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Copyright©2007 Education Service Center Region XIII1
Region 17 Summer School Finance Conference
School Finance Update
Presented byOmar Garcia
Region XIII ESC
June 17, 2008
Copyright©2007 Education Service Center Region XIII2
The Current System
• At least three-fourths of the system is based on a fixed amount of revenue per student
• Established by HB 1, 3rd Called Session of the 79th Legislature
– The so-called “Hold Harmless” Revenue per WADA or the “Greater of” Revenue per WADA
Copyright©2007 Education Service Center Region XIII3
The Current System2
• What is the “greater of” revenue per WADA:
– Greater of 3 amounts
1) 05-06 State/Local Revenue per WADA (S1)
2) 06-07 State/Local Revenue per WADA under old law and using 05-06 M&O rate (S2)
3) 06-07 State/Local Revenue per WADA under old law and using effective M&O rate (S3)
Copyright©2007 Education Service Center Region XIII4
The Current System3
“Greater of” Number x WADA
+ Salary Allotment
+ High School Allotment
= “Target Revenue”
• Up to a district’s compressed tax rate, it is both the “floor” and the “ceiling”
Copyright©2007 Education Service Center Region XIII5
The Current System4
• If HB1 state/local revenue at the district’s compressed rate falls short of the target, Additional State Aid for Tax Reduction makes up the difference
• If HB1 state/local revenue at the district’s compressed rate is more than the target, the district is brought down to the target
Copyright©2007 Education Service Center Region XIII6
The Current System5
Target Revenue
- HB 1 State & Local Revenue
= Additional State Aid for Tax Reduction
• Some combination of state and local revenue will equal the target
– The more local revenue, the less the state has to pay
– The less local revenue, the more the state has to pay
Copyright©2007 Education Service Center Region XIII7
The Current System6
• Because it is primarily a Hold Harmless system, at a district’s compressed rate, the following no longer matter:
– The Basic Allotment
– The Tier II Level 1 Guaranteed Yield
– The Chapter 41 Equalized Wealth Level
– Whether you are Chapter 42 or 41
– Property values
– Percentage of collections
Copyright©2007 Education Service Center Region XIII8
At Compressed Tax Rate At Compressed Tax Rate
$10M $10M
Additional State Aid for Tax Reduction Additional State Aid for Tax Reduction
State Tier I & Level 1 Tier II State Tier I & Level 1 Tier II
Local Revenue Local Revenue
BA = $3,135; Level 1 =$36.45 BA = $3,218; Level 1 = $37.42
Copyright©2007 Education Service Center Region XIII9
At Compressed Tax Rate At Compressed Tax Rate
$10M $10M
Additional State Aid for Tax Reduction Additional State Aid for Tax Reduction
State
State
Local Revenue Local Revenue
Recapture @ $364,500 Recapture @ $374,200
Copyright©2007 Education Service Center Region XIII10
Chapter 42 Chapter 41
$10M $10M
Additional State Aid for Tax Reduction
Additional State Aid for Tax
Reduction
State
State
Local Local
No recapture Recapture
Copyright©2007 Education Service Center Region XIII11
The Current System7
• Because it is primarily a Hold Harmless system, beyond the compressed rate, the following do not matter near as much as they used to
– Property values
– Tax collection rate
• Make some difference for Levels 2 and 3 (if applicable) of Tier II
Copyright©2007 Education Service Center Region XIII12
The Current System8
Taxes @ 100% = $2,080,000
Taxes @ 95% = $1,976,000
