1. Copyright©2007 Education Service Center Region XIII 1 Region 17 Summer School Finance Conference School Finance Update Presented by Omar Garcia Region XIII ESC June 17, 2008

2. Copyright©2007 Education Service Center Region XIII 2 The Current System At least three-fourths of the system is based on a fixed amount of revenue per student Established by HB 1, 3 rd Called Session of the 79 th Legislature –The so-called “Hold Harmless” Revenue per WADA or the “Greater of” Revenue per WADA

3. Copyright©2007 Education Service Center Region XIII 3 The Current System 2 What is the “greater of” revenue per WADA: –Greater of 3 amounts 1) 05-06 State/Local Revenue per WADA (S1) 2) 06-07 State/Local Revenue per WADA under old law and using 05-06 M&O rate (S2) 3) 06-07 State/Local Revenue per WADA under old law and using effective M&O rate (S3)

4. Copyright©2007 Education Service Center Region XIII 4 The Current System 3 “Greater of” Number x WADA + Salary Allotment + High School Allotment = “Target Revenue” Up to a district’s compressed tax rate, it is both the “floor” and the “ceiling”

5. Copyright©2007 Education Service Center Region XIII 5 The Current System 4 If HB1 state/local revenue at the district’s compressed rate falls short of the target, Additional State Aid for Tax Reduction makes up the difference If HB1 state/local revenue at the district’s compressed rate is more than the target, the district is brought down to the target

6. Copyright©2007 Education Service Center Region XIII 6 The Current System 5 Target Revenue -HB 1 State & Local Revenue =Additional State Aid for Tax Reduction Some combination of state and local revenue will equal the target –The more local revenue, the less the state has to pay –The less local revenue, the more the state has to pay

7. Copyright©2007 Education Service Center Region XIII 7 The Current System 6 Because it is primarily a Hold Harmless system, at a district’s compressed rate, the following no longer matter: –The Basic Allotment –The Tier II Level 1 Guaranteed Yield –The Chapter 41 Equalized Wealth Level –Whether you are Chapter 42 or 41 –Property values –Percentage of collections

8. Copyright©2007 Education Service Center Region XIII 8 At Compressed Tax Rate $10M Additional State Aid for Tax Reduction State Tier I & Level 1 Tier II Local Revenue BA = $3,135; Level 1 =$36.45BA = $3,218; Level 1 = $37.42

9. Copyright©2007 Education Service Center Region XIII 9 At Compressed Tax Rate $10M Additional State Aid for Tax Reduction State Local Revenue Recapture @ $364,500Recapture @ $374,200

10. Copyright©2007 Education Service Center Region XIII 10 Chapter 42Chapter 41 $10M Additional State Aid for Tax Reduction State Local No recaptureRecapture

11. Copyright©2007 Education Service Center Region XIII 11 The Current System 7 Because it is primarily a Hold Harmless system, beyond the compressed rate, the following do not matter near as much as they used to –Property values –Tax collection rate Make some difference for Levels 2 and 3 (if applicable) of Tier II

12. Copyright©2007 Education Service Center Region XIII 12 The Current System 8 Taxes @ 100% = $2,080,000 Taxes @ 95% = $1,976,000 Taxes @ 90% = $1,872,000 Level 2:@100%@95%@90% DTR.0615.0585.0554 State Aid$145,925$138,628$131,332 % Change in Aid-5.26%-11.1%

13. Copyright©2007 Education Service Center Region XIII 13 The Current System 9 CPTD Value = $200K, $195K, & $190K Collections @ 100% Level 2: @$190K@$195K@$200K DTR.0632.0615.0600 State Aid$152,923$145,925$139,277 % Change in CPTD+2.6%+5.3% % Change in Aid-4.8%-9.8%

14. Copyright©2007 Education Service Center Region XIII 14 The Current System 10 Only 4 other sources of General Fund revenue outside Target Revenue –The “golden” pennies (Level 2 of Tier II) (Austin ISD yield) –The “silver” pennies (Level 3 of Tier II) (“rollback”-like pennies) –Staff allotment –Rider 86 Allotment ($23.63 per WADA)

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17. Copyright©2007 Education Service Center Region XIII 17 What Is Your “Greater of” Amount? As of 6/4/08: –About 200 have “S1” as greater of –About 700 have “S2” as greater of –Rest have “S3” as greater of

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20. Copyright©2007 Education Service Center Region XIII 20 What Is Your “Greater of” Amount? 2 What caused you to get “stuck” where you are? –Property value changes between 05-06 and 06-07 –Tax rates set (and taxes collected) in 04- 05 and 05-06 –Changes in WADA between 05-06 and 06- 07 –Net gain from the sale of WADA in 05-06

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25. Copyright©2007 Education Service Center Region XIII 25 What Is Your “Greater of” Amount? 3 Why is “it” so important? –“It” represents at least 78% (approximately) of total General Fund revenue that you will have available 78% to 85% for 70 districts 85% to 99% for all other districts

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28. Copyright©2007 Education Service Center Region XIII 28 Is There an Equity Problem? 98% of total WADA is in districts that are “stuck” between $4,000 and $6,000 per WADA Equity standard in law: “…substantially equal access to similar revenue per student at similar tax effort…” [TEC 42.001(b)]

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33. Copyright©2007 Education Service Center Region XIII 33 Is The Hold Harmless System Rational? At compressed rate, lowest Ch 42 district has access to $9.2M ($4,183 x 2,206 WADA) At compressed rate, highest Ch 41 district has access to $2.8M ($5,993 x 471 WADA) –Ch 42 district is 4.7 times larger in terms of WADA but has only 3.3 times the revenue

