Resource Center

• by Albert Cortez, Ph.D. • IDRA Newsletter • May 2008 • 

In January of 1995, the Texas Supreme Court issued its ruling in the last of the Edgewood school finance equity cases, also known as Edgewood IV. Following that court judgment, the state of Texas adopted what became one of the more equitable school funding systems in the country.

The keys for creating that more equitable system included: providing (most) school systems funding on the basis of their taxable property wealth, providing funding based on the average attendance of the number of pupils served, adjusting district allocations on the basis of size and local economic factors, providing some supplemental funding to help cover additional costs of educating students with special needs, and finally collecting excess revenue generated by the state’s wealthiest school systems through a process known as recapture.

As a result, Texas was realizing the many benefits from its commitment to equalizing education funding for all of its children. Student achievement improved, taxpayers were more equally sharing the cost of paying for public schools, and businesses were seeing the results of better-prepared graduates.

Lawsuit Opens the Door to Weaken Funding Equity

The basic structure remained largely unchanged until 2006 after a group of property wealthy districts in 2004 challenged the maintenance and operations tax rate limits (a maximum of $150 per 100 of property value). To garner support for the litigation, the plaintiffs recruited poor and average wealth school systems in a separate but related challenge charging that the state of Texas did not provide school systems sufficient funding to meet the obligations imposed on them by the state.

In this West Orange-Cove case, the Texas Supreme Court ruled in 2005 that the state of Texas did indeed provide funding for an adequate education since almost all systems managed to satisfy the state’s accreditation requirements (overlooking the fact that in Texas, if 50 percent of students in a grade level fail one or more of the state’s assessments, a district can still be considered accredited).

Conversely, the court ruled that once the state had met its minimum obligations to provide for a suitable education, local school systems could be allowed to enrich their programs to some level approved by the state. In other words, a few school districts could have dramatically more money than most others.

Understanding the threat posed by unequalized enrichment (where the amount of money generated by a school district is not equalized by state equalization funding), the court noted that, while some enrichment was permitted, it could not constitute so much of local overall funding that it violated the equal return for equal tax effort it had called for in its original Edgewood decision.

New Unequalized Enrichment

The one major structural change to the newest system involved creation of an unequalized enrichment portion in the new funding plan. Meeting in special session in 2006, the Texas state legislature created a new funding tier that allows school systems to supplement or “enrich” the (Foundation) program beyond the basic level required by the state. Preliminary analyses revealed that lack of any state equalization funding of this new tier would make the system potentially nearly as inequitable as the plan that was declared unconstitutional in 1989. Legislative proponents of low and average wealth systems successfully fought for some state equalization funding of this new enrichment tier.

Specifically, the state created a formula that assures that for every penny of local enrichment tax effort up to 6 cents, every district is guaranteed to have an amount equal to the revenue generated by the Austin school system, which was $41.00 in 2006-07 and $46.94 in 2007-08.

Because of the high level of return for local tax effort, these first 6 cents in the enrichment tier are sometimes referred to as “golden pennies.”

In this portion of the Texas system, if the school district tax effort yields less than the guaranteed amount, the state provides additional state funding to make up the difference. For example, if a district’s regular yield from its own property tax base only produces $20 per penny of tax effort, the state provides that district an additional $26.94 (in 2007-08) in state funding to bring it up to the Tier IIA guaranteed level of $46.94.

If all districts were assured equal return for the same tax effort, the system would be considered fully equalized. The concept of unequalized enrichment in a previous funding plan was one of the major flaws in the system that caused it to be declared unconstitutional because it did not ensure that all school districts got the same of amount of funding for the same tax effort.

In an unequalized enrichment scheme, some school districts are allowed to generate and keep significantly more revenue than other systems. Thus, if a school district yields more than the amount guaranteed by the state for those 6 cents of enrichment, that district gets to keep all of that extra revenue.

Because of great differences in local property wealth among Texas school systems, the amount of extra money that the wealthiest group of districts can generate can amount to hundreds of dollars more per student. It is this portion of the latest Texas public school funding system that contributes greatly to the school funding inequality that has re-surfaced in the state over the last few years.

To date, Texas lawmakers have limited that inequality to the 6 cents. But this disparity could grow if more unequalized enrichment is approved by a future amendment to current law.

School districts have very different views of systemic inequality. Those school districts that are super-wealthy claim that the 6 cents of local tax effort where they are allowed to keep all the revenue it generates is needed to fund their local programs. Some even argue it is not enough to meet all of their needs (whom others may see as wants, as in new athletic equipment or new swimming pools).

Property poor and average wealth school systems on the other hand have to contend with the impact of unequal funding and the resulting unequal competition for teachers, administrators and support staff and other unequal local resources to support students in academics and extracurricular activities.

IDRA’s own analysis notes that the 6 cent supplemental tax effort allowed in the new system generates an average of $286 extra per “weighted” student (WADA) in the state’s poor and average wealth school systems (who have a combined WADA of $209,751). The average unequalized enrichment available to the 100 wealthiest school systems (with a WADA of 209,000) yields an average of $450 per pupil. This is $171 more per WADA than poor and average wealth districts.

