Help! Please explain confusing school finance
Texas public school finance remains as complicated as ever.
Schools operate from local property tax revenue, state monies and some federal funding. However, the state funding formula is the most maddening by far.
The Hood County News asked Granbury school district Assistant Superintendent for Finance and Operations Dobie Williams to explain this year’s financial picture, including taxes, spending and revenue.
What is the projected local tax revenue this year compared to last year?
This is an increase of $1,653,836 in overall local tax revenue from last year ... but see answers below before you digest this.
What is the projected total spending this year compared to last year?
This is a decrease of $583,561 in overall spending from last year.
Even with the 7-cent tax rate cut, it appears that many property owners, if not most, will be paying higher taxes. The public notice ad shows the average homeowner will be paying $260 more.
Yes, the average homeowner will be paying more taxes because the 7-cent reduction in the M&O (maintenance and operation) tax rate does not offset the large increase in most homeowners’ values.
Could a fair argument be made that with increased/ new property values and less state recapture (amounting to a $7 million increase from the state?) the school could have cut the tax rate more … perhaps much more to give taxpayers relief?
An argument could be made, but it wouldn’t be a fair argument ... because you would only be taking into consideration some of the factors impacting revenue and recapture and not taking into consideration all the factors.
For instance, even though the state reduced our recapture by approximately $7.33 million for 19-20, they also decreased state revenues by approximately $3.4 MM for 19-20.
It should be noted that the $7.33 million reduction is based on actual projected recapture, not budgeted recapture, to be paid for 18-19 less projected recapture to be paid in 19-20.
And the 3.4 million reduction in state revenues is also based on actual projected state revenues, not budgeted state revenues.
So even though we are collecting $1.65 million more in local tax revenues for 19-20, it doesn’t offset the reduction in state revenue for 19-20, resulting in a net loss in overall revenue of $1.74 million (see calculation below).
And keep in mind, even though the state reduced recapture for GISD for 19-20, it was not eliminated. We will still be sending back an estimated $1,006,186 in recapture to the state for 19-20.
Increase in local tax revenue for 19-20
Reduction in state revenue for 19-20
In addition, HB3 required school districts to increase salaries for teachers and other school employees. This increase in salary costs offset the remainder of the reduction in recapture for the most part.
I’ve heard from school folks that it’s the appraisal district driving the high taxes, not the school district. I don’t agree with that. The school has the power to adjust the tax rate accordingly.
I don’t consider the appraisal district to be what is driving taxes higher. But the rising home values reported by the appraisal district are driving taxes higher. And to be fair to the appraisal district, they are just doing their job.
They are held to a valuation standard by the state to report as close to market value as possible. And I’ll also say that the values reported by the appraisal districts across the state are almost always less than actual market values.
If they don’t report values within a certain standard set by the state then there are repercussions from the state for undervaluing property.
And I’ll also say that in a perfect world, as property values increase, tax rates would decrease proportionately, as you seem to be suggesting.
But unfortunately a perfect “tax” world doesn’t exist when you are a property wealthy school district a.k.a. Chapter 49 District (previously called Chapter 41 prior to HB3).
And as a property wealthy school district, we are required to maintain a tax effort sufficient to meet the recapture requirements imposed upon us by the state.
But that aside, and considering the above information, if we adjust our M&O tax rate “accordingly” as you suggest, and pay recapture as the state mandates, we would not be able to balance our M&O budget.
And adopting a deficit budget is not something we care to do, or should do ... at least not for very long as we would eventually run out of fund balance. In addition, keeping the I&S (interest and sinking) tax rate the same allows the school district to reduce overall debt by using surplus revenues to prepay bonds and reduce interest paid over the long term.
And lastly, and perhaps more importantly, keeping the I&S tax rate the same allows the school district to maintain bonding capacity at a level that is sufficient to fund future facilities construction/renovation needs without having to ask voters to approve a higher tax rate.
In other words, by maintaining the current I&S rate the district will have enough bonding capacity to build a new campus when needed and perhaps add on or make renovations to existing campuses as needed ... all without having to raise the I&S tax rate.
And with the enrollment growth we are experiencing, that time will be here sooner than later.
And to keep the impact of lowering the tax rate in perspective, keep in mind that lowering the tax rate 1 cent only reduces the annual taxes by $10 (or 83 cents per month) on a $100,000 home.
So with that all said, and to sum it up, maintaining the M&O tax rate of 97 cents (as mandated by HB3) allows the district to adopt a balanced M&O budget that includes a recapture payment as well as HB3 mandated raises for teachers and other staff.
In addition, maintaining the I&S tax rate at the same level as last year, 15.5 cents, allows the district to use surplus revenues generated to pay off I&S debt early, lowering overall dept and substantially reducing the amount of interest paid over the long term.
This of course ultimately benefits taxpayers.
Maintaining the current I&S tax rate also allows the district to maintain bonding capacity sufficient to meet future facility construction needs without having to ask taxpayers to increase the tax rate (and increase their tax burden) in order to fund future projects.
In a nutshell, reducing the I&S tax rate by 1 cent reduces the district’s bonding capacity by approximately $12 million assuming moderate property value growth.
And to restate from above, lowering the tax rate 1 cent only reduces the annual taxes by $10 (or 83 cents per month) on a $100,000 home.
In addition, the current rate of 1.125 adopted by GISD for 2019-20 is a full 2 cents lower than the overall rate was prior to the 2013 bond being passed.
The district’s financial advisers, BOK Financial, will be presenting to the board in November on bonding capacity and what the best options are for the district to prepay debt and save interest. Ultimately, they will help the district determine what will be the most financially advantageous and fiscally prudent thing to do given the current market and projected growth in enrollment.
Basically, everything the state does in regard to school finance is like a shell game. It has the appearance of one thing ... but in reality it can be, and usually is, something totally different.
You can’t just look at one or two parts of the school finance equation ... you have to look at it and consider it in its entirety to get an accurate picture.
And in regard to not lowering the tax rate more, we always try to do what is best for our students while doing the best we can to be fiscally responsible and good stewards of taxpayer dollars.
I would venture to say that the majority of school employees are homeowners and pay property taxes just like everyone else in Pirate Nation. And I think I can speak for all of us when I say, we don’t want to pay high property taxes any more than anyone else.
And my last thought…. GISD still remains one of the lowest taxing school districts in the area, perhaps in the Metroplex and the state. Here are some 2019-20 tax rates (see chart) recently adopted by school districts in the area that I was able to pull from their websites. The only one lower that GISD is obviously Glen Rose. And with the nuclear power plant on their tax roll coupled with their lower student enrollment numbers, I doubt we will ever be able to get lower than Glen Rose ... at least not under the current school finance plan.