What Happens if There's No School Finance Bill?

Nobody wanted to think about it in January. But as the middle of May approaches, with little more than two weeks left in the 82nd legislative session, a growing chorus of voices is asking: What happens if lawmakers can’t agree on school finance reform?

Proposals in both the House and Senate have stalled. In the upper chamber, Sen. Florence Shapiro, R-Plano, needs one more Democrat to assemble the necessary two-thirds vote to get her bill heard on the floor. On the west side of the dome, Rep. Scott Hochberg, D-Houston, concedes that as a stand-alone bill, his proposal is dead. He says he’ll try to attach it as an amendment to another piece of legislation — something Shapiro could also try.

Whether the final budget ends up closer to the House or Senate versions, both proposals are contingent on passing school finance legislation that distributes $4 billion to $8 billion in cuts across the state's public school districts. Current law obligates the state to maintain a certain funding level; that statute needs to change to reflect what lawmakers are calling the “new reality” of a significantly smaller state budget. Many hoped the Legislature would use the opportunity to enact reforms to the patchwork system, too.

Lawmakers may have to strip that contingency language if they want an overall state budget approved. That would likely result in a special session devoted to hammering out acceptable legislation. But there’s increasing support for another, more radical approach: doing nothing.

Each option currently on the table contains elements that factions in the education community find difficult to stomach. For many across the spectrum, it may be that limping along under the current system until the next legislative session is preferable to the deep funding cuts and permanent policy changes that a new bill would bring.

Hochberg’s HB 2485 focuses the cuts on districts with high “target revenue” — the number based on how much a district could raise with its own tax base in 2006 that the state promised to meet when it compressed property taxes that year. These districts have enjoyed artificially high funding since then. (When the bill hits the floor as an amendment, that could change; Hochberg said Tuesday that he was working with House Public Education Committee Chairman Rob Eissler, R-The Woodlands, to make modifications that would ensure no district suffered more than a 10 percent cut.) It also would increase the amount of local tax revenue subject to “recapture” by the state through Robin Hood laws. Both of those features make the bill unpopular with property wealthy districts.

“After Shapiro’s bill, no bill would probably be our second choice,” said Kevin Brown, the superintendent of San Antonio’s Alamo Heights ISD and chairman of the Texas School Coalition, an organization that represents property wealthy schools.

His district is considering an election to raise property taxes to ease the pain of state funding cuts. If Hochberg’s bill passes, he said, it would be politically nonviable to ask voters to pay more locally when 50 percent of that revenue would go back to the state through recapture.

Poorer districts and their advocates, like the Equity Center, an Austin-based research and lobbying association, don’t like Shapiro’s SB 22 for the opposite reason. They contend it starts cutting from the bottom up to avoid making drastic cuts to wealthier schools. And for them, doing nothing is preferable to accepting a bill they say will only perpetuate existing inequities.

So what would doing nothing look like? Without legislation that provides a mechanism to allocate the billions of dollars in cuts, the state would have to pay districts under existing law. That would mean borrowing from the second year of the biennium to fully fund the first year. When the money dwindles in the second year, Commissioner of Education Robert Scott would have to ask the Legislative Budget Board to tell the Legislature to vote on using the Rainy Day Fund to fill in the gap. He also has the authority to decompress property tax rates, which would allow school boards to make up the difference in state funding with local revenue.

The former is the expected choice — an appointee of Gov. Rick Perry isn’t likely to endorse a property tax hike — and it would probably happen when the 83rd Legislature, which meets in 2013, is up and running. Tapping the Rainy Day Fund in that situation would require approval from three-fifths of the House and Senate. If they decided not to access the fund, Scott would distribute what’s left of state money through what’s called proration, which would proportionally allocate funding according to districts’ statewide property value, with the idea that the state would pay back its share during the next budget cycle. That could potentially leave districts under proration for only a few months. Or he could opt for a combination of decompressing tax rates and proration.

There are serious drawbacks to avoiding school finance legislation, said veteran school finance expert Lynn Moak, who runs the consulting firm Moak, Casey & Associates. The 1993 statute governing proration, he said, addresses scenarios in which the state comes up short by relatively small amounts in the second year of the biennium and isn't designed for a multibillion-dollar reduction.

“It wasn't written against the background that we intentionally screw things up by not having a school finance bill and appropriations bill that match,” he said. “It never visualized the kind of situation we're talking about."

There is also uncertainty as to how proration would work with target revenue and the “hold harmless” guarantee the Legislature made to districts with the 2006 property tax reduction. “We haven’t done this since property tax relief funding, and statutes on proration and relief weren't written together,” Moak said.

Others argue opting for the proration route is just kicking a $7.8 billion can down the road. “[Proration] is not a plan; it’s a placebo,” said Jackie Lain, associate executive director of the Texas Association of School Boards. While neither of the school finance plans is “terribly appealing” because they distribute such deep cuts, she said they are still better alternatives to proration, which she believes will have unintended consequences.

Under the statute, districts get what amounts to an IOU from the state, but the Legislature could change that requirement during the next legislative session and leave districts with the bill. And according to a recent policy memo from the LBB prepared for state Sen. Wendy Davis, D-Fort Worth, the burden of proration would fall on districts with lower property wealth — though lawmakers could conceivably tweak the law to address that and the target revenue issue in a budget conference committee or with an amendment to a fiscal matters bill. 

Meanwhile, both Shapiro and Hochberg said they remain hopeful about the prospects of school finance legislation.

“I am the eternal optimist,” Hochberg said.

And Shapiro: “The lines of communication are wide open, that’s the best part.”