Federal

Texas Bills Would Scrap Finance System

By Michelle Galley — February 12, 2003 4 min read
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Texas could scrap its controversial school finance system and replace it with a new version in two years, if lawmakers approve bills now in the state House and Senate.

Sen. Florence Shapiro and Rep. Kent Grusendorf, the Republican chairs of the Senate and House education committees, respectively, both introduced bills Jan. 30 seeking to “sunset” the current Texas school funding program in fall 2005. Mr. Grusendorf’s bill passed a House committee last week on a 6-2 vote and could end up on the House floor this week.

The current system, which relies heavily on property taxes, “is breaking the backs of the local property- tax payer,” Ms. Shapiro said. But, she added, with a looming $10 billion state budget deficit, she doesn’t expect the legislature to come up with a new plan during this year’s biennial session. Rather, lawmakers would draft a new proposal in their next session, which starts in January 2005.

The current court-ordered school finance system, which has been widely criticized since its inception in 1993, mandates that districts with high property values—and thus high revenues from property taxes—share their wealth with less fortunate school systems. A state court drew up the plan after ruling that there were vast inequities in per-pupil funding between property-wealthy and property- poor districts in the state.

But critics have long decried the so- called “Robin Hood” system. They say it forces wealthier communities to ante up large portions of their budgets, yet still fails to provide enough support to schools in areas with low property values.

“I believe everyone knows the system is broken,” said John Connolly, the executive director of the Texas School Coalition, a lobbying group that represents property-wealthy districts.

“Heretofore, everyone acknowledged the problems,” he said, though until now a serious effort to revise the system hasn’t been made, he added.

But even though Gov. Rick Perry, Lt. Gov. David Dewhurst, and Rep. Tom Craddick, the speaker of the House, all of whom are Republicans, have called for overhauling the system, not everyone in the Texas Statehouse agrees that its eventual repeal is a good idea.

“If it passes, it will freeze economic development in the state for two years,” said Rep. Scott Hochberg, a Democrat who sits on the House education committee. Mr. Hochberg was one of the two members of the panel—both Democrats—who voted against moving Mr. Grusendorf’s bill to the House floor last week.

Saying that the state will overhaul the school finance system in two years at least implies that the legislature will also consider revising the tax system, Mr. Hochberg added.

Currently, Texas does not have a state income tax or a state property tax, and both of those unpopular options have been suggested as remedies for the problems plaguing the school finance system.

If a tax overhaul is in the works, “that means that it is impossible for a company considering locating in Texas to know what their costs are going to be by the time they get their plant open,” Mr. Hochberg argued.

In addition, he said, plans for an overhaul could make it harder, if not impossible, for districts to pass bonds in the next two years, because districts will not know for sure how much money they will receive from the state in 2005.

Starting From Scratch

Still, the current system is so unpopular that advocates for both wealthy and low-income districts have said that revisions are necessary.

One of the problems is that large portions of the budgets in many property-wealthy districts go to “recapture,” said Mr. Connolly of the Texas School Coalition. “Recapture” is the term used for the tax provision mandating that such districts share some of their wealth. (“Texas, Despite Surprise Surplus, Foresees Tighter Times,” April 3, 2002.)

Roughly 10 percent of the 1,055 districts in the state are considered to be property-wealthy, and the current system has a significant impact on them. For instance, the upscale, 5,800- student Highland Park district outside Dallas sends about two-thirds of its property-tax income to the state, said Mr. Connolly, who formerly served as the superintendent in Highland Park.

But what’s more pressing, some say, is the provision in the tax code that limits the property-tax rate that districts can set to $1.50 per $100 of assessed value.

Currently, about 400 districts, most of which have low property values, are taxing at that maximum rate, Mr. Connolly said. “They have no additional way to raise revenue, so the only other option is program cuts,” he said.

And inequities still exist. Many of the richer districts are not taxing at the maximum rate, and still have more money per student than property-poor districts, said Wayne Pierce, the executive director of the Equity Center, an Austin-based group that has advocated funneling more money to poor districts.

“Repealing Robin Hood, an unpopular system, puts the legislature in the position of doing something else that might be equally unpopular,” such as instituting a statewide income tax, Mr. Pierce said.

But, he added, a repeal would present the opportunity for the state to start over. “This starts from scratch,” Mr. Pierce said. “So there is an opportunity to craft a system with equity in the truest sense.”

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