The 85th Texas Legislature rightfully discussed reforms to fundamentally flawed government problems of school finance and property taxes during the 2017 regular session. Texans demand action in these areas because they have long been saddled with poor education outcomes and an overly burdensome property tax system, which ranks 14th highest nationwide. While legislators weren’t able to hash out their differences during the regular session’s normal course of order, there’s a chance to reform these problems instead of throwing more taxpayer money at them in the special session starting July 18th.
In fact, more money should be off the table. The 2018-19 budget, including the $1.8 billion in delayed transportation funds, increases by 4.46 percent above the previous budget’s appropriations, making it a Conservative Texas Budget (CTB) at stage one of the budget process. However, Table 1 shows that to sustain a CTB in stage two of the budget process, based on a 4.5 percent increase in population growth plus inflation above the 2016-17 General Appropriations Act (GAA) plus supplemental amount, the 85th and 86th Texas Legislatures must appropriate less than $2.79 billion in supplemental appropriations for the 2018-19 budget.
Regardless, the evidence shows that spending more money isn’t the answer. While advocates of more K-12 spending claim that more money will solve the school finance and property tax problems, the truth is that the state has spent more on public education in the last decade and just spending more on schools won’t solve the rising property tax burden.
School Finance Reform
There are multiple examples of resources potentially not being currently allocated in the most efficient manner to help Texas students achieve better education outcomes.
For example, in the 2015-16 school year, Texas taxpayers spent a total of $64.8 billion on public education, according to the Texas Education Agency’s (TEA) 2015-16 Financial Actual Report. In that school year, average daily student attendance at Texas’ public schools was about 5 million. As a result, Texans spent $12,960 per student, or about $260,000 for a standard classroom of 20 students. According to TEA’s 2015-16 Texas Academic Performance Reports (TAPR), the average annual salary for teachers was $51,891, resulting in only 20 percent of classroom expenditures going to fund teachers.
Another associated example of inefficiencies in public schools is the staffing surge in administrators and other staff compared with teachers. According to data from the National Center for Education Statistics for the period FY 1993 to FY 2015, the number of students has increased by 48 percent while the number of staff has increased by 61 percent. Administrators and other staff employment, not including teachers, has increased by 66 percent compared with only a 56 percent increase in teachers. Clearly, there is a growing disparity between the number of students being taught in our public schools and the number of non-teaching staff.
If public schools had increased the non-teaching staff at the same rate as its increase in students, economist Dr. Ben Scafidi notes that public schools could have saved $2.2 billion annually, increased teacher benefits by $6,318, or given 270,311 students an $8,000 education savings account for them to use those dollars for education services that best meet their needs. By putting more currently allocated dollars in the classroom, teachers can be paid more as Governor Abbott called for in his special session pitch without more taxpayer dollars.
Texas’ school finance system has a fundamental problem of not being equitable on a per-student basis whereby prior legislative efforts were designed around equity for schools rather than students. To resolve this fundamental problem, the focus should be shifted to equity for students. The Texas Supreme Court, which has dealt with school finance reform for the last 30 years, has repeatedly encouraged the Legislature to make structural reforms to the system, and did so even more forcefully in its 2016 opinion. The Foundation recommends student-centered funding through universal education savings accounts (ESAs) that allow families to best meet a child’s needs and add competition to a monopolized public school system.
Our research finds that this could increase teacher pay by as much as $28,000 and increase economic activity statewide. Empirical evidence proves that when parents are given a choice to vote with their feet, public schools improve. In the meantime, there are substantial benefits of ESAs available to students with special needs, which is what Governor Abbott called for in the special session.
Unfortunately, some argue that the state just needs to pay its fair share because of a reduction in the state’s portion of the budget to public education. But a closer look at the data tells a different story. Figure 1 shows that while the share of the state’s general revenue (GR) to public education has declined by 1.7 percent from the 2004-05 to 2014-15 budgets, expenditures have increased by 60 percent. On the other hand, Medicaid’s share of GR has increased by 12.9 percent and expenditures by 83.6 percent during this period.
