Skip to content
Quick Start for:

Joint Select Committee on Public School Finance

Committee’s Report Contains Five Proposals

The long awaited report from the Joint Select Committee on Public School Finance contains five proposals that call for substantial changes to the Texas school finance system. Various committee members and individuals submitted the proposals contained in the December report to the 78th Texas Legislature. The report noted that the five plans, however, do not necessarily represent the views of the committee as a whole.

The five proposals and their authors included:

Statewide property tax

Then Lt. Governor Bill Ratliff, now Senator Bill Ratliff, introduced a plan for a voter-approved constitutional amendment to abolish local school property taxes for maintenance and operations. The plan would establish a state property tax to pay for Texas' public schools and allow for a local enrichment property tax. Revenue raised by the new system would be combined with the state's existing school funding resources to form a new foundation for public school finance.

The plan would retain current local school district authority to levy a property tax for debt service. It would authorize the Texas Legislature to grant statutory authority to allow school districts to levy a local property tax for educational enrichment, not to exceed $0.10 per $100 of value.

Ratliff’s plan set forth a state property tax for the sole purpose of funding Texas public schools at $1.40 per $100 of value, to combine with the general revenue appropriation to form the foundation school program funding. The plan included:

  1. Basic allotment to a school district (Tier One) would distribute $30 per penny of $1.40 levied per weighted student to cover base maintenance and operations. With transportation and other adjustments, the plan would distribute about $4,275 per weighted average daily attendance (WADA), about $115 more than current funding levels.
  2. Local enrichment (Tier Two) would allow local districts $0.10 per $100 of value. If a school district had less than $300,000 of property wealth per WADA, the state would guarantee $30 per WADA per penny of tax effort.
  3. Debt service (Tier Three) would have the state guarantee a yield of $35 per penny of tax effort, up to $0.30 per $100 of value.
  4. Teacher health plan would provide for an additional state property tax above the $1.40 to fully fund a state teachers’ health insurance plan.

Commissioned study

Senator Florence Shapiro provided a plan to conduct a comprehensive study using national experts and the four currently existing models to help “cost out” the price of a basic education. The plan’s goal is to find a level of funding with some relationship to the costs associated with achieving certain levels of student performance.

Shapiro’s proposal identified four models that included:

  1. The Successful Schools Model by John Augenblick that identifies the cost structures of school districts successful in student performance and spending levels per pupil. The report noted: “The basic idea is that if a group of districts with a variety of pupil characteristics can succeed with $X per pupil, then the other districts should also be able to do so.”
  2. The Professional Judgment Model by James Guthrie and Richard Rothstein that gathers school professionals together to discuss and reach consensus on an adequate education and cost out that education.
  3. The Econometric Model by William Duncombe and John Yinger that uses regression analysis of data from all schools in a state to identify a per-pupil spending level based on student performance, taking into account the socioeconomic factors associated with schools.
  4. The New American Schools Model by Allan Odden that advocates school costs being based on popular, off-the-shelf school improvement models. The report noted: “Odden has ‘costed out’ the expenses involved in all seven of the designs supported by New American Schools, a private group based in Arlington, Virginia that promotes innovation in public schools, and calculated the investment needed to bring every school district in the country up to the same spending levels.”

Seven strategic adjustments

Committee Member David Thompson set forth a proposal with seven strategic adjustments that would allow the public school finance system to grow over time, limit further shifts in support of public education from the state to the local property tax, and meet current and future legal requirements.

Thompson’s plan included these seven adjustments:

  1. Reduce the school funding system’s complexity by moving to a one tier system.
  2. Revise the recapture mechanism to an effective tax rate of $1.40 so that there is no difference between Chapter 42 and 41 districts up to that level of effort and there are no “gap” districts. At effective tax rates above $1.40, raise the equalized wealth level (EWL) as the Chapter 41 district approaches $1.50, allowing it to retain more of its property tax revenues as it gets closer to $1.50. An increase in the EWL could be applied only to the incremental effort over $1.40 or to the district’s total effective tax effort.
  3. Statutorily increase the guaranteed yield level (GYL) over a five-year period for Chapter 42 districts in order to give districts stability over time so that they are able to plan effectively and to keep capacity in the system by pushing districts away from their legal tax cap.
  4. Drop the maximum EWL for a school year, regardless of a Chapter 41 district’s effective tax effort, to the wealth level per WADA that corresponds to whatever funding level for the GYL that has been appropriated if the Legislature does not appropriate funds for the statutory increase in any given school year,.
  5. Make existing debt allotment (EDA) roll-forward automatically.
  6. Revise the cost of education index (CEI) by adopting the salary and benefits model, recommended by the Dana Center; base the CEI on a rolling average of three to five years data; and identify regional indices, in addition to or instead of indices for each individual district.
  7. Create a new hold harmless to guarantee the prior year’s state and local revenue per WADA, plus 3 to 5 percent to cover growth and education inflation if the district is taxing at $1.50. This would include, and not be on top of, any increase in the GWL. If a district received an adjustment in any year because of any local option exemption, the amount of any such adjustment would not be guaranteed under this hold-harmless.

