Making the Math Work on Real School Finance Reform

"Texas Plan" brings new money to Austin and other districts, but nothing's final yet

With just over four weeks left to go, the 86th Texas Legislature is on track to send Gov. Greg Abbott the largest funding boost for the state's public schools in more than a decade. House Bill 3, dubbed the "Texas Plan" by its backers, would inject $6.3 billion and achieve goals long sought by Texas Democrats and pro-education GOP moderates: full-day pre-K for low-income children, more funding to address a variety of students' educational challenges, and a real reprieve for school districts that are being crippled by the state's recapture system for equalizing school finance.

HB 3 author and House Public Education Committee Chair Rep. Dan Huberty, R-King­wood, said the bill's passage on April 3 marked "a historic day. ... We are finally reforming public education in the state of Texas." Have we finally fixed school finance? And do we still have time this session to screw it up?

Read more about how the state's school finance plan effects Austin's bottom line. (Source: Legislative Budget Board)

Many of the formulas used to determine the state's per-student funding of local school districts have not been updated in nearly three decades, an era of tremendous economic and demographic change in Texas, and the current finance system barely survived a court challenge to its constitutionality in 2016. But there's bipartisan enthusiasm that real reform is coming, even if it doesn't include everything on lawmakers' wish lists.

"Let me put it this way," Rep. Donna Howard, D-Austin, told the Chronicle. "I've been here for over 13 years, and this is the biggest school finance bill I've seen." Howard's optimism was reflected among her colleagues on April 3, when the House was able to civilly debate 92 floor amendments to HB 3 – adopting more than 30 of them – with barely a raised voice or angry member raising hell over a pet issue. (Rep. Jonathan Stickland, R-Bedford – the lone vote against the bill – rose to defend summer vacation from HB 3's provision to lengthen the school year with more instructional time for students who need it.)

$6.3 Billion Is a Lot of Money

Why the celebration? For starters, $6.3 billion is a lot of money, especially in a state that ranks well below the U.S. median in per-pupil funding (for the 2017-18 school year, the National Education Association ranked Texas 37th among the states). Moreover, education advocates are excited about how the House has proposed those funds be spent.

HB 3 builds on recommendations from the Texas Commission on Public School Finance, which was formed by the 85th Legislature to explore solutions and which issued its final report in December 2018. The bill raises the minimum amount of per-student funding a school district receives – the "basic allotment" – from $5,140 to $6,030.

As part of the state GOP leadership's session-long effort to yoke school finance reform to reductions in local property taxes, HB 3 includes about $2.7 billion to "compress" local school tax rates by at least four cents. This in turn allows property-wealthy school districts, like Austin ISD and others in Central Texas, to reduce their recapture payments to the state under the "Robin Hood" funding redistribution system.

A notable floor amendment to HB 3, presented by House Democratic Caucus Chair Rep. Chris Turner, D-Grand Prairie, mandates an across-the-board pay raise to all non-administrative school district employees – a minimum of 25% of any increase to the basic allotment, now and going forward, is earmarked for salaries. On average, that translates to about $1,388 in pay increases for district employees across the state. On the whole, districts would rather have more autonomy and flexibility to spend that money as they choose, but the Turner amendment is seen as a counter-offer to Lt. Gov. Dan Patrick's plan to give all teachers (and school librarians, but not support staff) an across-the-board $5,000 raise.

Perhaps most importantly for the long term, HB 3 changes how the state's weighted finance formulas determine per-student funding for districts whose students require more resources to educate – such as English-language learners, economically disadvantaged students, those with special needs, and for the first time ever, students with dyslexia. The effect for the state's most vulnerable students could be transformative, according to Dr. Douglas Killian, superintendent of Pflugerville ISD and a member of the school finance commission.

Doug Killian (Courtesy of Pflugerville ISD)

"During the commission, we paid a lot of attention to students with compensatory education needs and those who are economically disadvantaged," Killian told us. "I have been really impressed that [lawmakers] have stuck so closely to what we recommended." Increased funding for those students, Killian added, allows school district leaders to provide stipends to encourage teachers to work in schools with higher concentrations of poverty, to bolster interventions where expert educators (e.g., in reading or math) work one-on-one or in small groups with students, or to hire more bilingual teachers – crucial in a state that has the second-highest percentage of English-language learners in the nation, according to the National Center for Education Statistics.