34. Copyright©2007 Education Service Center Region XIII 34 Is The Hold Harmless System Rational? 2 At compressed rate, lowest Ch 42 district has access to $9.2M ($4,183 x 2,206 WADA) At compressed rate, highest Ch 42 district has access to $7.7M ($5,962 x 1,288 WADA) –Lowest Ch 42 district is 1.7 times larger in terms of WADA but has only 1.2 times the revenue

35. Copyright©2007 Education Service Center Region XIII 35 Is The Hold Harmless System Rational? 3 At compressed rate, lowest Ch 41 district has access to $3.2M ($4,462 x 714 WADA) At compressed rate, highest Ch 41 district has access to $2.8M ($5,993 x 471 WADA) –Lowest Ch 41 district is 1.5 times larger in terms of WADA but has only 1.1 times the revenue

36. Copyright©2007 Education Service Center Region XIII 36 2008-09 M&O Tax Rate What’s your rollback rate? –Lesser of: $1.04 (plus any rollback pennies adopted in previous year); OR Effective M&O Rate plus $.04 –2008-09 Effective M&O Rate should be approximately the rate you adopted in 2007-08

37. Copyright©2007 Education Service Center Region XIII 37 The 2 Additional “Golden” Pennies 1 Do you need voter approval to access the 2 additional “golden” pennies? –The answer – it depends… On the relationship between your compressed rate and your rollback/adopted rate –2008-09 adopted M&O rate has to be at least 6 cents above the compressed rate

38. Copyright©2007 Education Service Center Region XIII 38 The 2 Additional “Golden” Pennies 2 If district’s M&O rate was $1.50 in 2005-06, then election will be required –$1.50 x.6667 = $1.00 compressed rate –2007-08 M&O Rate = $1.04 –2008-09 Effective Rate + 4 = $1.08 –Rollback Rate =$1.04 Need to get to $1.06 ($1.00 + $.06) – can’t get there without voter approval

39. Copyright©2007 Education Service Center Region XIII 39 The 2 Additional “Golden” Pennies 3 If district’s M&O rate was $1.40 in 2005-06, then election MAY NOT be required –$1.40 x.6667 = $0.933 compressed rate –2007-08 M&O rate = $.973 –Effective M&O Rate + 4 = $1.01 (estimated) –Rollback Rate = $1.01 Need to get to $0.993 ($0.933 + $.06) to access the 2 additional pennies – can do so without voter approval

40. Copyright©2007 Education Service Center Region XIII 40 The 2 Additional “Golden” Pennies 4 The break point 2005-06 M&O Rate:  $1.44 x.6667 = $.96005 + $.04 + $.02 = $1.02005 $1.45 x.6667 = $.96672 + $.04 + $.02 = $1.02672 $1.46 x.6667 = $.97338 + $.04 + $.02 = $1.03338 $1.47 x.6667 = $.98005 + $.04 + $.02 = $1.04005 $1.48 x.6667 = $.98672 + $.04 + $.02 = $1.04672 $1.49 x.6667 = $.99338 + $.04 + $.02 = $1.05338 $1.50 x.6667 = $1.0001 + $.04 + $.02 = $1.06010

41. Copyright©2007 Education Service Center Region XIII 41 The Next Session Latest “surplus” estimate from Comptroller is $10.7B –Includes $3B that must go to Property Tax Relief Fund (may need more to cover cost of property tax relief already granted) –Includes $5.7B for the Rainy Day Fund Only leaves $2B for General Revenue

42. Copyright©2007 Education Service Center Region XIII 42 The Next Session 2 What to expect –Some tweaking –Push for more property tax relief What not to expect –Major overhaul (NOTE: The history of school finance tells you that the Legislature does not voluntarily overhaul school finance…only does so upon court intervention)

43. Copyright©2007 Education Service Center Region XIII 43 The Next Session 3 TASA’s solicited recommendations to Select Committee (assuming no overhaul) 1)Target Revenue / Inflation –Establish revenue target floor ($1.9B) –Inflation adjustment ($2.8B @ 3%) –In lieu of inflation adjustment, allow access to 4 more pennies each biennium without going to voters

44. Copyright©2007 Education Service Center Region XIII 44 The Next Session 4 TASA’s solicited recommendations to Select Committee, cont’d 2)Transportation Costs –Double current allotment ($576M) 3)High School Allotment –Increase from $275 per ADA to $500 per WADA ($334M)

45. Copyright©2007 Education Service Center Region XIII 45 The Next Session 5 TASA’s solicited recommendations to Select Committee, cont’d 4) Facility Funding –Increase IFA & EDA yield from $35 to $50 ($1.2B) –Roll-forward EDA eligibility date ($150M) –Provide for additional round of IFA ($85M) 5)Technology Allotment –Increase from $30 to $50 ($180M)

46. Copyright©2007 Education Service Center Region XIII 46 The Next Session 6 TASA’s solicited recommendations to Select Committee, cont’d 6) Small & Mid-size Adjustment –Allow Chapter 41 districts to get mid-size district adjustment ($62M) Total = $7.287B for the biennium

47. Copyright©2007 Education Service Center Region XIII 47 The Next Session 7 Also state that: –Money from value growth should be reinvested into public school finance on top of amount needed for enrollment growth –They support a comprehensive study on long-term needs

48. Copyright©2007 Education Service Center Region XIII 48 Pending Issues M&O tax collections used in “S3” calculations may change –Will only benefit some districts TEA still working on: –‘frozen levy lost’ calculations –adjustments for Tax Increment Financing arrangements Survey asking for more details due 7/1/08 Not sure when all will be finalized