• IDRA Issue Brief • by Chloe Latham Sikes, Ph.D. • September 2025 • See PDF
Key takeaways
- HB 2 shifts $8.5 billion into teacher pay and program-specific allotments.
- Basic allotment remains stagnant, leaving funding gaps amid inflation.
- Special education now funded by service intensity, not placement.
- Teacher pay increases vary by district size and experience.
- Charter schools, school safety, and facilities funding receive major boosts.
Resource from the Intercultural Development Research Association (IDRA), a nonprofit advancing education equity.
Breaking down the major funding components and policy changes in Texas’ new bill for school funding, programs and teacher pay.
Texas lawmakers passed a school funding bill this spring that touted an $8.5 billion investment in public schools. About half of the money is directed toward teacher pay and preparation pathways.
Other major investments in House Bill 2 are directed toward special education services, facilities funding for charter schools and changes to early education, including literacy and math interventions. Additionally, the bill increases school safety funding and creates a new funding allotment for basic costs for school districts to use for non-instructional expenses.
After a series of failed attempts and court rulings, Texas created in 1993 a school funding formula that, though not perfect, provided some of the greatest levels of funding equity in the state’s history. The formula’s “basic allotment,” which is the minimum amount of per-student funding determined by the state, drove funding levels. Increases to the basic allotment over time enabled school districts to use funds for student instruction, school operations, and compensation for teachers and support staff.
However, House Bill 2 takes a divergent approach. The bill creates at least 10 new allotments (specific funding buckets) adding to the roughly 20 that existed before. These new allotments are based on certain purposes or programs and additional grant programs with specific spending requirements. And they are separate from general operating funds for schools.
This change that moves funding away from the formula to the revised allotment structure means school districts must meet specific requirements in order to receive program-specific funding and may only expend funds for those purposes. This targeted funding can be helpful when it relates to specific needs in a school district. But it also presents new restrictions for school districts wanting to address urgent local needs that are not included in the prescribed allotments. Significant increase to the basic allotment itself would have resolved this disparity.
Per-Student Funding Gets Small Increase
The basic allotment is the clearest per-student funding block in the Texas school funding formula. The legislature did not provide a substantial increase in HB 2. It remains at the base level of $6,160 per student.
The bill added a fluctuating adjustment based on a school district’s local property value growth that can go toward its basic allotment. This is called the guaranteed yield adjustment. Property values fluctuate and do not impact all school districts despite rising inflation costs, so this is neither a permanent nor fixed increase.
To give all schools a boost for the next two years, HB 2 set the guaranteed yield adjustment for all school districts at $55 per student. This applies only through 2027 and will then revert to a fluctuating amount by district. Because the basic allotment drives the rest of the funding formula, increasing it by a fluctuating amount means that school districts may anticipate less predictable funding flows for their major operations, academic programs, and student supports and services.
This amount does not cover the cost of educating Texas children and does not even account for rising inflation. For reference, the legislature needed to increase the basic allotment by at least $1,300 per student to meet inflation since 2019.
In addition, HB 2 created an allotment for basic costs (or ABC) to support school districts facing rising inflation for their buildings’ infrastructure, utilities, transportation and insurance and benefits costs. Instead of putting this money directly into the basic allotment, this new allotment is funded on an enrollment basis of $106 per enrolled student in the district. This amounts to about $1.3 billion.
The restructured allotment system is more prescriptive than the basic allotment and moves away from the prior formula model that enabled school districts to have flexibility and some discretion over their operating revenue and how to spend money to meet their local needs.
$4.2 Billion Headed to Texas Teachers
About $4.2 billion of HB 2 will go toward increasing salaries for experienced teachers. HB 2 also provides a specific staff retention allotment for school workers, provides a teacher retention allotment, and increases the teacher incentive allotment.
Teachers in smaller school districts with at least five years of experience get the highest pay bump of $8,000. Those with three to four years of teaching experience will get $4,000 pay increases.
School districts with over 5,000 students will have smaller increases to teacher pay at $2,500 for teachers with three to four years of experience, and $5,000 for teachers with five or more years of experience.
