Some school districts in Texas with high property values could see more money this fiscal year after the Texas Education Agency decided in a sudden move to change how it interprets a complicated aspect of the state’s school finance system.
The change involves two aspects of school finance: Robin Hood, or recapture, and something called the optional homestead exemption.
Recapture is the system that requires wealthy school districts to send some property taxes back to the state to help fund poor districts. The second aspect is the local optional homestead exemption. While all Texas school districts must provide a $25,000 homestead exemption for homeowners, districts also have the option to give homeowners a 20 percent deduction on their taxable property value.
When calculating how much money wealthy districts must give back to the state, the TEA based the amount on 100 percent of home property values in that district. But when a district utilizes the 20 percent optional homestead exemption, homeowners aren’t paying taxes on 100 percent of that home’s value.
“Lake Travis ISD is actually collecting taxes on 80 percent of the value, and yet we’re paying recapture on 100 percent of the value," says Johnny Hill, assistant superintendent for business and financial services for Lake Travis ISD, one of the affected school districts. Hill says that means the district has sent property taxes back to the state that they weren’t even collecting.
“It makes sense for property wealthy school districts to pay recapture on property taxes that they’re collecting, to pay a percentage of that back to the state, but to pay recapture on property taxes that we’re not even collecting is a little frustrating," Hill says.
Previously, the TEA would only recognize 50 percent of that value loss when the Foundation Schools Program – the pot which funds Texas public education – had a surplus. But last week, the TEA sent school districts a letter saying they are changing the way they enforce the law, paying these school districts that send money back to the state for recapture and offering optional homestead exemptions starting this year. For Lake Travis, that means the state will send back about $3.5 million per year to the school district.
Overall, around $100 million will be dished out to qualifying school districts, but that money will come from the Foundation Schools Program.
The Legislative Budget Bureau estimates that pot is already expected to be $50 million short this year, and some education advocates are concerned the decision takes money from all school districts and gives it to wealthy school districts.
"We’re talking a pretty significant amount of money, even in the school finance context. It’s money that could be better spent elsewhere and more that would not be available to help rewrite the school finance formulas," says Dick Lavine with the left-leaning Center for Public Policy Priorities. "So, it's given a priority to a certain already very favored school districts and homeowners at the cost of any other students or school district[s] that may need to benefit from additional state aid."
The district that benefits the most from this policy is Houston ISD, which will keep $60 million.
"Some smart lawyer was reading the fine print," Lavine says.