TEXAS SCHOOL FINANCE: WHERE DO WE GO FROM HERE?

Presented by: David Thompson

Thompson & Horton LLP

May 19, 2014

TEXAS TAXPAYER & STUDENT FAIRNESS COALITION, et al., Plaintiffs, VS. MICHAEL WILLIAMS, et al., Defendants. Consolidated Case FORT BEND INDEPENDENT SCHOOL DISTRICT, et al., Plaintiffs, VS. MICHAEL WILLIAMS, et al., Defendants.

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CAUSE NO. D-1-GV-11-003130

IN THE DISTRICT COURT OF TRAVIS COUNTY, TEXAS 250th JUDICIAL DISTRICT

OVERVIEW OF TEXAS SCHOOL FINANCE LITIGATION

Court Decision Legislative Response

San Antonio ISD v. Rodriguez, 411 U.S. 1 (1973) House Bill 1126 (1975)

House Bill 72 (1984)

Edgewood I, 777 S.W.2d 391 (Tex. 1989) Senate Bill 1 (1990)

Edgewood II, 804 S.W.2d 491 (Tex. 1991) Senate Bill 351 (1991)

Edgewood III, 826 S.W.2d 489 (Tex. 1992) Proposition 1 (1993) – voted down

Senate Bill 7 (1993)

Edgewood IV, 917 S.W.2d 717 (Tex. 1995) System Found Constitutional

West Orange-Cove CISD v. Alanis, 107 S.W.3d 558 (Tex. 2003) (WOC I) None

West Orange-Cove CISD v. Neeley, 176 S.W.3d 746 (Tex. 2005) (WOC II) House Bill 1 (2006)

House Bill 1 and House Bill 4 (2011)

Senate Bill 1 and House Bill 102S (2013)

Figure 2. Annual Growth in Public School Enrollment: 2007-08 through 2011-12 Source: TEA AEIS database, various years. PEIMS membership counts for 2011-12.

Enrollment 2007-08 2008-09 2009-10 2010-11 2011-12

Total Public School Enrollment 4,651,516 4,728,204 4,824,778 4,912,385 4,978,120

Charter School Enrollment 89,829 102,491 119,137 133,697 154,278

Percent Charter School Enrollment 1.9% 2.2% 2.5% 2.7% 3.10%

Low Income/Economically

Disadvantaged 2,572,093 2,681,474 2,848,067 2,909,554 3,008,464

Percent Low Income/Ec. Disadvantaged 55.3% 56.7% 59.0 59.2% 60.4%

English Language Learners 774,719 799,801 815,998 830,795 837,536

Percent English Language Learners 16.7% 16.9% 16.9% 16.9% 16.8%

White 1,619,426 1,608,515 1,607,212 1,531,757 1,520,320

Percent White 34.8% 34.0% 33.3% 31.2% 30.5%

Hispanic 2,193,345 2,264,367 2,342,680 2,468,574 2,530,789

Percent Hispanic 47.2% 47.9% 48.6% 50.3% 50.8%

African American 663,705 669,371 676,523 635,400 637,934

Percent African American 14.3% 14.2% 14.0% 12.9% 12.8%

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Figure F-2 Pre-K – 12 Public Education Revenue per Student, in 2004 Dollars

$7,128 $7,415

$6,816

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pre-K through 12 Public Education Revenue per Student

Federal State Local

Source: MCA Analysis of Figure 181 from LBB Fiscal Size-Up and Moak, Casey & Associates estimates for

2014 and 2015. Adjusted for payment delays and enrollment.

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Ex. 6618

82nd Texas Legislature (2011) Cuts in State Spending

HB 1 and HB 4

Total - $15.2B

Public Education - $5.4B

FSP - $4B

Other $1.4B

HHS - $3.1B

Higher Education - $1.3B

Medicaid underfunded - $4+B

83rd Texas Legislature (2013) Increased Pub Ed Funding

SB1 and HB1025

FSP increase - $3.4B

SB1 - $3.2B

HB1025 - $201.7M

Grants & Allotments - $292M

Growth in Property Values

FSP increase - $1.4B

Net FSP State increase - $2B

Figure F-4. Increased Appropriations for Public Education for the 2014-2015 State Fiscal

Biennium (Amounts in Billions)

Element

Legislated

Increases

General

Revenue

Impact Other Funds

FSP Formula Increase $3.40 $1.63

ISD Property Value

Growth $3.77

Enrollment Growth $2.20 Property Tax Relief Fund $0.20

Other Programs (e.g. IMA, SSI,

Pre-K) $0.29 $0.09 PSF Payment $0.20

TRS – FY 15 Revenue Offset $0.33 $0.33

Total $6.22 $2.05 $4.17

Source: MCA Analysis of SB 1 and HB 1025 Appropriations for the 2014-15 Biennium

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Figure F-12. Comparison of Impact of 2010-11 Formulas to Formulas in Effect in 2013-14 and 2014-15

2013-14 2014-15

Bet

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Off

# Districts 533 604

# WADA 3,265,725 3,715,204

% WADA 53.7% 61.1% W

ors

e

Off

# Districts 488 417

# WADA 2,813,410 2,363,976

% WADA 46.3% 38.9%

Source: Moak, Casey & Associates litigation model

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Ex. 6618

TEXAS CONSTITUTIONAL PROVISIONS

• ARTICLE VII, SECTION 1

-A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools.