HB 2 also removed a 2019 provision that said 30% of any increase to the basic allotment would go to pay teachers, nurses, librarians and counselors. The funding increases will now come through the specified allotments, meaning districts will need to use the teacher retention allotment for teacher pay. And they will have to use the support staff retention allotment of $45 per student for salary increases for non-teaching personnel.
HB 2 created new requirements and funding incentives for teacher quality assistance, certification pathways and residencies, such as through the new Preparing and Retaining Educators through Partnership (PREP) Program and Allotment. This allotment provides additional funding between $8,000 and $24,000 to school districts in a partnership with an educator preparation program for preservice teachers doing teaching residencies.
The bill also provides waivers for certification exam fees to aspiring bilingual education and special education teachers. It authorizes a teacher quality assistance training program for the Texas Education Agency (TEA) to offer technical assistance in teacher management and support.
New Special Education Funding Model
Reforms to special education funding were long overdue. Recommendations from the Texas Commission on Special Education Funding in 2022 centered on transitioning the Texas system away from a placement-based model, meaning schools were funded based on where students received services. The new system uses an intensity of services model, meaning funding now is set to match the intensity and extent of services provided.
HB 2 reflected this primary recommendation in major changes to special education funding. This bill shifted special education funding to now be based on service delivery and through a new special education service group allotment. The service group allotment will create at least four service groups based on the type of support a student receives and associated funding, which will be set by the TEA Commissioner. This means that schools will get special education funding based on the type or group of services and the intensity of services that students receive (see the Texas Commission on Special Education the funding report to the 88th Texas Legislature, 2022).
For example, a student receiving occupational therapy at school to develop more independent functioning with once a week support and a student who needs behavioral supports through counseling and psychological services for up to half of the school day would be in a similar group of services types but with degrees of intensity reflected through different tiers of funding.
HB 2 also adds $250 million for special education transition funding over the next two years as school districts move to the new funding model. It incorporates major recommendations, like a $1,000 per evaluation reimbursement for school districts to provide a special education full individual and initial evaluation. The special education funding accounts for about $834 million of HB 2’s total.
Funding for Specific Programs and Student Outcomes
The new bill funds specific programs and student outcomes through various allotments and corresponding grant programs to implement the funding. Some of the new allotments and grants are also accompanied by policy changes to how those programs are designed and delivered in schools.
Early Education and Pre-Kindergarten
- Expands the early education allotment to be generated by all attending kindergarten through third graders at a 0.01 (1%) weight in addition to the 10% funding that emergent bilingual students and/or from households with low-income generate for the allotment. HB 2 also changes the distribution requirements for the early education allotment to go toward prekindergarten for 4-year olds first and requires approval for public prekindergarten expansion from state-appointed intermediary organizations.
- Creates new early literacy and math intervention allotments and programs for students in kindergarten through third grade who need additional support. Their teachers and campus leaders must attend related intervention academies.
- Creates a supplemental support grants program of $400 per eligible student to fund private tutoring and accelerated learning support. School districts must demonstrate annual increases in achievement on the state exam to maintain this funding or face cuts.
College, Career and Military Readiness
- Doubles the amount (now $4,000) of the college, career and military readiness outcomes bonus funding that is generated by graduating high school students in special education
- Triples funds for students in P-TECH schools from $50 per attending student to $150.
- Increases the statewide cap for rural partnership programs through the R-PEP allotment to $20 million annually.
- Continues to focus on channeling funds into career and technical education programs, including by adding junior ROTC courses for eligibility and increasing subsidies for students to take career and technical education certification exams.
Bilingual Education
- Provides no new funding added to bilingual education or dual language programs.
- Districts facing a certified bilingual teacher shortage and using a bilingual exception from TEA to offer bilingual programs can now access the dual language allotment if they submit data and an explanation of how they offer dual language through alternative language methods. This is capped at $10 million for the biennium (two-year budget) and must be distributed across state geographic regions.
- The bilingual education allotment can now be used on full teacher salaries instead of only on supplements, in addition to other program expenditures. This could strain the limited allotment.
Changes to Facilities Funding
- Increases funding for charter school facilities by lifting the cap of $60 million in state funding and allowing charter schools to get equalized facilities funding based on the statewide average tax rate (interest and sinking). This amounts to about $200 million.
