News that Tarrant County experienced a healthy growth in property values has prompted some taxpayers to call or email local school officials with a straightforward pocketbook question: Am I going to see a cut in my school tax rate?
The answer is probably not. Blame that on Texas’ complicated funding system, school leaders said this week.
“There is no way we could go in and try to lower taxes and try to manage services for the kids that are coming,” said Jim Chadwell, superintendent of Eagle Mountain-Saginaw schools, which has little in the way of a commercial property tax base and is adding about 450 students a year — the equivalent of an elementary school.
Under Texas’ funding system, school districts lose state aid when property values go up. That dynamic, combined with deficits, funding cuts and a software glitch in the Tarrant Appraisal District’s system last year that caused millions of dollars to be left off the books in 2015, makes tax rate cuts unrealistic for school budgeting.
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“It’s a mess. The whole system is a mess,” said James Schiele, chief financial officer of the Eagle Mountain-Saginaw district, which is managing an estimated $4.5 million budget deficit and doesn’t plan to cut its total tax rate of $1.54 per $100 of assessed property value. The district’s proposed tax rate for 2016-17 is expected to be voted on during a school board meeting Monday.
In March, the chief financial officers of several local school districts said they had lost millions in local funding because of TAD’s software problems. The Fort Worth school district said it lost $12 million in property tax revenue for the 2015-16 school year budget. Eagle Mountain-Saginaw said it was shorted $5 million; Grapevine-Colleyville, up to $8 million.
The Arlington, Birdville, Fort Worth, Hurst-Euless-Bedford, Keller and Mansfield school districts will also approve tax rates in coming days. Some districts, such as Arlington, H-E-B and Keller, are proposing slight decreases on the debt-service side of their total tax rates. Other districts, including Eagle Mountain-Saginaw and Fort Worth, are not proposing cuts.
We look at it as a teeter-totter. It is an inverse relationship: As your values go up and you collect additional taxes, your state funding goes down. We’ve never seen it go the other way.
Debbe Roesler, deputy superintendent of business operations for H-E-B schools
Texas school districts have until Sept. 30 to approve tax rates for revenue that will fund the 2016-17 school year.
A complicated system
Taxpayers need to understand Texas school funding for more insight into why there is not much school tax relief. The public school funding system has been challenged in the courts and is described as very complicated by superintendents, school administrators, educators and parents.
“It is not easy to explain to myself,” Schiele said. “I have been doing this for 20 years.”
“Anything that costs $50 billion is probably complex,” said Lynn Moak, a partner at Austin-based Moak, Casey & Associates, a consulting firm helps districts understand what the state funding system means to them.
Moak explained that school districts are not funded like cities, counties and special taxing districts. In those entities, when property values go up, revenue goes up and tax rates can be cut, he said.
“In school districts, it is a different ballgame,” Moak said. “The state depends on property values in school districts to increase instead of putting more state money into the system.”
Moak said school finance relies on state money generated by sales taxes and local money generated by property taxes. Each year, the state generates a dollar amount that represents the estimated cost for each district to educate its students. Local property taxes cover one piece; state aid covers the other portion.
There are two ways for a school district to have an increase in state funding — more students in average daily attendance and/or an increase in the maintenance and operations portion of the total tax rate.
“When property tax revenue increases, all things being equal, state aid decreases,” Moak said, explaining that over time districts that experience increases in property values lose state aid.
And districts whose property values decrease get an increase in state aid.
The system is further complicated by “lag times,” said Leslie Johnston, spokeswoman for Arlington schools.
“Prior-year property values are used in the state funding formulas, so there is a one-year lag for changes in property values to impact state aid,” she said. “The 2016 property values that we just received will be used in the 2017-18 state funding formulas.”
Elsie Schiro, chief financial officer for the Fort Worth schools, explained that under this method, if taxable property values increase for the 2016-17 school year and are higher than the prior year, the district would receive a one-year benefit of the higher tax revenue because the state is using the lower 2015 values for state aid calculations.
Conversely, if taxable property values decrease, a district would receive less in state aid, because the prior year taxable property values are higher and are used in the calculation, Schiro said.
Johnston said except for those lag times this system holds school districts to the same revenue per student from year to year unless the Legislature increases the basic allotment that is used in the funding formula.
“Unless a school district is growing, the district will see very little, if any, revenue gain from one year to the next, which makes it very difficult to keep up with inflation,” she said.
Property values became a hot topic in Tarrant County this year when residential values increased about 14 percent.
Homeowners began filing protests, since higher property values generally mean higher tax bills.
“This could become a big political issue in local elections, especially if too many citizens have to pay higher tax bills,” Allan Saxe, an associate political science professor at the University of Texas at Arlington, said in June.
At a time when property taxes are growing far faster than salaries, state lawmakers are also reviewing the issue as a growing number of Texans fear being taxed out of their homes.
“Given the increase [in home values] we are looking at, I don’t see how any taxing jurisdiction in the county can justify not lowering the tax rate,” Tarrant County Tax Assessor-Collector Ron Wright said in June.
Educating the public
In the past, school districts produced video and slide presentations that explained the school funding system.
It’s a lesson that delves deep into tax rates and includes lingo such as I&S and M&O. The former is the portion of the total rate that goes toward debt service; the latter funds maintenance and operations of schools.
This week, school officials from Birdville, Mansfield, H-E-B, Eagle Mountain-Saginaw and Keller stressed their predicament to the Star-Telegram Editorial Board.
School leaders said they don’t believe that any districts will cut the maintenance and operations portions of their tax rates. However, some districts are looking at possible cuts on the debt-service portion because it is not covered by the same formula restrictions
Debbe Roesler, deputy superintendent of business operations in H-E-B, said cutting just a penny on the maintenance and operations portion of the tax rate would result in the loss of $2.3 million.
“The state is living off of our valued growth — that’s what it boils down to,” Roesler said.
But the news isn’t completely dire at H-E-B schools, where there is a proposal a cut to the debt service portion at a school board meeting set for Aug. 22.
Hurst-Euless-Bedford district taxpayers will likely get a 3.4-cent reduction in the total tax rate. District officials are proposing a cut to the debt-service side of the tax rate.
Birdville school administrators recently responded to one taxpayer query in writing.
“School districts are funded from a basic allotment per student, not based on property values,” explained Katie Bowman, associate superintendent of finance for the Birdville schools. “School districts cannot exceed a $1.04 M&O tax rate without a tax rate election. Birdville ISD’s M&O tax rate has been $1.04 since 2007.”
Bowman described how reducing Birdville’s tax rate by 1 cent would decrease tax collections by about $800,000 while state funding drops by about $1.4 million.
“The district would lose over $2.2 million in funding during 2016-17 for a one-cent reduction,” she wrote.
Those cuts translate to cuts in services, she said, explaining that the district would have to cut teaching jobs.
“You get hurt the first year, then you also get severely cut the next year,” Bowman said.
This report includes material from the Star-Telegram archives.