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Sunday, January 09, 2005

The ABCs of School Finance: Accountability. Businesses. Children.

Accountability. Businesses. Children.
By Mike Norman
Star-Telegram Staff Writer

Over lunch last May in the family dining room at the rear of the Governor's Mansion in Austin, Rick Perry talked about the special legislative session then under way. He focused mainly on House Bill 1, the school finance bill that had received committee approval the previous weekend and was scheduled for House floor debate the next day.

Perry had staked much of his career as governor on pushing economic development and job creation, and the bill proposed a new tax on employer payrolls.

What would Perry do about that tax?

The governor pantomimed. He brought his right hand forward as if holding a large round object. With his left, he moved his thumb as if igniting a cigarette lighter. He moved the imaginary lighter near the imaginary round object as if bringing the flame to an imaginary fuse. He smiled broadly and rolled the make-believe bomb across the floor.

After lunch, Perry and his assistants boarded the governor's black Suburban and headed for a poor area of east Austin, where he announced to a waiting Capitol press corps that he would not accept what the House was about to offer. A tax on Texas jobs, he said, would be "too high a price to pay" for a new school finance plan.

Predictably, Perry's bomb blew up on the House floor the next day.

Supporters of the payroll tax railed against the governor, but the House bill was destroyed, and the special session later adjourned without finding a solution to the deep financial problems of Texas public schools.

A new Legislature convenes Tuesday, and school funding is still one of the state's most pressing problems.

In the intervening months, Perry and legislative leaders have talked. They have come to a greater understanding, they say, that some sort of new tax on Texas businesses could be used as part of the school finance solution, but its impact on jobs and economic growth must be strictly contained.

Will the 79th Legislature be the one that finally finds a better way to pay for educating Texas children, to stop the wailing among school administrators who have now gone through several rounds of budget cuts and layoffs?

There's a chance. But there are mountainous obstacles to climb before reaching that goal. There is reason to wonder whether the solutions that have been discussed are right for the state. And there is a real lack of accountability for the ways that schools spend the money they have now.

The discussions of a new business tax -- possibly a revised and expanded franchise tax covering a broader base of businesses at a significantly lower rate -- show that, despite Perry's agreement to consider the idea, hazards and unknowns still loom large.

It's crucial to point out that, as those discussions have gone, additional money raised from that broader tax is not being thought of as new revenue for schools. Rather, the state's elected leaders want to see local school property tax rates significantly reduced, and the additional business tax money would be used to pay for that reduction as an even, dollar-for-dollar trade. Any new money for schools would have to come from other sources.

Early last year, the discussions in Austin centered on cutting local school maintenance-and-operations property taxes in half, from their current maximum rate of $1.50 per $100 of valuation to 75 cents. But balancing each 10-cent cut in those rates would require raising about $1 billion a year from other sources. A 75-cent cut would require $7.5 billion in replacement revenue.

Could the Legislature approve a new tax that would reach into corporate bank accounts and business cash registers across the state and lift out an additional $7.5 billion a year? Not a chance.

Talk shifted to a 50-cent property tax cut. Some in Austin still favor that figure, but others balk at snatching the balancing $5 billion away from businesses. Those who are reluctant to go for 50 cents favor a 30-cent or 35-cent property tax cut and raising $3 billion or $3.5 billion in balancing money from a business tax.

That's where gambling revenue enters the picture. Some of those who favor gambling machines at race tracks and other venues across the state -- there's also a growing movement to scrap that idea in favor of full casino gambling -- say that there's at least $1 billion to $1.5 billion in it to balance out additional property tax relief.

But where's the money for schools? Didn't this discussion start out focusing on finding more funding for public education?

A state district judge in Austin now has ruled that the current school finance system is unconstitutional -- that it does not provide enough money to meet state educational requirements. He also said that, during the past decade, too many of Texas' 1,000-plus school districts gradually have been forced to raise taxes to the maximum $1.50 rate in an attempt to meet state requirements, effectively making that tax cap an unconstitutional state property tax.

To find new money for schools, elected leaders have focused on other tax increases -- a $1-per-pack increase in the cigarette tax, and maybe a small increase in the state sales tax.

But in the months since the special legislative session last spring, other funding crises in state government have become apparent.

Children and elderly people who have died should have come under the guardianship of understaffed state Child Protective Services and Adult Protective Services operations. Underfunding of the Children's Health Insurance Program is a continuing problem. Other issues, like the growing cost of caring for an aging prison population, are on the horizon.

The potential sources of new revenue for schools -- a cigarette tax increase, an increase in the sales tax -- now are being seen as the way to find money to help address these other growing needs.

