A school finance detail that could cost local districts $1.8 billion

Gov. Greg Abbott on the House floor during the House School Finance plan deliberations on April 3, 2019. Photo by Emree Weaver / The Texas Tribune

While the Texas House and Senate have both taken encouraging steps this session toward making major investments in public schools and reducing the burdens that have been put on local property taxpayers in recent years, there is one very important difference in their approaches to that educators are watching closely.

Taxpayers should be watching closely, too.

Under House Bill 3, as passed by the House, the state's school finance formulas would continue to use property values from the prior year to determine how much money that a school district owes in Robin Hood recapture payments, and how much state aid it can expect. This is a smart, time-tested approach. 

The Senate would use property values from the current year. This might seem like an attractive option to legislators who want to find money for other priorities: It would save the state $1.8 billion each year, but would mean a corresponding loss for local school districts. That is because property values typically rise. And under our school finance system, higher local property values mean less state funds, more reliance on local funds, and greater recapture payments. 

What this sleight-of-hand really means is that lawmakers who are touting increased educational investment are really paying for that investment, at least in part, with cuts to local school districts. 

In other words, a switch to current-year values would undermine the Legislature's efforts to finally make a significant state investment in public education. And that's not the only reason why this is a bad idea. Using prior-year property values as the basis for state aid and recapture calculations provides more certainty to both state and local budget writers — and more certainty leads to more responsible use of tax dollars. 

Right now, lawmakers finishing up the state budget have access to the preliminary 2018 property values for each school district. These are the values school districts are using for property tax collection this school year and, under the current system, would be used for state aid and recapture calculations next year. It takes time for the state comptroller’s office to conduct its annual property value study, which is essential to ensure that appraisal districts are doing their jobs correctly and that property owners have adequate time to settle appeals. Lawmakers can use this preliminary value in determining needed appropriations for the 2019-20, and on estimated property values for the 2020-2021 school year (the second year of the two-year state budget). 

Moving to current-year values would mean lawmakers would estimate the property value used in state funding calculations for boththe 2019-2020 and the 2020-2021 school years, guessing how much property values will grow as compared to the 2018 preliminary property value. This will almost certainly lead to budget writers being off by a larger amount. It’s a problem for taxpayers: If lawmakers overestimate their costs, they will be unable to use overallocated education dollars to meet other state needs. Worse, when they miss in the other direction, the Texas Education Agency will risk running out of money before the two-year budget cycle ends.

It would also create challenges at the local level. Under the current system, the state sends money to school districts during the school year based on estimates of student counts and property values lawmakers themselves use when writing the state budget. Once the school year is over, the state recalculates all of state aid and recapture using corrected property values and “settles up” with school districts. Using less certain current-year property values will mean larger settle-up amounts for school districts. This means more school districts will be underpaid or overpaid during the school year and will have to either send money back to the state or wait for the state to make up its underpayments. 

In short, there is nothing to be gained by switching to current-year values, other than giving the state an extra $1.8 billion — and shorting local schools by the same amount. It would be far better to provide local education leaders with the predictability and the consistency needed to budget responsibly. It would be far better to stick with prior-year values.

Disclosure: Christy Rome has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

Christy Rome

Executive director, Texas School Coalition