While Gov. Greg Abbott declared school finance reform a top priority in his State of the State address Tuesday, local school leaders speculated on how a pair of bills intended to limit an essential source of school funding would affect their districts.
Lawmakers in both chambers of the Texas Legislature announced identical bills last week intended to curb property tax growth by restricting the amount of revenue local governments can collect without voter approval. The governor went a step further Tuesday by declaring school finance reform and teacher pay raises emergency items, the Texas Tribune reported.
But for local school districts, the path forward remains unclear until more details emerge of how the legislation would affect state funding of schools. Waco and Midway ISDs significantly rely on property tax revenue to fund their school programs and pay their teachers.
“The system as it is designed today is heavily dependent upon the property tax,” Midway Superintendent George Kazanas said. “That is a fundamental issue that has to be addressed.”
Under the state’s proposal, taxing entities, including school districts, would have to hold an election if they want to set a tax rate that would bring a 2.5 percent increase in revenue from existing properties.
The bills follow a decadelong trend of shifting the burden of school funding from the state level to the local level. Since 2008, overall per-pupil funding has declined, while the state’s share of funding has dropped from 45 percent to 35 percent, according to the Texas Tribune.
The emphasis of the new bills is on reducing property taxes and not financing schools, said Chandra Villanueva, program director of economic opportunity at the Center for Public Policy Priorities, an Austin-based nonprofit focused on improving quality of life for all Texans through public policy.
To stay under the 2.5 percent revenue-growth cap, wealthy school districts where property values are increasing, such as Midway, could have to reduce their tax rates to avoid an election, raising equity concerns, Villanueva said. Those lower tax rates would encourage new businesses to build in those areas, encouraging growth in places already rich in economic opportunity and creating more inequity. This system would “chip away at equity,” she said.
Midway ISD receives about 20 percent of its funding from the state and 80 percent from local property tax revenue, with a minute amount coming from the federal government, Assistant Superintendent for Finance Wesley Brooks said.
“Our property taxes increase as the values increase, even though the district tax rate stays the same,” Brooks said. “As the values increase and the tax revenue increases, the state share is reduced.”
If the school finance system remains unchanged under the tax reform proposals, Midway ISD would receive less of its funding from local taxes and the state would make up the difference, Brooks said. But that is only if the current system stays in place.
Ultimately, that is the question school districts are facing with the proposed legislation, Waco ISD Chief Financial Officer Sheryl Davis said. It’s difficult to predict the effects of the tax reform without knowing whether the state will change how it funds schools, Davis said.
Waco ISD got 47.5 percent of its funding from the state and 50 percent from local taxes this year, Davis said. The rest comes from the federal government. This is the first year local revenue has exceeded state revenue for the school district.
State funding has not grown for schools, so the only increase in funding school districts have seen is from local taxes, Davis said. The bills do not address this issue.
“It’s just one more limitation on what we can do to generate revenue and no more limitations on what we’re being asked to do,” she said.
With the revenue-growth cap in place and no additional state funding, the cost-of-living salary increase Waco ISD typically gives employees each year could eat up the entire budget, school board President Pat Atkins said.
“I’m a strong believer in local control,” Atkins said. “We’re in the best position to make decisions that impact Waco. Anytime the state Legislature or federal government tries to usurp local control is cause for concern.”
Atkins said the limits the tax reform bills would put on school districts would need to be offset by state money, which he has not seen addressed on the state level.
“If there is little to no additional state funding included with this legislation, then there would be a tremendous impact on Waco ISD,” he said.
Kazanas said there has been discussion in Austin of increasing the state’s share of public education funding but that no sustainable source of funding has been identified.