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Analysis: A $100 million reinterpretation of Texas school finance law

A reinterpretation of the state's school finance law will leave $100 million in the accounts of some of the state's property wealthy districts — and will leave a hole of that size in an already tight state budget.

Houston, Texas.

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After reconsideration of an 18-year-old law, state education officials are adjusting their school finance calculations in a way that could save several dozen school districts roughly $100 million — while costing the state the same amount in revenue.

One of the apparent beneficiaries is Houston ISD, where the change means taxpayers will be sending about $60 million less to the state for public education than they had expected.

At issue is a calculation for recapture — the state’s term for the money that districts with higher property wealth send to the state for use in districts with lower property wealth.

It’s more commonly known as the Robin Hood system of school finance.

Some of those rich districts — “rich” here refers to the value of the districts’ property and not the income of its residents — have adopted homestead exemptions that are bigger than the exemptions mandated in state law. All school districts in Texas have to let homeowners deduct $25,000 from their taxable property values, but districts are allowed to raise those exemptions up to 20 percent of a home’s value.

Not all districts do that, and not all of those that do that are property rich. But some — including Houston ISD, the biggest one in the state — offer the higher homestead exemptions and are also subject to recapture, and they’re the ones subject to the new calculations from the Texas Education Agency.

In a letter sent Feb. 1 to school administrators, the agency’s associate commissioner for school finance said that starting in the current school year, TEA will include half of the money the districts have forfeited in optional homestead exemptions when calculating how much recapture money those districts should pay. That’s the agency’s new reading of a law that’s been on the books since 1999.

“The commissioner thinks he has the latitude to give them half credit for this,” said state Sen. Paul Bettencourt, R-Houston.

The recalculations would trim those districts’ bills considerably — by $100 million in rough numbers. In addition to Houston ISD, the unofficial list of beneficiaries of the new calculation include Spring Branch ISD, Highland Park ISD, Lake Travis ISD and Comal ISD. Officials with TEA said they have not yet calculated exact amounts for each district but said the $100 million is a reasonable estimate of the total cost this year.

It’s a boon to those districts and a hit on the state’s tight budget. “This will reduce the recapture/detachment demands on Houston ISD by approximately $60 million, and on school districts other than Houston ISD by approximately $40 million this year — a total hit to an already challenged state budget of $100 million and likely to increase in years going forward,” wrote Sheryl Pace, an analyst for the Texas Taxpayers and Research Association.

In Houston, it eases the size of a pending property tax headache. Houston ISD is new to Robin Hood, and voters there — asked for the first time ever in November’s election — said they did not want to send money to the state for use in other districts. In Houston ISD’s case, that’s an estimated $165 million.

(Actually, they voted on this murky language dictated by state law: “Authorizing the board of trustees of Houston Independent School District to purchase attendance credits from the state with local tax revenues.”)

That triggered an unused and breathtaking provision in the school finance laws that requires the state education commissioner — currently Mike Morath of Dallas — to take away enough of Houston ISD’s commercial property tax base to raise $165 million for other districts.

Unless something changes — there have been calls for a quick election where the voters might reconsider — that means Morath will start with the most valuable commercial properties in Houston ISD and assign them to poorer districts until he’s taken away enough property to cover Houston ISD’s $165 million Robin Hood bill.

Last week’s letter doesn’t erase that bit of accounting violence, but it would trim the size of the amputation; instead of sending $17.4 billion in value from its commercial property tax rolls to the rolls of poorer districts, Houston ISD would send $11.1 billion, according to estimates from the taxpayers and research association. The owners of those severed properties could end up attached to districts with higher property tax rates; it’s fair to expect some noise if they do.

Houston ISD said Friday evening that the board will consider a do-over and will vote next Thursday on whether to hold another election on May 6 to give voters an opportunity to reverse that November vote. Bettencourt said he thinks the district ought to just pay what it owes in recapture money and leave the property tax rolls alone.

“I’m glad they’re coming to their senses,” he said.

That’s not the end of this. In its letter to districts, the TEA tried to protect itself from liability for recapture payments made to the state during the 18 years that the law was in effect before the agency discovered it had been calculating incorrectly. “This change is effective for the 2016-17 school year (and state FY2017) only and forward and will not be applied retroactively to prior fiscal years,” the letter said, in bold.

Lawyers for school districts that overpaid the state might want to have a peek at that. Legislators, too.

“I think there are going to be lots of questions on Monday morning,” Bettencourt said. “I’ll be asking some of them.”

More columns from Ross Ramsey:

  • Most states have dropped straight-ticket voting, but not Texas. There's another attempt coming in the current legislative session, and it's got some high-level supporters.
  • The Texas Legislature is primed to go, but this is going to be a session outside the limelight. The Texans are busy, but the spotlight is on the new administration in Washington, D.C.
  • The debate over education savings accounts and other voucher programs is only peripherally about educating kids. It's really a debate about money. 

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