Taxes @ 90% = $1,872,000
Level 2: @100% @95% @90%
DTR .0615 .0585 .0554
State Aid$145,925 $138,628 $131,332
% Change in Aid -5.26% -11.1%
Copyright©2007 Education Service Center Region XIII13
The Current System9
CPTD Value = $200K, $195K, & $190K
Collections @ 100%
Level 2: @$190K @$195K @$200K
DTR .0632 .0615 .0600
State Aid$152,923 $145,925 $139,277
% Change in CPTD +2.6% +5.3%
% Change in Aid -4.8% -9.8%
Copyright©2007 Education Service Center Region XIII14
The Current System10
• Only 4 other sources of General Fund revenue outside Target Revenue
– The “golden” pennies (Level 2 of Tier II) (Austin ISD yield)
– The “silver” pennies (Level 3 of Tier II) (“rollback”-like pennies)
– Staff allotment
– Rider 86 Allotment ($23.63 per WADA)
Copyright©2007 Education Service Center Region XIII15
General Fund Revenue:Compressed Rate = $1.00; Adopted Rate = $1.04
(estimated for 2008-09)
Revenue Target Staff Allotment Rider 86 Allotment
Golden Pennies Rollback-like Pennies
Copyright©2007 Education Service Center Region XIII16
General Fund Revenue:Compressed Rate = $1.00; Adopted Rate = $1.17
(estimated for 2008-09)
Revenue Target Staff Allotment Rider 86 Allotment
Golden Pennies Rollback-like Pennies
Copyright©2007 Education Service Center Region XIII17
What Is Your “Greater of” Amount?• As of 6/4/08:
– About 200 have “S1” as greater of
– About 700 have “S2” as greater of
– Rest have “S3” as greater of
Copyright©2007 Education Service Center Region XIII18
Final (as of 6/4/08) "Greater of" Revenues per WADA
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0 200 400 600 800 1000 1200
# of Districts
"Gre
ater
of"
Am
ount
Copyright©2007 Education Service Center Region XIII19
Final (as of 6/4/08) "Greater of" Revenues per WADA
0
2000
4000
6000
8000
10000
12000
14000
0 200 400 600 800 1000 1200
# of Districts
"Gre
ater
of"
Am
ount
Copyright©2007 Education Service Center Region XIII20
What Is Your “Greater of” Amount?2
• What caused you to get “stuck” where you are?
– Property value changes between 05-06 and 06-07
– Tax rates set (and taxes collected) in 04-05 and 05-06
– Changes in WADA between 05-06 and 06-07
– Net gain from the sale of WADA in 05-06
Copyright©2007 Education Service Center Region XIII21
"S1" Top 10 Districts With Property Value Changes
Between Tax Years 2004 & 2005
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
1 2 3 4 5 6 7 8 9 10
Top 10 Value Changes
Valu
e G
row
th
Tax Yr 2004 to 2005 Change Tax Yr 2005 to 2006 Change
Copyright©2007 Education Service Center Region XIII22
"S2" Top 10 Districts WithProperty Value Changes
Between Tax Years 2004 & 2005
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
1 2 3 4 5 6 7 8 9 10
Top 10 Value Changes
Valu
e G
row
th
Tax Yr 2004 to 2005 Change Tax Yr 2005 to 2006 Change
Copyright©2007 Education Service Center Region XIII23
"S2" Lowest 10 Districts WithProperty Value Changes
Between Tax Years 2004 & 2005
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Lowest 10 Value Changes
Valu
e G
row
th
Tax Yr 2004 to 2005 Change Tax Yr 2005 to 2006 Change
Copyright©2007 Education Service Center Region XIII24
"S3" Top 10 Districts WithProperty Value Changes
Between Tax Years 2004 & 2005
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
1 2 3 4 5 6 7 8 9 10
Top 10 Value Changes
Valu
e G
row
th
Tax Yr 2004 to 2005 Change Tax Yr 2005 to 2006 Change
Copyright©2007 Education Service Center Region XIII25
What Is Your “Greater of” Amount?3
• Why is “it” so important?
