• by Albert Cortez, Ph.D. • IDRA Newsletter • June – July 2002 •
Some people attribute Texas’ school funding challenges to the Edgewood court cases that forced it to change its system. But the state of Texas has been heading toward this crossroads since the 1920s. Since that time, Texas public education has reflected a heavy reliance on local property taxation to raise money to fund public schools. This article presents an overview of how we got here and what is ahead.
Describing the evolution of the state finance system, Walker and Kirby stated: “By the early 1920s the modern dilemma of public school finance was taking form. In 1920 constitutional tax limits on school districts were abolished and made a legislative prerogative… Texas educational historian Fredrick Eby noted, ‘The problem of equalization of taxation for schools and the problem of equalizing the opportunities for all citizens of the state are now being generally discussed.’ Disparities in local wealth and local tax effort were recognized as creating inequalities, but the paucity of state aid forced school districts to rely on local resources if they desired quality educational programs” (1986).
The practice of using local property taxation to supplement state educational funding persisted through the 1950s, ‘60s, ‘70s, ‘80s and in the early part of the ‘90s in Texas. This local supplementing of the minimal state aid provided to schools resulted in tremendous differences in the amount of funding available to educate children in different school districts.
Describing the vast disparities in local property wealth, tax rates and expenditures, Dr. José A. Cárdenas, IDRA founder and director emeritus, wrote: “In 1970, a low wealth school district with $5,147 in taxable property per student and a $1.50 tax rate per $100 of assessed valuation produced $77.21 to fund the local share of the minimum foundation program and enrich the educational program. A high wealth district with $5,642,114 in taxable property per pupil with the same tax rate would produce $8,463,171 per student to fund the entire minimum foundation program and enrich the educational program” (1997).
Getting to Texas’ Current System
In 1995 the Texas Supreme Court affirmed IDRA’s long-standing position that the quality of any child’s education should not depend on the wealth of his or her parents or of the community in which he or she happened to reside. This affirmed an earlier state court decision that the gross inequities that characterized the Texas funding system at the time violated the state constitution.
After two unsuccessful efforts to change the funding system, the Texas Legislature adopted Senate Bill 7 in 1993. This bill modified the funding system in a manner that effectively neutralized the wealth and thus the revenue-raising differences between the state’s poorest and wealthiest school systems (Cortez, 1993).
In recent legal challenges, critics of the Texas school finance system have attempted to topple it. Although most challenges focus on constitutional language and related requirements, the intent by some is to eliminate state funding features that limit local school expenditures among the state’s wealthier school districts. Some schools and their constituents want to return to the time when the wealthiest schools spent hundreds, and in some cases thousands, of dollars more for each student than their neighboring communities. Guised as challenges to allow greater “local flexibility,” the actual effect of these challenges would return the state to the gross inequalities that led to its being criticized as being “chaotic and unjust” (Cárdenas, 1997).
While far from being fully equal, the existing state funding system certainly has done much to close the gap in funding available to property poor and property wealthy schools in Texas. This equity was achieved by providing increased state funding that offset local ability to raise school funding and placing limits on how much revenue the wealthiest schools were permitted to acquire.
In 1995 the State Supreme Court upheld the new system, which had been challenged by a group of the state’s wealthiest school districts. The new system contained two features that were considered particularly onerous to the state’s wealthiest systems.
One feature resulted in neutralizing wealth advantages by requiring local districts to contribute a portion of their funding either to the state or to a lower wealth school district (called recapture) or face other consequences including state allocation of taxable property to a neighboring low wealth district or forced consolidation.
The second feature incorporated a $1.50 tax rate limit on districts’ maintenance and operations tax rate, essentially capping expenditures at a fixed level.
Since the adoption of these reforms, the state’s wealthiest school systems have chafed under both the recapture provisions and/or the tax rate limitations in that both features restrict their ability to spend additional money on their own educational programs.
From a state perspective, these features have two advantages. The recapturing of local tax revenue from the wealthiest districts saves the state more than $600 million per year that would otherwise have had to be provided from other state revenue sources (other state taxes or some new state fees). Rather than being merely an approach where money is taken from rich schools by poor schools, recapture funds are used to decrease the amount of direct state money needed to fund a more equalized system of school funding.
While some have nicknamed this feature, “Robin Hood,” Dr. Cárdenas preferred to note that schools were providing the money to King John rather than to Robin Hood, as this re-allocation feature is currently described. Because the courts have declared that the state does have certain prerogatives when it comes to how it finances the public education system, including recapture options, no additional direct legal challenges to this feature of the Texas finance system had been filed.