Notes: Data are from the Legislative Budget Board’s Fiscal Size-Ups and represent the shares of general revenue (lines) and the expenditures in billions of dollars (bars) for either public education or Medicaid.
In other words, the decline in public education’s share of GR isn’t from less spending on schools from 2005 to 2015, but rather a greater increase in Medicaid spending. The data ends in 2015 to compare it with the latest property tax data available in the next section and there aren’t expenditures available yet for the 2018-19 budget.
Considering an apples-to-apples comparison of data available, 2018-19 GR appropriations to public education is down 0.9 percent to $41 billion (38 percent of GR) and to Medicaid is up 6.2 percent to $25.6 billion (24 percent of GR) compared with the 2016-17 GR appropriations. However, 2018-19 all funds (AF) appropriations to public education is actually up 2.4 percent to $59.9 billion (27 percent of AF) and to Medicaid is up 5.8 percent to $62.4 billion (28 percent of AF) relative to the preceding biennium. The difference in GR and all funds appropriations to public education is the amount in the Property Tax Relief Fund from increases in property tax collections that fully fund student enrollment growth.
Bottom line: Spending more money isn’t the solution to school finance because we’ve already tried that, as GR appropriations are up 68 percent and all funds appropriations are up 77 percent from the 2004-05 to 2018-19 budgets. We need real reform through ESAs so dollars can follow the child and provide the intended goal of better education outcomes.
Property Tax Reform
Despite the economic success of the Texas model of relatively fiscally conservative governance, a rising local property tax burden threatens the Lone Star State’s success. In 2015, more than 4,100 local governments levied property taxes totaling $52.2 billion, or roughly $1,900 for every man, woman, and child in the Lone Star State.
From 2005 to 2015 (latest data available), total property tax levies soared statewide by 55.9 percent. Over the same period, standard economic measures like compounded population growth plus inflation increased by just 45.9 percent. During that time, total property tax levies increased by 4.9 percent on an average annual basis. Meanwhile, Figure 2 shows that school district property tax levies statewide remained at the Foundation’s recommended trigger of a 4 percent no new tax rate to call an automatic election, while property taxes among other local jurisdictions increased at a faster pace. These growth disparities contributed to the share of total property taxes levied by school districts falling from 60.3 percent in 2005 to 54 percent in 2015.
Notes: Texas Comptroller data. Dashed line is the Foundation’s recommended 4 percent automatic rollback election rate trigger.
These data reinforce what everyone already knows—Texas’ property tax system is broken and needs an overhaul lest more people lose their homes, businesses, and futures. Fortunately, a form of Senate Bill 2 from the regular session would address this problem by providing structural property tax reform. This reform would implement a no new tax rate for cities, counties, and special purpose districts that would trigger an automatic rollback election for local voters to have more voice in the process. Moreover, increasing state spending on public education in the hopes of lower property tax burdens isn’t likely to have the intended results without structural reform such that local voters have a louder voice in the sausage-making process of higher property taxes. In addition, the House’s passed version of Senate Bill 669 would have appropriately enhanced property tax transparency.
The combination of increasing property tax transparency and adding real reform so local voters have more control over an increasing property tax burden is essential. Given these measures died during session, the Foundation applauds Governor Abbott for adding this property tax reform to the special session call.
While Texas can make structural property tax reform to marginally reduce the rising burden, the ultimate prosperity-generating reform is to eliminate property taxes in exchange for a reformed sales tax that would provide a better institutional framework for Texans to prosper. The Foundation released a paper titled The Freedom to Own Property: Reforming Texas’ Local Property Tax that outlined the problems with the property tax system and the economic and liberty-oriented reasons to replace it with a reformed sales tax. We hope Governor Abbott’s called commission on public school finance will consider this groundbreaking reform.
By considering sound solutions that provide equitable student-centered funding and a more transparent, simple property tax system, Texas can best meet the needs of each student to increase education outcomes while generating more economic prosperity for all Texans. Given that we can get past the myth that more government spending is the solution to these problems, many more parents, students, teachers, and all Texans can have more opportunities to fulfill their hopes and dreams.