• ARTICLE VIII, SECTION 1-e

- No State ad valorem taxes shall be levied upon any property within this State

• MUST provide an adequate and equalized funding system that provides for a general diffusion of knowledge and allows districts to meet State curriculum, assessment, and other legal requirements

• MAY rely, in part, upon local property taxes to fund the system

• MAY NOT rely so heavily upon local property taxes that system operates as a State property tax

Supreme Court on State Property Tax

Meaningful Discretion

“An ad valorem tax is a state tax … when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion.”

Need for Local Supplementation

• Local Districts must be able to provide local supplementation to fund programming beyond state educational requirements.

• “The State cannot provide for local supplementation, pressure most of the districts by increasing accreditation standards in an environment of increasing costs to tax at maximum rates in order to afford any supplementation at all, and then argue that it is not controlling tax rates.”

Supreme Court on Efficiency

• “Constitutional efficiency under article VII, section 1 requires only that districts must have substantially equal access to funding up to the legislatively defined level that achieves the constitutional mandate of a general diffusion of knowledge. ” • “The effect of [holding otherwise] is to ‘level down’ the quality of our public school system, a consequence which is universally regarded as undesirable from an educational perspective.”

Supreme Court on Adequacy

•There is “substantial evidence . . . that the public education system has reached a point where continued improvement will not be possible absent significant change.”

•Characterized the situation as “an impending constitutional violation.”

•Warned that it remains to be seen whether Legislature will reverse the “predicted drift toward constitutional inadequacy.”

Supreme Court on Arbitrariness

• “It would be arbitrary, for example, for the Legislature to define the goals for accomplishing the constitutionally required general diffusion of knowledge, and then to provide insufficient means for achieving those goals.”

Supreme Court on Suitability

• “[T]he Legislature may [not] define what constitutes a general diffusion of knowledge so low as to avoid its obligation to make suitable provision imposed by article VII, section 1.”

• “‘[S]uitable provision’ requires that the public school system be structured, operated, and funded so that it can accomplish its purpose for all Texas children.”

Figure 58. Scatter Plots of the Relationship between Performance and Percent Economically Disadvantaged

R² = 0.5736

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% Commended - Math

2010-11 % Economic Disadvantaged vs. %

Commended - MathDistricts > 1,000 ADA

R² = 0.6097

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40

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120

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% E

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% At or Above Criterion - SAT/ACT

2010-11 % Economic Disadvantaged vs. % At or Above

Criterion - SAT/ACT

Districts > 1,000 ADA

R² = 0.6291

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40

60

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100

120

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% E

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% Commended - All

2010-11 % Economic Disadvantaged vs. % Commended -

ALL

Districts > 1,000 ADA

R² = 0.7567

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150

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% Commended - Reading

2010-11 % Economic Disadvantaged vs. % Commended -

Reading

Districts > 1,000 ADA

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Moak, Casey & Associates Exhibit 6620

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Figure 59. WADA Index and Revenue per WADA under the 2010-11 Current Law Definition of WADA, Districts > 1,000 ADA Source: Moak, Casey litigation model. Districts with less than 1,000 ADA were excluded from this formula.

Performance Measure

Current Law

# Districts # ADA # WADA WADA Ratio Revenue per WADA

District Rating

Unacceptable 15 35,360 51,067 1.4442 $5,495

Acceptable 271 2,509,239 3,367,847 1.3422 $5,645

Recognized 182 1,582,587 2,050,021 1.2954 $5,801

Exemplary 10 78,823 91,488 1.1607 $6,474

% Commended - Math

< 20% 97 353,153 500,365 1.4169 $5,596

20% to < 30% 257 2,296,522 3,111,911 1.3551 $5,593

30% to < 40% 83 966,646 1,229,553 1.2720 $5,835

40% and Greater 41 589,687 718,594 1.2186 $6,115

% Satisfactory on 2012 STAAR five tests

<= 40% 198 1,740,074 2,399,798 1.3791 $5,592

41% to 52% 133 1,023,584 1,361,689 1.3303 $5,693

53% to 64% 102 988,226 1,250,037 1.2649 $5,757

65% and Greater 45 454,125 548,898 1.2087 $6,207

STATE TOTALS 478 4,206,008 5,560,423 1.3220 $5,714

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Figure 57. Relationship Between Percent Economically Disadvantaged and 2011 Revenue per WADA Source: Calculated by MCA from TEA files.

