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Hard-Won Finance Measure Faces New Challenges in Texas

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As Texas lawmakers returned to work this month to draft a two-year spending bill and close a projected $4.6-billion deficit, the school-finance measure they struggled so hard this spring to put together continued to face strong criticism.

Perhaps most significantly, a new opponent has arisen to challenge the controversial finance-equity plan--wealthy school districts, which until now have largely kept to the sidelines during court battles between poorer districts and state officials in recent years.

Districts in the richest parts of the state, which stand to lose millions of dollars while their residents are charged higher taxes, argued before a state judge last month that the new finance law violates the Texas constitution in two ways.

The law, enacted in April after a protracted battle in the legislature, establishes taxing districts, based largely on county lines, that will require the state's 1,052 school districts to pool property-tax revenues and abide by a minimum tax rate.

In the hearing before State District Judge Scott McCown, the well-to-do districts contended that the law is unconstitutional because it amounts to a statewide property tax and imposes levies without prior voter approval.

"This has become so political," said Schuyler Marshall, a Dallas lawyer representing three suburban districts. "The courts and leg4islature want it to come to an end and want to find a way to uphold it, but I don't think they will find a way. Those arguments are fairly cut and dried."

Equity or Excellence?

Moreover, lawyers for the property-rich districts warned, the consequence of the equity plan will be to undermine the state's top schools.

"Our feeling is that certainly we need to have a reasonably equitable system," Mr. Marshall added. "But, at the same time, if you emphasize equity at the expense of excellence and accountability and local involvement, then you are going to end up with equity at a mediocre level."

While many wealthy districts are still putting together budgets for the coming school year, all are having to raise taxes even as they undergo overall funding losses. "There are going to be some cuts," Mr. Marshall said.

The activism by the better-off districts represents an important shift in the school-finance debate, which has been dominated by the poor districts that twice have won unanimous rulings from the state supreme court that the existing funding system is unfair.

Although they have been overshadowed this summer--and have few options politically but to endorse the legislature's school-finance strategy--the poor districts have also complained to Judge McCown. But lawyers for the poor districts said they will wait to see how the legislature funds the plan before deciding whether to launch a challenge.

Some very poor districts will receive significant funding increases in any event, according to Al Kauffman, the lead lawyer in the original school-finance challenge. But, he noted, the impact of the reforms for most poor districts "is very dependent on the amount of new money that's put in."

Recent estimates fix the price for the new school-finance plan at $1.67 billion in its first two years. Given that huge added cost and the drop in state revenues caused by the recession, observers said, the budget debate that began this month could be long and difficult and not be resolved until September, when the new fiscal year begins.

Streamlining Strategy

Lawmakers are expected to pursue government reorganization and streamlining as their initial strategy for closing the budget gap.

The "Texas Performance Review," launched earlier this year by Gov. Ann W. Richards and other top state Democrats, turned up recommendations to save about $4 billion over the next two years, according to State Comptroller John Sharp, who supervised the review by more than 100 auditors.

The group's recommendations include a plan to consolidate duplicative health and welfare programs into a single agency. The state's Early Childhood Intervention Council and the Texas Youth Commission would be among 14 agencies folded into the new department.

The cost-cutting plan also calls for delaying the final fiscal 1993 transfer to the state Teacher Retirement System, saving $250 million; transferring investment income earned by the state's Permanent School Fund into the finance formula, saving $92 million over two years; and placing a lid on local districts' administrative spending. The state would save $63 million over five years by limiting administrative spending to 25 percent of a district's instructional costs.

Observers said that after lawmakers decide the final cost-cutting measures, another debate will flare up over the tax increases needed to bridge the remaining budget gap. But chances for major tax reforms, including a plan by Lieut. Gov. Bob Bullock to establish a state income tax, appear slim, according to analysts.

Observers also noted that the legislature is not likely to decide fiscal 1992 appropriations until the cost-cutting and tax measures are completed.

The uncertainty over school funding has led some districts to consider two or three budget contingencies, Mr. Kauffman noted. "It's going to be a tough session," he said.

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