The 50 wealthiest districts (who have a combined WADA of 157,901) yield $736 per WADA, and this provides those schools with an average of $450 more per WADA than is available to most Texas schools.

The enrichment advantage of the states’ 10 wealthiest school systems yields $1,519 per WADA, an advantage of $1,232 for their students.

Using the $4,570 per WADA figure of the top 50 school systems, we estimate that the top 50 wealthiest systems in the state have an average advantage of $9,000 per classroom of 20 pupils, which converts to a net of $180,000 in a school of 400.

As a result of this erosion in equity, a few school systems in Texas now spend hundreds of dollars more per student than most school districts in the state of Texas. What one state education leader said several years ago is apparently still felt by others: “I know that all kids are equal, but the system has to take into account that some kids are more equal than others.” (Cárdenas, 2005).

Across-the-Board Funding Without Adjusting for Local Property Wealth

Compounding the problems created by the unequalized enrichment portion of the system is a recent tendency by the state to provide all school districts with across-the-board unequalized funding that is not adjusted to take into account local property wealth (and the related ability to cover those costs with local revenues).

Over the last two sessions, the Texas legislature provided hundreds of millions of dollars in state unequalized funding for a teacher pay raise and over $100 million in un-adjusted state aid for a new high school allotment. Continuing to allocate new state funding outside the equalized funding formulae invites new litigation.

Target Revenue Hold Harmless

A final disequalizing feature introduced into the new system was the integration of what is referred to as a school district’s target revenue. The target revenue figure was created to ensure that every district in the state would get as much or a bit more in state and local revenue as the amount it was receiving prior to the adoption of the 2006 reforms. The new “adjustment” has evolved into a giant hold harmless mechanism that overrides the cumulative impact of all the equalization features still present in the current system.

In fact, more districts receive funding on the basis of their target revenue amount than under the application of existing funding formulae. In some cases, the target revenue limits low and average wealth districts from increasing their revenue over prior year levels, further exacerbating the equity problems.

If the equalization features of the existing systems are to be effective, the state must revise funding levels in a way that decreases and eventually eliminates the need for this hold harmless, backdoor funding of Texas schools. According to data computed by the Equity Center in Austin, the 10 percent of school districts with lowest yields per penny (yet taxing at the same $1.00 tax rate required to receive their target amounts of funding) receive $1,527 less per WADA than school districts with the highest yield though both are taxing at the same rate (2007).

The Equity Center notes that, even if the 10 percent of lowest yield school districts adopted the maximum tax rate permitted under current law ($1.17), they would still generate about $925 less per pupil than the state’s highest yield school systems can generate at a tax rate of only $1.00. Clearly that portion of Texas funding system needs some major adjustments.

What is Needed?

Any future increases in state funding must be done in manner that…

• Applies a state equalization formula that adjusts state revenue on the basis of local districts’ property wealth.
• Reduces or eliminates the use of hold harmless mechanisms that override state aid adjustments based on local property wealth per pupil.
• Reduces the amount of unequalized enrichment provided in the Tier IIA (6 cents) portion of the system.
• Provides increased funding to schools that covers the actual costs of providing specialized instruction to special education students, low-income students and students in the process of learning English.
• Allocates reliable, sustainable funding for school instructional facilities.

We cannot accept an unjust funding system. All children in Texas are our children. We all have a shared responsibility for their educational well-being. The future of our state demands it.

Resources

Cárdenas, J.A. “The Fifty Most Memorable Quotes in School Finance,” IDRA Newsletter (San Antonio: Texas: Intercultural Development Research Association, February 2005).Cárdenas, J.A. Texas School Finance Reform – An IDRA Perspective (San Antonio, Texas: Intercultural Development Research Association, 1997).

Cortez, A. “Equalizing Funding of Texas School Facilities – A Long-standing, Long-neglected Need,” IDRA Newsletter (San Antonio, Texas: Intercultural Development Research Association, February 2007).

Cortez, A. “Perspectives on the Texas Legislature’s Latest School Funding Plan,” IDRA Newsletter (San Antonio, Texas: Intercultural Development Research Association, August 2006).

Cortez, A. “A Decision Neither Adequate nor Equitable: The Texas Supreme Court Ruling in West Orange-Cove vs. Neeley,” IDRA Newsletter (San Antonio, Texas: Intercultural Development Research Association, February 2006).

Equity Center. “Is the State Abandoning Their Promise of Efficient, Cost-Based Funding in Favor of ‘Snapshot Funding’ and Erratic Property Tax Relief?” Equity Center News & Notes (Austin, Texas: Equity Center, December 2007).

Dr. Albert Cortez is director of IDRA Policy. Comments and questions may be directed to him via e-mail at feedback@idra.org.

[©2008, IDRA. The following article originally appeared in the May 2008 IDRA Newsletter by the Intercultural Development Research Association. Permission to reproduce this article is granted provided the article is reprinted in its entirety and proper credit is given to IDRA and the author.]