Legislative Update School Finance

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Legislative UpdateSchool Finance Non-Finance

• Region XIII Lone Star Legal Institute
• June 20, 2006
• Philip D. Fraissinet
• Bracewell Giuliani LLP

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Overview of Texas School Finance Litigation
Court Decision Legislative Response
San Antonio ISD v. Rodriguez, 411 U.S. 1 (1973)
Edgewood I, 777 S.W.2d 391 (Tex. 1989) Senate Bill 1 (1990)
Edgewood II, 804 S.W.2d 491 (Tex. 1991) Senate Bill 351 (1991)
Edgewood III, 826 S.W.2d 489 (Tex. 1992) Proposition 1 (1993) voted down
Senate Bill 7 (1993)
Edgewood IV, 917 S.W.2d 717 (Tex. 1995) System Found Constitutional
West Orange-Cove CISD v. Alanis, 107 S.W.3d 558 (Tex. 2003) (WOC I) None
West Orange-Cove CISD v. Neeley, 176 S.W.3d 746 (Tex. 2005) (WOC II) House Bill 1 (2006)
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Texas Constitutional Provisions

• ARTICLE VII, SECTION 1
• 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.
• ARTICLE VIII, SECTION 1-e
• No State ad valorem taxes shall be levied upon
  any property within this State

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• MUST provide an adequate and equalized funding
  system that provides for a general diffusion of
  knowledge and allows districts to meet State
  curriculum, assessment, and other legal
  requirements
• MAY rely, in part, upon local property taxes to
  fund the system
• MAY NOT rely so heavily upon local property taxes
  that system operates as a State property tax

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Edgewood IV (1995)

• However, if the cost of providing for a general
  diffusion of knowledge continues to rise, as it
  surely will, the minimum rate at which a
  district must tax will also rise. Eventually,
  some districts may be forced to tax at the
  maximum allowable rate just to provide a general
  diffusion of knowledge. If a cap on tax rates
  were to become in effect a floor as well as a
  ceiling, the conclusion that the Legislature had
  set a statewide ad valorem tax would appear to be
  unavoidable because the districts would then
  have lost all meaningful discretion in setting
  the tax rate.

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Edgewood IV (1995)
"Surely Texas can and must do better."
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1.50 Cap
Increased Curriculum Standards

• TEKS 1997

Change from TAAS to
TAKS 2003
Federal Standards

• NCLB 2002

Student Demographics
Teacher Shortages
Unfunded State Mandates
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TEKS 1997
Student Demographics
TAKS 2003
1.50 Cap
NCLB 2002
Unfunded State Mandates
Teacher Shortages
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(No Transcript)
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GV-100528
WEST ORANGE-COVE CONSOLIDATED INDEPENDENT SCHOOL
DISTRICT COPPELL INDEPENDENT SCHOOL DISTRICT LA
PORTE INDEPENDENT SCHOOL DISTRICT PORT
NECHES-GROVES INDEPENDENT SCHOOL DISTRICT, DALLAS
INDEPENDENT SCHOOL DISTRICT, AUSTIN INDEPENDENT
SCHOOL DISTRICT, HOUSTON INDEPENDENT SCHOOL
DISTRICT, et al Plaintiffs,
SHIRLEY NEELEY, TEXAS COMMISSIONER OF EDUCATION
TEXAS EDUCATION AGENCY CAROL KEETON STRAYHORN,
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS and TEXAS
STATE BOARD OF EDUCATION,  Defendants.
VS.
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(No Transcript)
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WOC Plaintiffs' Claims