So where is money for schools to come from, or what's another source of funds to solve these other problems?

The Legislature's last major solution for school funding was crafted almost 12 years ago, and the current problem is one that has grown steadily since then. Any new solution should involve a source of funds that will grow in the future as school enrollment continues to grow and costs expectedly escalate.

A business tax, at a low-enough rate to allow continued economic growth, fits that bill. But if there is also firm determination in Austin to reduce local property taxes (and there is), new revenue from a business tax can't be restricted to only balancing a property tax cut.

A smaller property tax cut and/or a slightly higher rate on the business tax would provide the steady, growing source of income needed for schools and leave things like the cigarette tax and sales tax for other pressing state needs.

But if the people who run Texas businesses are to be asked to help fund the state's public schools, they deserve to be able to keep a close watch on how their money is used.

The financial controls currently in place for schools fall far short of providing the kind of accountability that Texans and the state's businesses should expect.

The current system distributes in excess of $30 billion a year among more than 1,000 school districts to educate some 4.3 million students. Despite the dollars involved and the vital importance of public education to the state's future, there is virtually no statewide system to help ensure that those school districts spend money in ways that can be most expected to produce the best results in helping students to learn.

To use recent, extreme examples, what Texas has instead is a system that allows people to steal $10 million from the Fort Worth school district and to run a district like Wilmer-Hutchins into deep financial trouble.

More subtle, but perhaps more costly, are day-to-day operations at thousands of schools that could be improved if educators knew where to look for overspending or how to do things that other educators already are doing to achieve greater educational results at lower cost.

Texas does not have a way to spotlight the best practices among its more than 7,000 school campuses and 200-plus charter schools -- to find proven ways of most effectively and efficiently using available money to help hard-to-educate kids learn or at-risk kids to graduate -- and then to spread those best practices to other schools across the state.

School boards decide their own spending patterns every year when they adopt a budget, reinventing the wheel each time.

The state does not properly reward its best teachers or its best schools. It holds a wealthy district like Southlake Carroll, with relatively few educational challenges among its student body, up as "exemplary." But it does not fully recognize the achievements of districts like some in the Rio Grande Valley that have made cost-effective achievements in teaching economically disadvantaged kids.

This the Legislature must change.

A new tax on businesses could be the brightest hope for the future of Texas public education funding. But there should be new checks on school spending, new ways to help schools be educationally effective but financially efficient.

A sound financial accountability system should be part of any new school funding plan.

SCHOOL FINANCE GLOSSARY

Want to understand the lingo used by legislators, educators and other experts when discussing the Texas school finance system? Here's a list of terms:

Accountability

The system of standardized tests, measurements of attendance and dropout rates and other requirements used to compare the performance of schools and school districts with state-set norms.

Adequacy

The point at which the school finance system delivers the amount of money necessary to pay for the education of students to the level required by the state -- no more and no less.

Adequate Yearly Progress (AYP)

An accountability standard required by the federal No Child Left Behind (NCLB) Act. All public school campuses, school districts and the state are evaluated for Adequate Yearly Progress in reading/language arts, mathematics and either graduation rated (for high schools and districts) or attendance rates (for elementary, middle and junior high schools).

Capacity

The ability of the school finance system to raise the amount of money necessary to meet education standards.

Chapter 41 districts

School districts that, under Chapter 41 of the Texas Education Code, have a level of property wealth per student that exceeds a state-set limit. These districts must surrender a portion of their property tax revenue to help educate students in less wealthy areas.

Chapter 42 districts

School districts whose property wealth per student is so low that they must be given additional money to reach the minimum revenue level guaranteed by the state.

Constitutional requirement

Years of litigation and legislative debate about school funding have revolved around the Texas Constitution's Article 7, 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."

Cost of Education Index

A method devised by researchers at the University of Texas at Austin's Dana Center to measure what it takes to buy the basic necessities for an education system -- chiefly, what it takes to hire and retain qualified teachers -- and to compare those costs across the diverse areas of Texas.

Economically disadvantaged

Students whose family income is so low that they qualify for federal free- and reduced lunch programs. In general, these students are seen as facing learning challenges not faced by wealthier students. Their scores on standardized tests are studied separately from those of other students to make sure that economically disadvantaged students are being given the help they need to meet educational goals.

Edgewood

The San Antonio school district where, in May 1968, 400 students and parents marched in protest of dilapidated schools, underpaid teachers and funding that was far short of that in neighboring districts. Their protest led to a series of lawsuits -- first with an unsuccessful suit in federal court, then with a first suit filed in Texas courts in 1984 -- and rulings that the state's funding system for public schools was unconstitutional.