- Increases the school safety allotment by doubling the per-attending student amount to $20 and the per campus amount to $33,540 each year. The school safety allotment must still be used largely for hardening school facilities, such as through new security infrastructure, equipment and trainings. This amounts to about $430 million.
- Increases the new instructional facility allotment (NIFA) from $100 million to $150 million each year.
- Requires districts to conduct an annual facilities usage and capacity report on all instructional buildings and spaces and report it to TEA.
Other Instructional Funding
- Expands the additional days school year incentive and creates a grant program for school districts to get technical assistance if they are changing their school year.
- Increases the small and mid-size district allotment, totaling $318 million, for small and rural schools and for charters.
Additional Policy Changes
- Changes student disciplinary policies to reinstitute out-of-school suspensions for prekindergarten, first and second graders and to permit teachers to remove students from the classroom for a single behavioral incident.
- Creates new guidelines for teacher preparation and certification, including the PREP programs, residencies and alternative preparation programs.
- Applies instructional requirements and prohibitions for K-12 teachers regarding topics of race, sex, oppression, current events and policy to educator preparation programs that partner with school districts for preservice teacher training.
- Requires TEA to collect teacher vacancy data
- Expands eligibility for public prekindergarten to children of classroom teachers in their district.
Looking Ahead
The changes to school funding, teacher compensation and training, and other school policies in HB 2 will be rolled out over the next five years. Some schools will see new funding immediately while others will have to build out programs or make other changes in order to take advantage of new funding streams.
Texas school leaders and lawmakers should monitor how HB 2’s changes uphold principles of fair school funding, like funding equity, excellent educational experiences, equalized facilities and enrichment funding, equal return on equal tax effort without tax burdens, and attention to special student costs. The road to fair and equitable school funding has been full of twists and turns, and HB 2 offers yet another set of directions.
For more information about IDRA’s Texas policy advocacy, contact Chloe Latham Sikes, Ph.D., IDRA Deputy Director of Policy, at chloe.sikes@idra.org.
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Resources
IDRA. (2025). Principles for Fair Funding.
Legislative Budget Board. (May 24, 2025). Fiscal Note, 89th Legislative Regular Session, RE: HB 2.
Office of the Texas Governor. (June 4, 2025). Governor Abbott Signs Record Public Education Funding, Teacher Pay Raise Into Law.
TEA. (2025). House Bill 2. Texas Education Agency.
Texas Commission on Special Education Funding. (December 31, 2022). Report to the 88th Texas Legislature.
FAQs on Texas House Bill 2 School Funding
Q: What is House Bill 2?
A: HB 2 is Texas’ 2025 school funding bill that allocates $8.5 billion to public education, with half directed to teacher pay and preparation programs.
Q: How does HB 2 change the school funding formula?
A: Instead of significantly raising the basic allotment, HB 2 adds at least 10 new allotments and grants with specific spending rules. This reduces district flexibility to address local needs.
Q: Did the basic allotment increase?
A: No substantial increase was made. The basic allotment remains $6,160 per student. A temporary $55 per-student adjustment applies through 2027 but does not keep up with inflation.
Q: How does HB 2 impact teacher pay?
A: About $4.2 billion funds teacher raises. Smaller districts award up to $8,000 for experienced teachers, while larger districts provide smaller increases. HB 2 also funds retention allotments and new teacher residency programs.
Q: What changes were made to special education funding?
A: HB 2 adopts a service-intensity model. Funding is now based on the type and intensity of services students receive, with $834 million allocated and $250 million for transition support.
Q: How does HB 2 affect early education?
A: The bill expands early education allotments, adds new literacy and math interventions, creates private tutoring grants, and requires student achievement gains to maintain funding.
Q: What about charter schools and facilities?
A: Charter schools receive increased facilities funding. HB 2 also doubles the school safety allotment and raises the New Instructional Facility Allotment.
Q: Are there other policy changes?
A: Yes. HB 2 reintroduces suspensions for young students, imposes content restrictions in teacher preparation, expands pre-K eligibility for teachers’ children, and requires TEA to collect teacher vacancy data.
Q: What should be monitored moving forward?
A: Stakeholders should watch how HB 2 impacts equity, funding adequacy, facilities fairness, and whether it meets diverse student needs over the next five years.