As for the tax rate limits, placing a cap on taxes allows a state to limit the extent of local taxes that it must equalize. By capping taxes, the state in essence contains the cost of equalization and, therefore, the overall cost of state funding for the system. The state could propose to increase the maximum from $1.50 to a higher limit, for example $1.60. However, for every additional cent that local districts are allowed to levy, the state would have to increase its funding by several billion dollars to maintain the existing level of equalization in the system.
Due to a persistent legislative reluctance to raise the maximum tax limits, some districts chose to challenge the tax caps in state court.
In 2001, one group of school districts attempted to challenge the $1.50 limit on maintenance and operations tax rates. The Austin District Court Judge has retained jurisdiction over the school funding issues. Judge Scott McCown rejected the wealthy district plaintiff’s arguments that the existing $1.50 limit was unconstitutional. In his ruling, the state judge noted that a small percentage of districts were at the limit, and even if more districts taxed at the maximum level, the legislature would still need to be given an opportunity to address the issue before a definitive court ruling.
The court also noted that voluntary exemptions granted by some of the complaining districts need to be considered since the voluntary exclusion of some property resulted in higher local tax rates in a few of those school systems. A state appeals court recently upheld the lower state court ruling. This issue is expected to be considered by the Texas Supreme Court perhaps as soon as this fall.
More recently, a group of taxpayers have been attempting to get the state funding system declared unconstitutional by charging that existing school taxing requirements are in reality a state property tax, which is not permitted under the state constitution. These plaintiffs are also contending that the state taxes are not uniform (as required of state taxes) and are challenging the incorporation of weights in the current funding system. The case has been filed in a Dallas state district court, and proceedings are scheduled to begin in November. Defendants include the Dallas school district and the state of Texas.
In part because of the pressures created by the legal challenges to the existing system, but also because some legislators feel compelled to further reform the current system, the 2001 Texas Legislature established the Interim Commission on School Finance. This commission has been holding hearings across the state to generate input from a cross section of groups. It is expected to recommend some changes to the existing funding system.
One area that has been the topic of much discussion is whether or not the state should consider adopting new taxes that would be used to reduce or eliminate local property taxation. Witnesses testifying before the commission noted that Texas has among the highest sales tax and property tax rates in the country. One reason noted is that Texas is one of few states that does not have a personal income tax, creating significant dependence on other tax sources, particularly property taxes and sales taxes.
Ultimately what might be recognized is that the state of Texas continues to labor under an antiquated taxing structure that may be dysfunctional, not only for education, but also for many state and local services. Local property taxes are regressive (impacting lower income families more than wealthy families when those taxes are considered as a proportion of a family’s income) when compared to other tax options. Unfortunately, second major revenue sources, state sales taxes, are similarly regressive.
Among the options that will surface in upcoming discussions will be calls to ensure that all sectors are paying their share of existing taxes, including taxing services that are recognized as the fastest growing part of the state economy. While the options of expanding the areas subjected to taxation have been discussed, eventual opposition from those potential new tax contributors has squelched those earlier efforts to “expand the tax base” subjected to existing taxes.
Progressive groups, such as the Texas Center for Public Policy Priorities (CPPP) in Austin, suggest that it may be time for the state to seriously consider a state income tax. In a recent editorial opinion CPPP’s Dick Lavine reminds us that although adoption of such an income tax requires a statewide referendum, if adopted “two thirds of the revenue would go to cut property taxes, and one third would be dedicated to education” (2002).
More importantly, according to CPPP, if Texas adopted a state income tax comparable to the approach used in Kansas “more than 60 percent of families would see a tax cut… and the highest income families who would pay the most in new state income taxes would also receive the most benefit from federal deduction for state income taxes” (2002).
While an income tax may ultimately be considered in Texas, many who have followed the Texas tax scene speculate that all other options, including expanding the coverage of existing taxes, will be attempted before an income tax is seriously considered. Given a projected $5 billion budget shortfall, it well may be that all available options for increasing state revenues will be examined.
Another popular belief is that serious funding reform may be unlikely in a state experiencing a serious revenue shortage. Earlier studies of state finance reforms note that it is always easier to adopt school funding reforms in eras when there is surplus revenue.
To address the existing revenue shortfall and the need to increase education funding, some suggest that the state conduct a study of “adequacy” and then ensure that all schools are provided equal access to that level of “adequate” funding. Some of us who have tracked the school funding issue have serious questions about such an approach to funding. Too often, definitions of “adequate” become discussions of what is minimally required.
