Delay One Foundation School Program Payment to
School Districts as an Alternative to Reduced Funding


The Legislature should consider a one-time delay of the August 25, 1995 Foundation School Program payment to school districts as an alternative to direct reductions in appropriations for public education.


Background
As the Comptroller s office has conducted its study of the long-term future of Texas, called Forces of Change, it has become clear that the most important core area affecting the quality of the state s future is public education. In general, the recommendations in this section of the report have been aimed at supporting the overall quality of education in Texas and not at solving the state s budget problem at the expense of this most important area of state services.

The state s leadership has cl early articulated a need to make Texas government operate within its revenue limitations, as do most Texas families. It has also recognized the need to provide the necessary functions of state government while balancing our budget. However, providing fundi ng for public schools at available revenue levels means the state will effectively be funding public education significantly below its current level of operations when enrollment growth is considered.

While the Comptroller s office does not support across -the-board funding reductions for public education, we are mindful of the need to produce a state budget within available revenue. As a matter of policy, we have recommended and used one-time measures to achieve savings during past budget discussions, and there are one-time funding recommendations elsewhere in this report. If sacrifices must be made by public education to meet the state s overall budget objectives, it is preferable that these sacrifices be minimized, using a one-time alternative in place of a general reduction.

The Texas Education Code provides a specific schedule for payments to school districts, based on wealth categories, from the Foundation School Fund. The three wealth categories are as follows:

Category 1 - districts have a property wealth per pupil of up to one-half the statewide average wealth;

Category 2 - districts have a property wealth per pupil of at least one-half the statewide average wealth,
but not more than the statewide average; and,

Category 3 - districts have more than the statewide average wealth.

All of these payments are to be made on or before the 25th day of the specified months. 1 The schedule provides that program payments are not made to Category 1 school districts (the poorest wealth level) in the month of August. Category 2 school districts (which are still classified as poor districts) receive approximately six percent of their yearly entitlement in their August payment. Category 3 school districts, the wealthiest districts, receive approximately nine and a half percent of their yearly entitlement on August 25th.

Therefore, the Foundation School Fund transfers could be delayed from August 25, 1995, to September 1, 1995, a seven-day delay in funding, for a one-time cash flow savings. Districts would still receive their payment only about a week later and the budget liability for the state would be moved outside the 1994-95 budget period. This would provide at least a partial alternative to a general reduction in funding which could be effectively pla nned into school district budgets. Even school districts which find themselves in the position of borrowing funds in anticipation of their September payments could count this delayed payment as a receivable for budget planning purposes.


In the case of school districts which are placed in extreme funding difficulty due to delaying this payment, the Commissioner of Education should have the discretion to pay some of the money to those districts to avoid undue hardship.


Recommendation
The payments to sch ool districts from the Foundation School Fund authorized by Texas Education Code, Sec. 16.260, should be delayed from August 25, 1995, to September 1, 1995, for a one-time cash flow savings and to secure higher funding levels for public education without t he across-the-board reductions under an available revenue budget.

Approximately $157 million was transferred from the General Revenue Fund to the Foundation School Fund to cover the August 1992 allocations to local school districts. Delaying the August 25 , 1995 payment authorized in the Texas Education Code to September 1, 1995, would preclude the transfer of funds from the General Revenue Fund to the Foundation School Fund during the current biennium for a one-time savings to the General Revenue Fund. Th is amount would be paid with interest in 1996.

An alternative to this recommendation, which could be considered by the Legislature, would be to change the statutory payment schedule, effective August 1, 1995, to require all payments from that date forward to be on the 1st day of the following month, rather than the 25th day of each month. This would have the effect of making the one-time savings permanent, much like the change in the payday for state employees enacted by the Legislature several years ago.


Implications
Some poorer school districts would have to anticipate a very short-term six-percent reduction in their state funding for purposes of their 1994-95 school year cash flow planning. However, they would receive the payment on September 1, 1995, a delay of seven days, and would have two years to plan for this change.

Some districts may be put in the position of borrowing money; however, in cases of extreme hardship, the Commissioner of Education could release some of the funds.


Fiscal Impact
This proposal would have the effect of delaying one month s transfer of funds from the General Revenue Fund to the Foundation School Fund for payment to local school districts. In fiscal 1992, the August allocation to school districts totalled $157 million. At this time, the August 1993 allocation is estimated to be $175 million. Assuming the Foundation School Program is funded at the 1993 level of funding, there would be a one-time savings to the General Revenue Fund of $175 million in fiscal 1995. 2

The $175 million, plus interest, would be paid out to schools in fiscal 1996, if the statutory payment schedule is not changed from the 25th day of the month to the 1st day of the following month.

Fiscal Savings to Change in
Year General Revenue Fund FTEs

1994 $ 0 0
1995 175,000,000 0
1996 (175,202,000) 0
1997 0 0
1998 0 0


Endnotes
1 Texas Education Code, Section 16.260.
2 Estimates are computed using school funding formulas for fiscal 1993 since no school aid formulas currently exist for the years following 1993. Regardless of the formulas adopted to comply with court rulings for equity, it is assumed that the state would n ot fund education at a level lower than the fiscal 1993 level.