The State Property Tax Claim The statutory cap
of 1.50 on MO has become both a floor and a
ceiling in violation of Article VIII, section
1-e of the Texas Constitution. Districts lack
meaningful discretion in setting their local
property tax rates.
The Adequacy Claim Plaintiff districts, even
while taxing at maximum rate of 1.50, lack
access to adequate resources to provide all their
students with a meaningful opportunity to achieve
a general diffusion of knowledge / adequate
education (i.e., learn TEKS, pass exit-level
TAKS).
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(No Transcript)
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Austin Independent School District 2003-2004
Reductions
AISD reduced some 650 positions from its local
budget between 2002-03 and FY 2003-04. Source
MSD Budget FY 2003-04.
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Lynn Moak Trial Presentation Slide 35
Chart 6 Texas Recapture Funds,
(1992-2005) (amounts in millions)
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Reschovsky Imazeki Trial Presentation
Slide 43
Additional Cost of Meeting 60, 70, and 90
Passing Rate Standards
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Lynn Moak Trial Presentation Slide 24
Texas Academic Success and Increased Funding
(adjusted for inflation and enrollment growth)
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Supreme Court's RulingState Property Tax Claim

• Absence of Meaningful Discretion
• Not even a close question as to whether
  districts have meaningful discretion to set their
  tax rates.

• The current situation has become virtually
  indistinguishable from one in which the State
  simply set an ad valorem tax rate of 1.50 and
  redistributed the revenue to the districts.

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Supreme Court's RulingState Property Tax Claim

Need for Local Supplementation -Local Districts
must be able to provide local supplementation to
fund programming beyond state educational
requirements.
- 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
tax rates.
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Supreme Court's RulingAdequacy Claim

• Warned that it remains to be seen whether
  Legislature will reverse the predicted drift
  toward constitutional inadequacy.

• Characterized the situation as an impending
  constitutional violation.

• There is substantial evidence . . . that the
  public education system has reached a point where
  continued improvement will not be possible absent
  significant change.

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HB 1 New Tax Rate Structure

• Base MO Tax Rates Reduced for 2006-07 and
  2007-08
• 2006-07 1.33 Tax Rate for Most Districts (1.50
  cap)
• 2007-08 1.00 Tax Rate for Most Districts (1.17
  cap)
• Additional 4 "Enrichment" Tax Rate Permitted
  Without Election (More for Some Districts)
• Remaining Tax Capacity Requires Election

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Various District Examples 2006-07
2005 MO Rate 2006 Target Rate Enrichment Rate Total
District 1 1.33 1.18 0.04 1.22
District 2 1.50 1.33 0.04 1.37
District 3 1.60 1.42 0.04 1.46
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"Enrichment" Tax Rate

• First Four Pennies Permitted Without Election and
  Equalized to the Level of Austin ISD (94th
  Percentile)
• Next two Pennies require Election and also
  Equalized to the Level of Austin ISD (94th
  Percentile)
• Remaining Pennies require Election and Equalized
  to Lower Level

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Formula Increases Making up for Lost Tax Revenue

• Guaranteed yield, basic allotment, and equalized
  wealth level all reset at 88th percentile
  (estimated at 319,500 per WADA)
• Resulting increases (2006-07)
• Guaranteed yield from 27.14 to 31.95
• Basic allotment from 2,537 to 2,748
• Equalized wealth from 305,000 to 319,500
• Austin ISD yield 41.21

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New Education Spending

• State money for
• Pay raise
• 2,500 per teacher, counselor, nurse, librarian
• High school allotment
• 275 per ADA in 9-12
• Increased Appropriation 1.7 Billion.

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Our Assessment of HB1

• Short term
• Provides financial flexibility for coming school
  year
• Provides some discretion that addresses
  constitutional deficiency, in the short run
• Long term
• No long term solution to address increasing costs
  of education
• State's continued over-reliance on property tax
  will lead to constitutional violation without
  future changes

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School Board Elections Generally

• Board Elections Must be held on the same date
  in the same place as municipal elections unless
  they already coincide with federal elections
  (Effective for 2006-07 elections, upon
  pre-clearance of Justice Department)
• If no municipality, move to November election
  date (county/state)
• Board terms are required to be adjusted to
  accommodate new election date and lengthening
  terms from May to November is permissible

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Uniform School Start Date

• School start date is the 4th Monday in August
• No end date
• No waiver option, unless district operates a
  year-round program
• Effective for the 2007-08 school year
• Does not apply to charters

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Increased Curriculum Standards

• Recommended curriculum must include four years in
  math and science
• Applies to students entering the 9th grade in
  2007-08
• This requirement may result in significant
  increased costs for additional teachers,
  classroom facilities, and laboratories