Interim reforms

Committee Member Craig Foster proposed a plan based on the belief that in between the school finance system Texas has today and the system Texas will eventually adopt, significant interim reforms are possible and can produce meaningful results for Texas children.

Foster’s plan addresses these changes to the current system:

  1. Provide special state assistance (SSA) to a district that has reached its maximum maintenance and operations (M&O) tax capacity. A district has reached that capacity when it is taxing at its maximum M&O rate and does not have a local option homestead exemption. The amount of SSA should consider the number of years the district has been at maximum capacity, the relative amount of the district's funding disparities (see below), and concurrent increases in other funding elements.
  2. Make detachment and annexation of non-residential property the only option, other than consolidation of districts or tax bases, for meeting the wealth limitations under Chapter 41, with one exception. For the few districts that are Chapter 41 by virtue of residential value alone, maintain current option 3 for that portion of their excess wealth that cannot be achieved by detachment and annexation.
  3. Make detachment and annexation reversible and fractional so that a Chapter 41 district's retained wealth can be adjusted annually to the exact amount of the district's limit. Prioritize properties for detachment and annexation so that the smallest locally owned properties would be detached or added last, if at all.
  4. Give county appraisal districts (CADs) and the Comptroller's Property Tax Division the legal and financial resources necessary to fulfill their obligations to the children of Texas. This proposal states that all taxpayers must contribute their fair share to the state's public school system, allowing only for differences in local tax rates. School districts must be protected from losses of state aid or excess recapture due to problems which are largely beyond the control of the school districts.
  5. Adopt formally the Edgewood equity standards as minimum standards, calculate the standards in accordance with Edgewood IV, and adjust funding during the settle-up process to ensure the standards are met.
  6. Adopt a strategy to exceed the current minimum standards of adequacy and equity in response to the Supreme Court's conclusion in Edgewood IV that ". . . Texas can and must do better." Use the model proposed by the Equity Center in its policy statement entitled, “Offering a Fair and Rational Strategy for Achieving Real Equity and Adequacy.”
  7. Commission unbiased studies to determine weights and indexes that accurately reflect cost differences among students and school districts for programs, facilities, and transportation.
  8. Investigate the distribution of funds under recapture options to ensure that current practices are both legal, ethical, and conform to legislative intent.
  9. Extend the existing debt allotment indefinitely and base state assistance on actual current debt service, not prior debt tax history.
  10. Reject proposals to define "adequate" funding as any amount less than the amount at a very high percentile of students nationally, adjusted for generally recognized cost differences.
  11. Close the loopholes in the state's current tax system as a first step toward providing increased state funds for public schools.

Six to eight year alterations

Education finance experts Lynn Moak and Dan Casey suggested a proposal with various alterations to be implemented over a six to eight-year period. Their recommendations consisted of the following changes in these areas::

  1. Restructure the Foundation School Program.
    • Establish a single tier guaranteed yield program with recapture.
    • Guarantee all districts a revenue yield equal to the 95th percentile of wealth per WADA.
    • Provide annual cost of living adjustment plus 1 percent for all districts, regardless of wealth.
    • Equalized wealth level would be statutorily established at the 95th percentile.

  2. Change tax rate and property value adjustments.
    • Use local, current year values.
    • Use actual tax rates.
    • Fund a strong state monitoring/compliance effort for appraisal district administration.
    • Significantly adjust funding for fast-growing districts if current-year values are used.

  3. Modify calculation of per pupil entitlements, creating a “Programs Factors” adjustment.
    • Create entitlement for full-day Pre-K programs for all four-year-olds.
    • Create high school weight (1.05) and eliminate career and technology and gifted and talented weights.
    • Create first-year student weight for fast-growth districts.
    • Replace compensatory education weight with an “at-risk” weight.
    • Replace bilingual education weight with “limited-English proficient” weight.
    • Simplify special education weights.
    • Have the state assume costs for very high-cost students.
    • Add an indirect cost factor based on a federal indirect cost-type calculation.

