Public Education Powerpoint

Texas School Finance Overview:

Presentation to Texas Impact

Agenda• System Requirements

– Constitutional Statements– Supreme Court Statements– Educational Context

• Legislative Response– Legislatively Established Goals– Legislative Response to WOC– Legislative Response to State Budget Crisis

• Current Legal Challenges– Equity– Adequacy – State Property Tax– Rationality

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System Requirements

School finance reform in Texas is beginning to resemble a nineteenth century Russian novel. The story line runs across generations, the plot is complex, the prose is tedious, and everybody dies in the end.

--William Hobby & Mark Yudof (1991)

System Requirements: State Constitution• Equity and Adequacy:

– “A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools.

• State Property Tax Prohibition– “No State ad valorem taxes shall be levied upon any

property within this State”

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System Requirements: Supreme Court Statements

• General Diffusion of Knowledge– “There is substantial evidence, … that the public education

system has reached the point where continued improvement will  not be possible absent significant change, whether that change take the form of increased funding, improved efficiencies, or better methods of education.”

– “…an impending constitutional violation is not an existing one, and it remains to be seen whether the system's predicted drift toward constitutional inadequacy will be avoided by legislative reaction to widespread calls for changes.”

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System Requirements: Supreme Court Statements• Efficiency

– “The amount of "supplementation" in the system cannot become so great that it, in effect, destroys the efficiency of the entire system.”

• State Property Tax– “The State cannot provide for local supplementation,

pressure most of the districts by increasing accreditation standards in an environment of increasing costs to tax at maximum rates in order to afford any supplementation at all, and then argue that it is not controlling local tax rates.”

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System Requirements: Complex Undertaking

• 4.83 million students• 660,000 employees (333,000+ teachers)• 1200+ districts, 8100 campuses• $35.4 billion annual general fund operating expenditures• Wealth per student ranging from $18,000 to

$5.4 million across school districts• Changing student population/characteristics• Increasing educational standards and requirements

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System Requirements: Demographic Shift

1994-95 2010-11 Increase%

Increase

Economically Disadvantaged

1,699,61246%

2,909,55459%

1,209,942 71%

At Risk 1,533,281

42%2,275,179

46%741,898 48%

Limited English Proficient

455,22412%

830,79517%

375,571 83%

Total Enrollment

3,670,196 4,912,385 1,242,189 34%

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System Requirements: The Cost of Growth

• The finance formulas provide for an average of $7,257 per student in ADA.

• An annual increase of 75,000 students costs $544 million per year, statewide.

• Factoring in three percent inflation would add an additional $1 billion.

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System Requirements: Performance Expectations• 4X4 Requirements• End-of-Course Transition• College and Career Readiness Standards

“The commissioner shall periodically raise the state standards for the student achievement indicator … for accreditation as necessary to reach the goals of achieving, by not later than the 2019-2020 school year:

(1)  student performance in this state, disaggregated by race, ethnicity, and socioeconomic status, that ranks nationally in the top 10 states in terms of college readiness; and

(2)  student performance, including the percentage of students graduating under the recommended or advanced high school program, with no significant achievement gaps by race, ethnicity, and socioeconomic status.

– TEC 39.053(f) 10

Texas in National Rankings on Public Education Spending

• NCES data on Texas current expenditures per pupil in membership– 1997-98: $5,444 - ranked 36th among the

states– 2008-09: $8,562 – ranked 43rd among the

states• Enrollment growth/school construction costs may serve

to keep current expenditures lower than in some other states

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System Requirements: Performance History

System Requirements: Performance History

System Requirements: Performance History

According to TEA AEIS data, 82% of low-income students from the class of 2010 graduated on time. Of those, 38% scored high enough on either the state assessment, the SAT, or the ACT to be considered college ready—meaning less than 1/3 both graduated and were prepared for college.

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Legislative Decisions

State Finance Policy 1995 (42.001)It is the policy of this state that the provision of public education is a state responsibility and that a thorough and efficient system be provided and substantially financed through state revenue sources so that each student enrolled in the public school system shall have access to programs and services that are appropriate to the student's educational needs and that are substantially equal to those available to any similar student, notwithstanding varying local economic factors.

The public school finance system of this state shall adhere to a standard of neutrality that provides for substantially equal access to similar revenue per student at similar tax effort, considering all state and local tax revenues of districts after acknowledging all legitimate student and district cost differences.

