School Finance 101

1
School Finance 101

• Midland Independent School District
• December 10, 2008

2
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

3
Sources of Revenue cont.

• School Year 2007
• Estimated state versus local funds for 2008-09
• Local share 51
• State share 49

4
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

5
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

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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.

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Where Are We Now?

• Districts are currently in the 3rd year of using
  Revenue Targets
• Translation Funding for the 2008-09 school year
  is based on out-of-date funding levels from 2005
  or 2006

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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• Revenue Targets are out of date, and the school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

9
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.

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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.

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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
  states obligation to provide funding to that
  district decreases.
• The estimated benefit to the state of property
  value increases is about 2 billion a biennium

12
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)

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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 2011-12 school year

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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

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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

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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

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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.

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Contact Information

• David Garcia
• Assistant Superintendent of Financial Services
• dgarcia_at_esc18.net