic Principles of School Finance Equity Equal access to resources for public education for all school districts regardless of property wealth Lessen the disparity in per-student resources across school districts that result from relying heavily on local property taxes to fund schools

Basic Principles cont. Meaningful Discretion Is… The ability of a school board to set tax rates and provide resources to educate students at or above state requirements A cornerstone of 2005 Texas Supreme Court ruling on school finance that guided new legislation in 2006

“Hold Harmless” In 2006 the Legislature compressed tax local tax rates by 1/3, providing tax relief to property taxpayers To make up for the lost revenue to schools due to tax compression, the state guaranteed to “hold harmless” each district at the better of its 2005 or 2006 funding levels per student. Hold harmless state funding, plus teacher salary increase funds, and a special allotment for high schools form the Revenue Target for each district.

Where Are We Now? Districts are currently in the 3rd year of using Revenue Targets Translation: Funding for the school year is based on out-of-date funding levels from 2005 or 2006

Where Are We Now? Revenue Targets are out of date, and the school finding system is now less equitable. Per-student Target Revenue amounts range from a low $3,600 to over $12,000 (average is $5,075) There is no link between Revenue Targets and the cost of state requirements for student instruction and district administration

Tax Rate Increases Districts may raise property tax rates up to $.17 above compressed tax. The first $.04 can be levied by the school board without an election. These pennies are guaranteed to generate the same level of revenue as Austin ISD— Chapter 41. The next $.02 also yield the same revenue as Austin ISD, but the board must get voter approval to levy these two pennies. The remaining $.11 also require voter approval and do not yield the higher Austin ISD level of revenue.

Tax Rate Increases, cont. Aside from money provided for student growth, the only way for districts to access additional money is by asking local voters to approve a tax rate increase or asking the Legislature for more resources.

Effect of Property Value Increases There is an inverse relationship between local property tax revenue and state funding for schools. Bottom line: If property values increase, the state’s obligation to provide funding to that district decreases. The estimated benefit to the state of property value increases is about $2 billion a biennium

New Cost Drivers Increasing state academic standards Increasing number of required courses (4x4 Rule, 12 hours of college credit) Rising transportation and utility prices Rising food prices Rising teacher salaries Competition for auxiliary staff, and rising salaries for those staff State mandates (unfunded or under funded)

Current Funding Problems The funding system put in place in 2006 was supposed to be temporary The school finance system fails to account for student instructional needs or cost differences between districts Irrational Revenue Targets exacerbate inequities If there is no fix in the 2009 session, system will continue through school year

Current Funding Problems District options for new money through tax rate elections Current system fails to take into account rising costs of fuel, salaries, utilities, insurance, higher standards, etc. No inflation adjustment Districts will reach the $1.17 cap

Solutions Conduct a state study in 2010 to examine the true cost of education as well as a way to fund education fairly Provide an inflation adjustment to Revenue Targets for the next two years Increase state support facilities Adjust current revenue targets

Solutions, cont. Permit school districts more flexibility to set tax rates Increase funding for technology and transportation Provide districts with discretionary money to meet unique local needs Increase the special allotment to fund high school programs

What Next? Contact your legislator to express concern for the adequacy and fairness of the school funding system Describe the local situation to your legislator so he or she has a clear picture of the needs in your district.

Contact Information David Garcia Assistant Superintendent of Financial Services