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Basic School Finance Structure

Series10

1000

2000

3000

4000

5000

6000

Tier II B: $351

Tier II A: $354

ASATR: $343

MeaningfulLocal Discretion

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State average amount per WADA: 2009-10

General Diffusion of Knowledge

Tier I: The General Diffusion of Knowledge

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The purposes of the Foundation School Program set forth in this chapter are to guarantee that each school district in the state has:

(1)  adequate resources to provide each eligible student a basic instructional program

--Texas Education Code 42.002

Tier I Formula Funding

• Districts receive the basic allotment for each student in ADA for Tier I formula funding at compressed tax rate

• The basic allotment - $4,765 for 2010-11– Adjusted for community characteristics that affect the

cost of education• Size• 1990 Differential salary costs (CEI)

– Adjusted for differences in tax effort

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Tier I Formula Funding

• In addition, Tier I includes funding for several special programs or conditions: – Special Education– Compensatory Education – Career and Technology– Bilingual/ESL– Gifted and Talented– Education of Migrant Students– Transportation allotment– NIFA (not funded)– High School Allotment

• Split between state and local share based on what the district can raise at the compressed tax rate

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Tier I Formula Composition

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Regular 74%

Special Ed 10%

Career & Tech 4%

Gifted 0%

Compensatory 9%

Bilingual 2%NIFA 1% Transportation

2%

Tier II: Meaningful Local Discretion

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The purposes of the Foundation School Program set forth in this chapter are to guarantee that each school district in the state has:

(2)  access to a substantially equalized program of financing in excess of basic costs for certain services, as provided by this chapter.

--Texas Education Code 42.002

Tier II Allotment

• Provides equalized access to revenues above Tier I

• Equal yield per penny per cost adjusted student (WADA)

• Two distinct levels of Tier II– First 6 pennies over compressed rate are equalized

at the Austin ISD yield ($59.97)– Additional pennies are equalized at $31.95 yield

• Maximum tax rate generally $1.17• Rates beyond $1.04 generally require voter

authorization23

RecaptureEfficiency does not require a per capita distribution, but it also does not allow concentrations of resources in property-rich school districts that are taxing low when property-poor districts that are taxing high cannot generate sufficient revenue to meet even minimum standards. There must be a direct and close correlation between a district’s tax effort and the educational resources available to it; in other words, districts must have substantially equal access to similar revenues per pupil at similar levels of tax effort.

- Edgewood I, 1989 24

Recapture

• Wealth Equalization (Recapture)– Maximum allowable local capacity of $476,500 tax

base per student for maintenance and operations at the compressed tax rate; $319,500 for taxes above the district’s compressed rate plus $0.06

– Districts must share excess tax base through one of five methods, and State has authority to detach or consolidate

– Effect of most common arrangements is to send % of tax collections to the state or other districts

– Many exceptions; debt service is outside

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LEGISLATIVE RESPONSES TO WEST ORANGE COVE DECISION

Legislative Response to WOC

• The Supreme Court last ruled the public school finance system unconstitutional in 2005 on the grounds that it constituted a statewide property tax.

• The legislature needed to provide for “meaningful local supplementation” beyond paying for state priorities

• Three options:– Provide additional funding to cover state priorities,

freeing existing resources for local supplementation;– Reduce the cost of complying with state priorities;– Increase the ability of local communities to raise

taxes

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Legislative Response to WOC

• The legislature did:– Reduce base tax rates by 1/3 over two years– Provide state revenues to make up the difference– Allow for increased taxing capacity beyond base rate– Pass a reform package focused on accountability– Provide resources for salary increase, high school

allotment– Increase requirements for local tax increases

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Legislative Response to WOC

• The legislature did not:– Link finance system to performance requirements– Improve formula cost adjustments– Eliminate formula discrepancies between districts– Pass a tax bill that generates sufficient revenue to

cover lost property taxes in the long term

Hold Harmless Base: The Second System• Target Revenue

– First created to hold districts harmless in 2006-07– Modified several times– Any variations in law in 2006-07 are built in to district

targets• Property values• Property value growth• Tax rates• Formula treatment

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Revenue / WADA @ the Compressed Tax Rate, Districts > 10,000 WADA