Minimums do not ensure access to excellent educational opportunities. Discussions of adequacy too often skirt the question of adequacy for whom, for what purposes, and for how long. Some would propose that we allow a few school districts to provide quality education while other schools struggle to provide bare minimum or “adequate” programs. Such an approach would set Texas education back decades. It should be noted that “adequate” would be defined in a manner acceptable to some but not all, and would most likely be tied to whatever the state presumes is acceptable.
IDRA contends that whatever reforms are considered should be judged by the extent to which they increase or decrease existing expenditure inequities that still plague the existing funding system. Although progress has been made in reducing the gross inequalities cited earlier in this article, expenditure differences among some of the lowest and highest wealth schools still exceed $600 per student and have been increasing in recent years.
We should recall that it was that different status among school districts that allowed some of our state’s wealthier systems to sit on the sidelines in past decades when the need to increase state taxes became acute. That in turn led some legislators to comfortably oppose any increases in state taxes, because their school constituents did not suffer from the existing shortage in state support for education.
Under the existing funding system, all districts are now “in the same boat,” with state funding shortages impacting wealthy and poor systems alike. Prospects for increasing state taxes to address the needs of all school districts are more promising if all school systems are advocates of increased state funding.
Until the state confronts these much more difficult state revenue issues, schools may be forced to wait for levels of funding that both are equitable and assure access to quality education for all pupils.
Texas Latino Education Coalition
Meets with Texas Commissioner of Education
IDRA invited Texas education commissioner, Dr. Felipe Alanis, to meet with members of the Texas Latino Education Coalition in June to discuss the discouraging situation facing poor and minority students throughout the kindergarten through grade 16 educational pipeline. The Texas Latino Education Coalition is a new collaborative of organizations and individuals who have traditionally advocated the rights of Latinos.
The coalition was organized to focus specifically on critical education issues in Texas and improve the state of education for Latino students in public schools. The founding members of the collaborative first met in 2001. Member organizations include: the Intercultural Development Research Association, the Mexican American Legal Defense and Educational Fund, the Mexican American School Boards Association, the Texas League of United Latin American Citizens, among others.
At the June meeting, coalition representatives shared priority issues (see below) with the commissioner, who then presented his views of important education challenges facing the state. There was also a dialogue on how the coalition and commissioner can mutually support improving education for all children in Texas.
Although test scores for school districts are rising, growing numbers of schools, especially those serving poor and minority students: (1) do not have adequate financial resources and support to provide quality education, (2) are not keeping their students in school, and (3) are providing little or no information for accessing colleges and succeeding in higher education.
Coalition members agreed that it is prime time to unite efforts through a statewide coalition to ensure a brighter future for our children. They framed an education agenda with five target issues, each with an overarching vision for schools in Texas:
- Fair funding – All public schools will have equitable funding.
- Quality teacher preparation – Every teacher will be prepared to provide excellent instruction.
- Quality teaching – Schools will have all students succeeding on grade level.
- School holding power – Schools will graduate all students with a high school diploma.
- College access and success – All students will have access to and be adequately prepared for higher education.
The coalition plans to accomplish these goals by creating and executing strategies that: educate the media, inform public policy at state and local levels, mobilize communities, and synthesize and disseminate information. The mission is to improve public education for Latino children, which will impact the quality of education for all children. By working together, we can improve life for all children in Texas.
For more information about the Texas Latino Education Coalition or about joining the coalition, contact Dr. Albert Cortez, director of the IDRA Institute for Policy and Leadership, or Anna Alicia Romero at IDRA by phone at 210-444-1710 or by e-mail at firstname.lastname@example.org.
Cárdenas, J.A. Texas School Finance Reform: An IDRA Perspective (San Antonio, Texas: Intercultural Development Research Association, 1997).
Cortez, A. “School Finance Update: Senate Bill 7 is Legislators’ Latest Attempt at Equity,” IDRA Newsletter (San Antonio, Texas: Intercultural Development Research Association, June-July 1993).
Lavine, D. Smarter Taxes; Better Texas (Austin, Texas: Center for Public Policy Priorities, 2002).
Walker, B.D., and W. Kirby. The Basics of School Finance, Third Edition (Austin, Texas: Texas Association of School Boards, 1986).
Albert Cortez, Ph.D. is the director of the IDRA Institute for Policy and Leadership. Comments and questions may be directed to him via e-mail at email@example.com.
[©2002, IDRA. This article originally appeared in the June – July 2002 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.]