– “It” represents at least 78% (approximately) of total General Fund revenue that you will have available
• 78% to 85% for 70 districts
• 85% to 99% for all other districts
Copyright©2007 Education Service Center Region XIII26
Target & "Greater of" Revenuesas a Percent of Total General Revenue (estimated
07-08)
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Districts
Target Revenue as % of Total GR Revenue
Greater of Allotment as % of Total GR Revenue
Copyright©2007 Education Service Center Region XIII27
Target Revenue as a Percent of Total GR Revenue:All Districts @$1.17 (estimated)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
1 79 157 235 313 391 469 547 625 703 781 859 937
Districts
Per
cent
Tot
al G
R
Copyright©2007 Education Service Center Region XIII28
Is There an Equity Problem?• 98% of total WADA is in districts that are
“stuck” between $4,000 and $6,000 per WADA
• Equity standard in law:
“…substantially equal access to similar revenue per student at similar tax effort…” [TEC 42.001(b)]
Copyright©2007 Education Service Center Region XIII29
Final "Greater of" Revenue per WADAOnly Districts Between $4K & $6K
With 2005-06 M&O Tax RatesBetween $1.485 & $1.50+
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0 100 200 300 400 500 600
Copyright©2007 Education Service Center Region XIII30
Final "Greater of" Revenue per WADAOnly Ch 42 Districts Between $4K & $6K
With 2005-06 M&O Tax RatesBetween $1.485 & $1.50+
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0 100 200 300 400 500 600
Copyright©2007 Education Service Center Region XIII31
Final "Greater of" Revenue per WADAOnly Ch 41 Districts Between $4K & $6K
With 2005-06 M&O Tax RatesBetween $1.485 & $1.50+
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0 10 20 30 40 50
Copyright©2007 Education Service Center Region XIII32
Final "Greater of" Revenue per WADAOnly Districts Between $5K & $6K
With 2005-06 M&O Tax RatesBetween $1.485 & $1.50+
4,1834,462
5,962 5,993
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Lowest Ch 42 District
Lowest Ch 41 District
Highest Ch 42 District
Highest Ch 41 District
Copyright©2007 Education Service Center Region XIII33
Is The Hold Harmless System Rational?• At compressed rate, lowest Ch 42 district has
access to $9.2M ($4,183 x 2,206 WADA)
• At compressed rate, highest Ch 41 district has access to $2.8M ($5,993 x 471 WADA)
– Ch 42 district is 4.7 times larger in terms of WADA but has only 3.3 times the revenue
Copyright©2007 Education Service Center Region XIII34
Is The Hold Harmless System Rational?2
• At compressed rate, lowest Ch 42 district has access to $9.2M ($4,183 x 2,206 WADA)
• At compressed rate, highest Ch 42 district has access to $7.7M ($5,962 x 1,288 WADA)
– Lowest Ch 42 district is 1.7 times larger in terms of WADA but has only 1.2 times the revenue
Copyright©2007 Education Service Center Region XIII35
Is The Hold Harmless System Rational?3
• At compressed rate, lowest Ch 41 district has access to $3.2M ($4,462 x 714 WADA)
• At compressed rate, highest Ch 41 district has access to $2.8M ($5,993 x 471 WADA)
– Lowest Ch 41 district is 1.5 times larger in terms of WADA but has only 1.1 times the revenue
Copyright©2007 Education Service Center Region XIII36
2008-09 M&O Tax Rate• What’s your rollback rate?
– Lesser of:• $1.04 (plus any rollback pennies
adopted in previous year); OR
• Effective M&O Rate plus $.04–2008-09 Effective M&O Rate should
be approximately the rate you adopted in 2007-08
Copyright©2007 Education Service Center Region XIII37
The 2 Additional “Golden” Pennies1
• Do you need voter approval to access the 2 additional “golden” pennies?
