Awaiting Finance-Law Ruling, Texas Fears Cash Crunch

By Lonnie Harp — January 15, 1992 5 min read

Texas school officials are reporting growing concern that some businesses may decide to hold off on paying their property taxes this month in hopes that the state supreme court will soon strike down the state’s most recent school-finance law.

The result, warn some officials, could be an unprecedented cash crunch for school districts that could lead to the closing of some schools next month.

Even if that apocalyptic scenario does not come to pass, most educators and political observers across the state now expect that a split supreme court shortly will overturn the school-finance system for a third time, on the grounds that new local taxes required by the law passed by the legislature last spring are unconstitutional.

As school administrators consider the turmoil that such a ruling could generate, though, they seem more intent on meeting their local budgets than worrying about the chaos that might revisit the state capital.

“The critical element seems to be conjecture on how taxpayers will respond to the ruling,” according to a recent issue of the monthly newsletter published by the Equity Center, an association of low-wealth districts.

“If they refuse to pay their taxes either in anticipation of an unconstitutional ruling or because of an unconstitutional ruling, then school districts could be hit by a cash crunch like they have never seen,” the group warned.

Governor Also Concerned

The dire tone has also been echoed by Gov. Ann W. Richards, who last month wrote a letter to the supreme court warning of potential financial and political troubles.

The new law’s county education districts were expected to collect about $4.5 billion in local property-tax revenue this year. “If local property taxes... are not collected on the Jan. 31, 1992, due date, many school districts throughout the state will have to close their doors in February,” the Governor wrote.

Beyond issues of timing, Ms. Richards contended that another legislative battle over school finance would not be in the state’s best interest. The issue has loomed over lawmakers ever since the supreme court’s first finance ruling in October 1989.

“The members of the legislature made heroic efforts to follow guidelines the supreme court established in two opinions issued by the court in less than one year’s time,” she wrote. “It would not be productive to call members back to Austin for a special legislative session again to address the issue of public-school finance in an atmosphere of crisis and contention.”

Worries Called Overstated

But critics remain unconvinced that the state cannot come up with a better alternative to the current law. Observers also suggested last week that school officials’ worries about tax delinquencies were overstated.

Business analysts agreed that more companies than usual may be waiting until the Jan. 31 deadline before submitting property taxes. But, they argued, the state’s penalties for late payments and the likelihood that the court would allow the law’s taxing provisions to continue tiffs year even if the law is stricken provide little incentive for nonpayment.

“It is obviously something people have to consider,” said Jim Lewis, a spokesman for the Texas Association of Counties.

“I’ve heard a lot of the discussions, but major taxpayers behave rationally, and most don’t pay until the law requires it,” said John Privett, the president of the Tax Research Association, a Houston-area tax- watchdog group funded by business.

“There are some places in the state where school districts offered discounts for those who paid early, and some people have decided to wait, but they’re going to pay,” Mr. Privett added.

“We strongly disagree that most schools will be closed if [the current law] is declared unconstitutional,” argued Schuyler B. Marshall, a Dallas lawyer representing several of the wealthy districts that are challenging the school-finance system.

“The court can declare this bill unconstitutional while avoiding the possibility of significant harm,” Mr. Marshall wrote in a letter to the supreme court responding to the Governor’s letter.

Alternatives Not ‘Palatable’

Despite Mr. Marshall’s reassurances, there is widespread uncertainty about the effects of the anticipated court ruling.

The decision is expected at a time when tax bills are coming due, when districts are reaching a cyclical ebb in cash flow, and as legislators are trying to wrap up a hard-fought special session on redistricting.

The overriding sentiment that the law will be overturned and the evident reluctance among state leaders to tackle the issue again have heightened the sense of confusion and anticipation among local educators.

“I wish they would hurry up and drop the ruling,” said Richard E. Gott, the superintendent of the Big Sandy Independent School District east of Dallas. “I’ve been thinking about it long enough now.”

The lawsuit before the supreme court argues that the county education districts established by the new law to redistribute local property-tax funds amount to a statewide property tax, which is prohibited by the Texas constitution.

Observers of the court trial said the argument seemed to be greeted favorably by most of the justices.

Even so, Mr. Gott observed that while the county education districts have been unpopular for many reasons, there is no cause to believe that any of the other potential solutions to the basic problem of unequal school funding will be more acceptable to the public.

“I don’t think any solution is going to be palatable to most of the people across Texas,” he said. “The question is not do we like the C.E.D.'s. The question is do we like it as the best solution considering the choices.”

The most obvious alternatives appear to be greater state funding, possibly through a state income tax, or consolidations of districts and their tax bases.

The potential for such sweeping changes seemed to grow last week, when lawyers involved in the case received a copy of a Jan. 6 letter from the supreme court clerk asking the state education department for “current student-performance data.”

Observers said the request may signal that the court is once again reviewing larger finance and equity issues rather than just the narrow question of the county education districts’ constitutionality.

A version of this article appeared in the January 15, 1992 edition of Education Week as Awaiting Finance-Law Ruling, Texas Fears Cash Crunch