  4. Create a “Community Factors” adjustment.
    • Convert transportation allocation to weighted adjustment.
    • Create a single small/mid-size adjustment formula based on student density.
    • Amend the CEI using a modified essentials index (Dana Center) and multiply the value by 0.6 rather than 0.71.

  5. Modify certain current categorical programs.
    • Eliminate compensatory education set-asides and replace with state funding for assessment costs.
    • Eliminate 9th grade, early-elementary education, and technology adjustments.
    • Eliminate current hold-harmless provisions for the homestead exemption, teacher salaries, and health insurance.
    • Expand the textbook program to incorporate high-cost instructional technology systems.

  6. Change teacher health insurance.
    • Separate funding of health insurance.
    • Retain the current $1000 health insurance/compensation allotment.
    • Increase state funding for basic insurance plan in excess of required local contribution.
    • Provide specific insurance allotment to replace the current formula funding of the insurance contribution.

  7. Change facilities funding.
    • Create funding assumptions for facilities based on the expected funding needs of $3 billion in capital funds per year.
    • Support a constitutional amendment to validate a modified funding system.
    • Increase Texas Education Agency review.
    • Provide automatic EDA-type funding.
    • Expand IFA program to include equipment and approved administrative facilities.

For more about each of these proposals and the Legislative Budget Board’s analysis of state costs, see the full committee report at either the Texas Senate’s Web site at www.senate.state.tx.us/75r/senate/commit/c890/c890.htm or at the House of Representative’s Web site at www.house.state.tx.us/committees/reports/77interim/school_finance.pdf.


Joint Select Committee’s Charge
The Joint Select Committee on Public School Finance was to:
  1. Conduct a comprehensive review of the public school finance system in Texas, including the system’s structure, being sure to address issues of facilities, transportation and similar issues; the method of funding for public schools in the state; and factors that determine how to pay for education (e.g., personnel costs vs. student attendance, course completion, classroom vs. distance learning).
  2. Consider all equity issues affecting school districts and the school finance system.
  3. Examine fully the revenue resources for funding public schools, including a review of the state’s tax system as it related to public school finance.

The Joint Select Committee traveled to six Texas cities – Amarillo, El Paso, Brownsville, Galveston, Price, and West Lake. The committee heard public testimony that underscored the statewide belief that the current public school funding system relies too heavily on property taxes. The committee also held a number of Austin hearings to hear testimony from expert witnesses on the current school finance system, uncontrollable variations in the costs of Texas public education, real estate values, demographic trends, and issues of growth, equity and efficiency.


Joint Select Committee Members
Senators: Representatives:
Sen. Teel Bivins, Amarillo, co-chair Rep. Paul Sadler, Henderson, co-chair
Sen. Steve Ogden, Bryan Rep. Harold Dutton, Houston
Sen. Florence Shapiro, Plano Rep. Kent Grusendorf, Arlington
Sen. Eliot Shapleigh, El Paso Rep. Scott Hochberg, Houston
Sen. Leticia Van de Putte, San Antonio Rep. Rene Oliveira, Brownsville
Sen. Royce West, Dallas Rep. Todd Smith, Euless
Citizens:
Kent Caperton, former senator, Bryan Lyndon Olson, former State Board of Insurance
Will Davis, former State Board of Education, Austin Mark Stiles, former state representative, Beaumont
Craig Foster, Equity Center, Austin David Thompson, education attorney, Houston


Key Public School Finance Facts from the Committee Report:
  • Annual state and local school tax funds exceed $24 billion. Local maintenance and operations property taxes total $13.5 billion and state foundation funding is $9.6 billion.
  • Almost all money in the system is geared to overcome disparities in local property values. Any change tends to impact the equity of the entire system.
  • Higher property values result in savings in state general revenue. Higher tax rates increase state cost and local budgets. The opposite also applies to both.
  • An increase of one student on average raises the cost of the Foundation School Program about $5,500. An increase of $1 billion in tax base generally reduces state aid by about $15 million. An increase in tax rate of $.01 raises the total Tier Two amount by $132 million and costs an additional $46 million in state aid.
  • State funding is approximately 48 percent of total funding. Local funding is approximately 45 percent of total funding. Federal funding is approximately 7 percent of total funding.