% Economically

Disadvantaged ADA WADA FSP Revenue

Revenue per

ADA

Revenue per

WADA

Under 10% 30,219 34,415 $225,853,345 $7,474 $6,563

10% to under

30% 570,856 697,294 $4,244,405,813 $7,435 $6,087

30% to under

50% 808,325 1,020,791 $5,892,091,212 $7,289 $5,772

50% to under

70% 1,276,001 1,698,012 $9,635,063,254 $7,551 $5,674

70% to under

90% 1,298,873 1,793,660

$10,022,020,91

0 $7,716 $5,587

90% and over 221,735 316,250 $1,755,071,075 $7,915 $5,550

Grand Total 4,206,008 5,560,423

$31,774,505,60

9 $7,555 $5,714

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Figure 5. Percent of Total ADA Enrolled in Districts with Property Wealth less than $350,000 Source: Moak, Casey & Associates calculations using Texas Education Agency data.

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50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

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DA

Districts With Wealth per ADA < $350,000

Ex. 6621

Figure 6. Total Existing Debt Allotment (EDA) Funding by Year Source: Modified from Texas Education Agency, EDA One-Pager, July 2011; 2010-11 through 2012-13 from TEA data extract received on 10-4-13.

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School

Year

# of EDA Eligible

LEAs

# of EDA Funded

LEAs

Total EDA

State Share

Total EDA

Local Share

Total EDA State

and Local Share

EDA State

Share as % of

Total

2000-01 600 534 $480,242,769 $ 897,603,315 $ 1,377,846,084 34.9%

2001-02 644 551 539,788,446 1,183,376,201 1,723,164,647 31.3%

2002-03 702 521 455,155,033 1,226,556,913 1,681,711,946 27.1%

2003-04 717 537 486,959,078 1,560,216,354 2,047,175,432 23.8%

2004-05 713 525 430,222,458 1,594,438,586 2,024,661,036 21.2%

2005-06 736 525 497,898,307 1,882,626,803 2,380,525,110 20.9%

2006-07 728 488 438,309,519 2,017,823,390 2,456,132,909 17.8%

2007-08 779 471 446,922,771 2,509,588,056 2,956,510,827 15.1%

2008-09 778 446 345,011,861 2,746,052,878 3,091,064,739 11.2%

2009-10 801 431 305,043,562 3,300,006,723 3,605,050,285 8.5%

2010-11 728 403 295,899,668 2,530,290,449 2,826,190,117 10.5%

2011-12 754 408 346,180,773 2,613,123,840 2,959,304,613 11.7%

2012-13 (est.) 742 402 320,992,828 2,604,288,112 2,925,280,940 11.0%

Ex. 6621

I&S Tax Rate Changes

• Enrollment growth and slippage in state funds have put increased pressure on I&S tax rates

• Current school district count of 1,021 districts levying property taxes held constant for 1999-2000 through 2012-13

• 1999-2000 • 665 districts levied I&S taxes

• 34 districts: $0.30 or above

• 7 districts: $0.40 or above

• 2012-13 • 821 districts levied I&S taxes

• 225 districts: $0.30 or above

• 94 districts: $0.40 or above

• Based on Comptroller’s Office self-report tax-rate data

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Table 1.3

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Table 1.6

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Figure F-17. M&O Tax Rates for Texas School Districts 2007-08 and 2012-13

M&O Tax Rate

# Districts

2007-08

%

Districts

2007-08

ADA

%

ADA

# Districts

2012-13

%

Districts

2012-13

ADA

%

ADA

<$1.00 98 9.55 165,709 3.92 54 5.29 80,452 1.78

$1.00 to <$1.04 108 10.53 994,860 23.52 39 3.82 292,556 6.46

$1.04 699 68.13 2,680,939 63.38 607 59.45 3,046,938 67.29

$1.04 to <$1.17 24 2.34 217,130 5.13 74 7.25 505,855 11.17

$1.17 and

Above 97 9.49 171,294 4.05 247 24.19 602,429 13.30

Total 1,026 100 4,229,933 100 1,021 100 4,528,231 100

Source: Moak, Casey & Associates data files (original source data from the State Comptroller of Public

Accounts Self-Report Property Value File and TEA reports of student counts by district)

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Table 2.4

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STATUS OF LAWSUIT

February 4, 2013 – Judge Dietz orally rules that

system violates Texas Constitution

June 19, 2013 – Judge Dietz grants Motion to Re-

Open Evidence

January 21, 2014 – Trial resumed for 3 weeks

June 2014 – Expect Final Written Decision?