While the percentage of Texas children below the poverty level continues to grow, public school superintendents have yet to see their systems fully funded to meet increasing needs. One after another, school funding bills filed during the 85th Legislature failed.
The demise of House Bill 21, which experts called the last best chance at meaningful finance reform, left school districts, including San Antonio’s North East Independent School District, looking for ways to stretch dollars and find new ones within existing funding formulas.
“Many districts, including NEISD, have only been able to continue all the great programs our schools offer students by adopting budgets that dip into [their] fund balance, which is the district’s reserve funds,” NEISD Superintendent Brian Gottardy stated in an email sent last week to district residents and stakeholders. “This approach, without help from the Legislature, is not sustainable over the long term.”
While changes to the funding formula are the ultimate goal for most public school advocates, some school districts are not waiting around for legislative relief. At least two districts in the state, NEISD and Fort Bend ISD which serves Sugar Land, Missouri City, and portions of Fort Bend County, are reworking their budgets, making the most of the complicated funding rules to get more money from the State while decreasing property tax rates in their district.
The strategy hinges on the two components of a school district’s tax rate: Its Maintenance and Operating (M&O) rate is the money for salaries, curriculum, and other district operations. The Interest and Sinking (I&S) rate is the repayment of debt, primarily from bonds to build new facilities.
By state law, the tax rate cannot exceed $1.04 per $100 of home value without an election by the district. Beyond that, every time the tax rate goes up, whether because of a bond, which raises the I&S rate, or because an increase to the M&O, an election is necessary. NEISD found a way to decrease its overall tax rate, however, and will not need to hold an election.
San Antonio ISD recently voted to raise its own M&O rate to $1.17, the highest rate allowed. Austin ISD sets the State’s standard for school funding. For every penny added to the tax rate, districts like SAISD and NEISD with lower property wealth than Austin ISD get extra money from the State. Districts with more per-capita property wealth than Austin ISD, such as Alamo Heights ISD, have to pay the State in what is known as “recapture.”
By raising its M&O tax rate 2 cents, NEISD will generate $16.1 million, $9.2 million of that coming from the State matching funds.
To keep the overall tax rate from going up 2 cents, NEISD will drop its I&S rate by 4 cents. This will avoid the need for an election to adopt the new $1.06 M&O tax rate, because the overall tax rate will drop, NEISD spokeswoman Aubrey Chancellor said.
The district can do this through strategic debt management of past bonds. Because I&S rates are not matched by the State, this decrease will not result in lost funding.
“This tax rate strategy along with a cost containment plan will enable NEISD to keep offering the quality, well-rounded education for kids it always has and maintain competitive compensation for its teachers and staff,” Gottardy said.
NEISD provided the following information on its debt reduction strategy:
- Between 2012 and 2016, NEISD refinanced nearly $800 million of its outstanding debt, resulting in $140 million in savings to taxpayers.
- NEISD minimized interest by diversifying its debt portfolio to include variable-rate bonds and commercial paper.
- Since 2014, NEISD has begun to pay down some debt early. To date, $17.9 million has been paid down, avoiding future interest payments of more than $9 million. Another $9.7 million of debt is scheduled to be paid Aug. 1, 2017, and plans are to pay another $18 million in 2018.
Gottardy pointed out that such maneuvers will continue to be necessary as the State’s share of public education funding continues to shrink. As property values – and, thus, taxes – increase, many taxpayers expect that their district will get more money. Instead, this only lowers the amount that the State has to pay to match the funding of Austin ISD.
In 2011-2012, the State paid 35% of NEISD’s M&O budget, and 58% came from property taxes. Another 7% came from other sources. By 2016-2017, the State contributed 23% of NEISD’s M&O budget, and property taxes accounted for 69%, with 8% coming from other sources.
Across Texas, state funding has dropped from around 50% in the early 2000s to 38% currently.
“Unfortunately, because of the Legislature’s failure to act on behalf of public education, our situation is dire, and could eventually affect the district’s ability to provide a well-rounded education for kids,” Gottardy said.
The NEISD board of trustees adopted its budget for the 2017-18 school year after a public hearing on June 22. The tax strategy was presented with the budget and will be subject to board approval in August or September, Chancellor said.