The rulings from the Texas Supreme Court (Edgewood I on Oct. 2, 1989; Edgewood II on Jan. 22, 1991; Edgewood III on Jan. 30, 1992; and Edgewood IV on Jan. 30, 1995) recognized that a school finance system based on local property taxes meant that property-wealthy districts could set low tax rates and still have all the money they needed, while property-poor districts were forced to tax at high rates just to reach inferior funding levels.

Court rulings set an equity standard saying that, though state help is necessary, "districts must have substantially equal access to similar revenues per pupil at similar levels of tax effort." In Edgewood IV, that standard was altered to say 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."

Equalized wealth

The system that limits access to wealth in rich districts and provides extra money to poor districts in order to provide roughly equal levels of per-student funding.

Gap districts

School districts that are neither poor enough to receive funding from the state to supplement local property tax revenue nor so wealthy as to be required to give up local tax revenue to help educate students elsewhere.

Gilmer-Aiken law

A 1949 overhaul of the Texas school finance system. The law provided a guaranteed minimum amount of money per student, funded 80 percent by the state and 20 percent through local taxes.

Guaranteed yield

A promise by the state -- and backed by state funds -- that a school district, no matter what its property wealth, will have available to it an amount of money for each penny on its property tax rate. For 2003, the guaranteed yield was $27.14 per student for each penny on the local tax rate.

Hold harmless

Provisions in school finance legislation aimed at devoting extra money to some school districts that would otherwise suffer a loss of revenue.

Local enrichment

Educational programs provided at the local level that are not required by the state. Money to pay for local enrichment programs may be provided completely by the local district, or it may be "equalized" (all or part paid by the state so that property-poor districts can afford some of the same programs as wealthy districts).

Meaningful discretion

From the Jan. 30, 1995, Edgewood IV decision, then-Justice John Cornyn writing for the Texas Supreme Court, regarding the maximum $1.50 tax rate for school district operations and maintenance: "However, if the cost of providing for a general diffusion of knowledge continues to rise, as it surely will, the minimum rate at which a district must tax will also rise.

"Eventually, some districts may be forced to tax at the maximum allowable rate just to provide a general diffusion of knowledge. If a cap on tax rates were to become in effect a floor as well as a ceiling, the conclusion that the Legislature had set a statewide ad valorem tax would appear to be unavoidable because the districts would then have lost all meaningful discretion in setting the tax rate."

National Assessment of Educational Progress

Sometimes called the nation's report card, a system of standardized tests administered by the U.S. Department of Education's National Center for Education Statistics. In 2003, participating states including Texas administered mathematics and reading tests to a sampling of students in the fourth and eighth grades. In 2002, writing tests were administered to students in those same grades.

No Child Left Behind (NCLB)

The 2000 national education law that requires all states to set up programs of standardized tests in reading/language arts and mathematics and to meet standards for graduation and attendance rates.

Recapture

The feature of the school finance system that requires property-wealthy districts to give up part of their local property tax revenue to help educate students in property-poor districts. Because school districts are created by the Legislature, courts have ruled that the money they raise is an extension of state revenue. The school finance system thus "recaptures" part of this money to be used for state purposes.

Recommended High School Program

The college-preparatory curriculum in Texas high schools. Beginning with the 2004-2005 school year, students entering the ninth grade are expected to complete the recommended program or the more advanced Distinguished Achievement High School Program in order to receive a diploma. Some may opt for the less-demanding Minimum High School Program.

Robin Hood

The popular name for the school finance law (Senate Bill 7) passed by the Legislature in 1993. The name usually refers to the provision of that law that requires property-wealthy school districts to give up part of their property tax revenue to help educate students in property-poor districts.

State property tax

Forbidden under Article VIII, Section 1-e of the Texas Constitution. In Edgewood III, the Texas Supreme Court set out a test to determine whether a property tax should be defined as an unconstitutional state tax: "An ad valorem tax is a state tax when it is imposed directly by the State or 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."

Student-teacher ratio

A key provision of 1984's House Bill 72, which limited class sizes in kindergarten through fourth grade to no more than 22 students. School districts that wish to exceed that limit must inform the parents of the students and must obtain a waiver from the state education commissioner.

WADA (Weighted Average Daily Attendance)

A measurement of a school district's student enrollment. Under this measurement, students who fit into categories (such as those having learning difficulties, those who need bilingual education, those who are deemed gifted or talented) are recognized as costing more to educate and are given a "weight," so that each counts as more than a single student for funding purposes.

Compiled by Star-Telegram/Northeast Editorial Director Mike Norman, (817) 685-3870
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