– The answer – it depends…
• On the relationship between your compressed rate and your rollback/adopted rate
– 2008-09 adopted M&O rate has to be at least 6 cents above the compressed rate
Copyright©2007 Education Service Center Region XIII38
The 2 Additional “Golden” Pennies2
• If district’s M&O rate was $1.50 in 2005-06, then election will be required
– $1.50 x .6667 = $1.00 compressed rate
– 2007-08 M&O Rate = $1.04– 2008-09 Effective Rate + 4 = $1.08– Rollback Rate =$1.04
• Need to get to $1.06 ($1.00 + $.06) – can’t get there without voter approval
Copyright©2007 Education Service Center Region XIII39
The 2 Additional “Golden” Pennies3
• If district’s M&O rate was $1.40 in 2005-06, then election MAY NOT be required
– $1.40 x .6667 = $0.933 compressed rate– 2007-08 M&O rate = $.973– Effective M&O Rate + 4 = $1.01 (estimated)– Rollback Rate = $1.01
• Need to get to $0.993 ($0.933 + $.06) to access the 2 additional pennies – can do so without voter approval
Copyright©2007 Education Service Center Region XIII40
The 2 Additional “Golden” Pennies4
• The break point
2005-06 M&O Rate: $1.44 x .6667 = $.96005 + $.04 + $.02 = $1.02005$1.45 x .6667 = $.96672 + $.04 + $.02 = $1.02672$1.46 x .6667 = $.97338 + $.04 + $.02 = $1.03338$1.47 x .6667 = $.98005 + $.04 + $.02 = $1.04005$1.48 x .6667 = $.98672 + $.04 + $.02 = $1.04672$1.49 x .6667 = $.99338 + $.04 + $.02 = $1.05338$1.50 x .6667 = $1.0001 + $.04 + $.02 = $1.06010
Copyright©2007 Education Service Center Region XIII41
The Next Session
• Latest “surplus” estimate from Comptroller is $10.7B
– Includes $3B that must go to Property Tax Relief Fund (may need more to cover cost of property tax relief already granted)
– Includes $5.7B for the Rainy Day Fund
• Only leaves $2B for General Revenue
Copyright©2007 Education Service Center Region XIII42
The Next Session2
• What to expect– Some tweaking– Push for more property tax relief
• What not to expect– Major overhaul (NOTE: The history of
school finance tells you that the Legislature does not voluntarily overhaul school finance…only does so upon court intervention)
Copyright©2007 Education Service Center Region XIII43
The Next Session3
• TASA’s solicited recommendations to Select Committee (assuming no overhaul)
1) Target Revenue / Inflation– Establish revenue target floor ($1.9B)– Inflation adjustment ($2.8B @ 3%)– In lieu of inflation adjustment, allow
access to 4 more pennies each biennium without going to voters
Copyright©2007 Education Service Center Region XIII44
The Next Session4
• TASA’s solicited recommendations to Select Committee, cont’d
2) Transportation Costs– Double current allotment ($576M)
3) High School Allotment– Increase from $275 per ADA to $500 per WADA
($334M)
Copyright©2007 Education Service Center Region XIII45
The Next Session5
• TASA’s solicited recommendations to Select Committee, cont’d
4) Facility Funding– Increase IFA & EDA yield from $35 to $50
($1.2B)– Roll-forward EDA eligibility date ($150M)– Provide for additional round of IFA ($85M)
5) Technology Allotment– Increase from $30 to $50 ($180M)
Copyright©2007 Education Service Center Region XIII46
The Next Session6
• TASA’s solicited recommendations to Select Committee, cont’d
6) Small & Mid-size Adjustment– Allow Chapter 41 districts to get mid-size
district adjustment ($62M)
• Total = $7.287B for the biennium
Copyright©2007 Education Service Center Region XIII47
The Next Session7
• Also state that:
– Money from value growth should be reinvested into public school finance on top of amount needed for enrollment growth
– They support a comprehensive study on long-term needs
Copyright©2007 Education Service Center Region XIII48
Pending Issues
• M&O tax collections used in “S3” calculations may change– Will only benefit some districts
• TEA still working on:– ‘frozen levy lost’ calculations– adjustments for Tax Increment Financing
arrangements• Survey asking for more details due 7/1/08
• Not sure when all will be finalized