$0 $150,000 $300,000 $450,000 $600,000 $750,0004,000

4,500

5,000

5,500

6,000

6,500

7,000

Wealth per WADA

Tota

l Tie

r I

per

WA

DA

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State Structural Deficit – 2010-11

M&O tax revenue at 2006 rates

$23.9 billion

Reduced M&O property tax - $17.2 billion

School district M&O tax relief

= $6.7 billion

State revenue offset $2.2 billion

Shortfall to be financed $4.5 billion

LEGISLATIVE RESPONSE TO STATE FINANCE SHORTFALL

Legislative Responses to State Shortfall

• $4 billion reduction to state formula program• $1.4 billion in lost grant programs

1. $271 million, Technology Allotment

2. $223.3 million, Pre-Kindergarten Grant Program

3. $269.7 million, SSI ($23.5m remains for 2012-13)

4. $345.1 million, DATE ($40m remains for 2012-13)• Up to $5m for implementing standards on educator

quality• Up to $10m for an educator mentor program• Up to $1m for Humanities Texas

5. $50 million, New Instructional Facilities Allotment

Moak, Casey & Associates January 31, 2012

Legislative Response to State Finance Shortfall• 2011-12: Regular program reduced to 92.39% of prior

law amounts• 2012-13: Regular program reduced to 98 percent of

prior law amounts, hold-harmless protection reduced to 92.35% of old law.

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A - Under $147,425

B - $147,425 to $185,295

C - $186,296 to $228,391

D - $228,392 to $265,755

E - $265,756 to $307,636

F - $307,637 to $367,316

G - $367,317 to $449,150

H - $449,151 to $597,899

I - $597,900 to $933,446

J - Over $933,446

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

2010-11 FSP per WADA 2011-12 FSP per Old WADA 2012-13 FSP per Old WADA

FSP REVENUE PER WADA

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LITIGATION

Status of Litigation• Causes of Action:

– Adequacy: Rising standards and funding cuts leave insufficient revenue to provide the GDK.

– Meaningful discretion: Remaining tax rate capacity is insufficient to offset for funding cuts, and provide meaningful discretion to enrich.

– Efficiency/Equity: Target revenue disparities in combination with unequalized funds produces unconstitutional student / taxpayer inequity.

– Rationality: The state has failed to provide a rational system based on appropriate cost adjustments and structure

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Adequacy

• How good does our education system have to be to meet the general diffusion of knowledge standard of the Texas constitution?

• Is the cost of adequacy under the current system a suitable subject for judicial determination?

• How do the evolving state standards work into the equation?

• Do the outdated cost measures impair the adequacy of the system?

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Equity

• Is the degradation of system equity since 2004 severe enough to warrant court intervention?

• What weight does the state commitment to eliminate target revenue by 2017 have?

• Should the yield for debt service be included in the court’s analysis of tax equity?

• Given the standard of equity up to the GDK level, should the lack of recapture for a portion of “enrichment” be considered?

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Meaningful Discretion

• Do the revenue reductions of the 2011 Legislature offset the “meaningful discretion” afforded by $1.17?

• Do districts at $1.17 have meaningful discretion to enrich?

• Should the effective combination of limited voter appeal and the potential for recapture be considered in the analysis?

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Rationality

• Does a separate but unequal funding scheme constitute “suitable” and “efficient” provision?

• Does the use of 1980s’ weights and adjustments provide the state with a rational basis for funding public education?

• Are the state long term commitments to adjust standards and financing sufficient?

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Litigation Timing

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• Four groups have filed• Discovery process underway• District court ruling sometime in fall

Closing Lawsuit Observations

• Constitutional challenges as an element in a larger debate

• Proclivity of the court to grant state discretion in all but clear “out of bounds” situations

• Need for a clear constitutional priority for public education funding

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Amanda Brownson, Ph. D.Bob PopinskiMaria Whitsett, Ph.D.Joe WisnoskiLarry Throm Associates

Lynn M. Moak

Daniel T. CaseyPartners

Kathy MathiasLarry Groppel Ed. D.

Thomas V. Alvis Ph. D.Consultants

Chris GrammerIntern

Susan MoakKari Ruehman

Administrative Staff

400 West 15th Street, Suite 1410, Austin, Texas 78701-1648Ph. (512) 485-7878 Fax (512) 485-7888

www.moakcasey.com46