• by Albert Cortez, Ph.D. • IDRA Newsletter • January 2011 •

Dr. Albert CortezIDRA has been involved in school finance reform in Texas since the day it was founded. And while much progress had been made in the 1990s, recent actions by the Texas Supreme Court and the Texas Legislature have led to a significant slippage in the extent of funding equity among school districts. And the current historic shortfall in state revenue may lead to further erosion during the 2011 Texas legislative session. This all may well set the stage for a new round of legal challenges that could be filed as early as this summer.

As the Texas legislature reconvenes this month, school finance is one of several major policy challenges it will need to address. Topping the list is how policymakers will come up with the estimated $27 billion needed to balance the biennial budget, assuming no increases are provided to any programs.

Rainy Day Fund

While over $9 billion sits in the state’s “rainy day” fund, political leaders have already declared that the fund will not be the first avenue tapped to deal with the projected deficit. Though not yet taking a hard line regarding how much of the rainy day fund may be used to balance the 2012-13 state budget, many in Austin assume that it will not be fully used despite the projected shortfall. And some have indicated they would rather leave it untouched.

Even if the entire rainy day fund were tapped, additional revenue or cuts in programs would need to be made to balance the budget. With a majority of House and Senate conservatives committed to not raising additional taxes, the possibility of cuts in funding – including cuts in k-12 public school funding – are likely.

Across-the-Board Cuts

If cuts to public education are proposed, the battle will center on how the cuts are made and which school districts will be hurt the most. Some policymakers have suggested making across-the-board cuts in all schools using a flat percentage of state aid as the cutting tool. The problem with such an approach is that it would impact school districts in very different ways. School districts that are most dependent on state aid (low and moderate wealth school districts) would suffer the deepest cuts, while those that are least dependent on state funding (high wealth school districts) would experience lower cuts in funding.

For example, if a school district’s state aid was $7,000 per student and the state were to cut funding 10 percent across the board for all schools, that school district would lose $700 per student. On the other hand, if a school district only received $700 per student in state aid, it would lose only $70 per student. In other words a poor school district could lose as much as 10 times the amount of revenue as a wealthy district. Such an approach would have a devastating effect on the extent of funding equity in the Texas school system.

Recent calculations developed by the Equity Center found that funding disparities between the state’s 100 poorest and 100 wealthiest school districts grew to $2,674 per student in the 2009-10 school year.  (Equity Center, 2010a&b)

State-Sanctioned Loopholes

Two features in the current Texas funding plan are the major causes for the growing inequity. One is the continued use of target revenue as the driver for determining state aid for most school districts. Target revenue in turn is largely based on what school districts were spending in the 2005-06 school year without any adjustments built in for inflation or new state requirements adopted since 2006.

The second confounder is the continued use of hold harmless funding, which provides school districts state funding for which they are no longer eligible under existing school finance formulae. Most hold harmless provisions date back to reforms adopted in 1993 when the legislature provided so-called “transition funding” to high wealth school districts that would have received less state and local revenue under the revised school finance plan adopted in response to equalization litigation.

These hold harmless provisions were first extended beyond the projected expiration dates and eventually were made permanent in subsequent legislation, providing hundreds of millions of dollars in state aid to school districts that would otherwise not qualify for such funding.

The state further squandered money by distributing funds “outside the system,” meaning funding was distributed to school districts without running it through the official funding formulae that adjust state aid in direct proportion to a school district’s local property wealth. While this outside-the-system funding did not increase inequity (since school districts got the same amount of funding per student), it wasted opportunities to provide funding to school districts that were most in need and least able to raise local revenue to cover increasing costs. (Cortez, 2009)

The recent adoption of increased student performance standards, incorporated into House Bill 3 adopted in 2009, has created even greater pressure on school districts to improve student performance but with no comparable increases in state funding.

The state has countered school district complaints about lack of funding by releasing a study of school “efficiencies and effectiveness.” Conducted by the state comptroller using economics-based “value-added” models, the report was released on the eve of the 2011 session. It rated all Texas schools and school districts on a five-point rating scale. Only 36 (3.5 percent) school districts received 5-star ratings. An additional 77 got a rating of 4.5. The great majority of school districts were rated as 3 or lower. (Texas State Comptroller’s Office, 2010)

The “efficiency and cost-effectiveness” ratings themselves are inconsistent with existing school accountability ratings and do little to provide the support needed to help schools provide needed services. Unfortunately, this report will likely be used to justify unfair cuts or minimal funding for all schools. Should this occur, we can justifiably expect schools to launch a new round of legal challenges to the Texas funding plan with plaintiffs including not only low and average wealth school districts, but also some above average wealth districts, where leaders have become frustrated with lack of state leadership on this issue.


Combs, S. Connecting the Dots: School Spending and Student Progress (Austin, Texas: Texas Comptroller of Public Accounts, December 2010).

Cortez, A. The Status of School Finance Equity in Texas – A 2009 Update (San Antonio, Texas: Intercultural Development Research Association, 2009).

Equity Center. “Tax High, Spend Low? Or Tax Low, Spend High? Unfortunately, You Don’t get To Choose,” Equity Center News and Notes (Austin, Texas: Equity Center, October 2010).

Equity Center. “The State of the Texas School Finance System: An Interview with Scott McCown,” Equity Center News and Notes (Austin, Texas: Equity Center, January-February 2010).

Levin, H.M. The Economic Payoff to Educational Justice, Distinguished Lecture Series (Washington, D.C.: American Educational Research Association, 2008).

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

[©2011, IDRA. This article originally appeared in the January 2011 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.]