Texas Preparing for Funding Challenge

Last Updated: October 27, 2010

This article appeared in the October 2010 Rural Policy Matters.

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Some Texas state senators want the state to adopt a statewide property tax to try to avoid more school finance litigation, and school leadership organizations are putting forth their own recommendations about how to fix the funding system.

In Texas, the Foundation School Program mandates that “excess” local property tax revenues be redistributed in one of several ways to benefit poorer districts. The system is a result of a 1989 school finance case, Edgewood v. Kirby, which found the state funding system unconstitutional.

The last funding case, brought in 2005 by several wealthy districts, claimed the system had effectively become an illegal statewide property tax, which is prohibited under the Texas Constitution. The legislature increased state-level funding and replaced one-third of local school property taxes with money from a new business tax, higher cigarette taxes, and budget surplus. The reforms included give school districts more discretion in setting rates. These changes were intended as temporary fixes but are still in place today.

The judge in that lawsuit ordered changes to the revenue system but found that funding overall was adequate. At that time, low-wealth districts announced that they would revisit the adequacy question in court.

A special legislative committee is studying various solutions to the funding system as talks about another school finance lawsuit grow more serious. This time, however, the case would likely not be an adequacy case because the state is facing an $18–21 billion budget shortfall. Legislators, business, and school leaders on the committee acknowledge the serious problems with the funding system but are far from consensus on a solution. Recommendations range from increasing the sales tax to creating an independent school policy center to study the issue.

The Texas Association of School Boards (TASB) has, for the first time, released its own recommendations about how to revamp the system. TASB members say the recommendations are warranted because many districts are at the maximum allowed tax rate for maintenance and operations. The TASB plan would try to equalize districts’ revenue based on tax effort and would eventually phase out the current complicated two-tiered system in which some districts receive a guaranteed yield on property tax collections and others receive a targeted revenue amount.

A recent report released by the Equity Project, which represents low-wealth districts, explains the inequity of the Texas system and other challenges facing schools, including that the state’s cost of education index has become outdated, and current weighted student formulas don’t account for real costs. A significant part of the report is dedicated to highlighting the inequity of funding between wealthy districts and districts with very low numbers of students living in poverty and facing other challenges.

Read more:

Coverage of the property tax increase proposal and other proposals before the legislative committee:

The Equity Center report, “Money Matters”:
Coverage on the Texas School Board Association’s proposal:
Read more from the October 2010 Rural Policy Matters.