The Texas Plan's emphasis on early childhood education could also have a profound impact; the state currently has 1.8 million students enrolled in third grade or below, and funding full-day, quality pre-K throughout the state would be especially welcome. Many districts and lawmakers were devastated when a 2015 appropriation of $118 million in grant funding for pre-K to selected districts failed to be continued in 2017; the HB 3 proposal would provide permanent funding for pre-K, to all districts who need it, as a means of combating the state's lagging childhood literacy rates. "We have to expand our pre-K and the funding source is the first step," Austin ISD Board President Geronimo Rodriguez told us. "The more kids we can get into pre-K, the more prepared they will be when they get into our district. We won't have to spend as much money getting them up to speed."

Full, stable funding for pre-K could provide another benefit to districts like Austin by creating a pipeline to get more kids into their schools. Many urban districts have seen enrollment declines in recent years as households become smaller, neighborhoods become more expensive, and open-enrollment charter schools compete for students. Leaders of those districts feel that if they can get families to enroll their children at an early age – to take advantage of full-day pre-K for 4-year-olds – they will have a better chance of retaining them as they age. Even if that theory proves overly optimistic, the long-term benefits of pre-K for 3- and 4-year-olds are well-documented.

Investing in Local Educators

For the Austin, Pflugerville, and Round Rock school districts, HB 3's greatest promise is to provide support for human capital. Representatives for all three districts told the Chronicle that pay raises for all employees would be a top priority with any new money from the state. Ken Zarifis, president of the local teachers union Education Aus­tin, says that's a promising sign. "Academ­ic­ally, investment in people is how you make programs succeed," he said. "People run programs; they don't run themselves."

PISD's Killian already planned raises for his employees – not just teachers, but custodians, bus drivers, and everyone else, because "they all have an impact on a student" – but additional state funding could allow him to offer even more competitive compensation, a growing necessity in a metro area where high-paying private sector jobs compete with ISDs for talent. "Being so close to Austin, we're also competing with companies like Apple and Google," Killian said.

Round Rock ISD Chief Financial Officer Dr. Kenneth Adix expects his district to make a similar investment with new state dollars. Like most school districts, RRISD spends the bulk of its budget (88% currently) on payroll, so earmarking a sizable portion of the $890 increase to the per-student basic allotment makes sense – perhaps even more than the 25% mandated by the Turner amendment. "The most important aspect of education for a child is the quality of the people interacting with that student," Adix said. "So, the first thing we're looking to address is boosting the salaries that we're paying people."

Nicole Conley Johnson, Adix's counterpart at AISD, also aims to invest in people with new funding, but unlike in Pflugerville and Round Rock, she has to contend with a ballooning budget deficit. Currently, AISD is facing a $65 million shortfall in the 2019-20 school year, a structural deficit that's expected to grow throughout the next decade as enrollment continues to decline.

Nicole Conley Johnson in 2011 (Photo by John Anderson)

AISD would gain significantly in per-student funding under HB 3, taking advantage of all of the Texas Plan's revenue enhancements: to the basic allotment, to funding formulas for higher-cost students, to pre-K (which AISD currently funds out of local revenue), and through reduced recapture payments of about $371 million over the budget biennium. Conley Johnson said some of the money will have to go toward reducing that deficit and replenishing the district's reserve funds, from which AISD had gloomily expected to withdraw nearly $240 million in upcoming years to pay the mushrooming tab for recapture. "The change in how recapture is computed [under HB 3] significantly helps Austin, because [recapture] was eroding our ability to remain financially stable," she told the Chronicle.

Conley Johnson cites priorities for new money including salary increases, professional development for teachers, and literacy interventions to help students read at grade level by third grade. With new funding closing the district deficit and shoring up reserves, Conley Johnson explained, these programs will be "less vulnerable" when the budget needs tightening in the future. One challenge, though, is timing; April and May are the prime hiring months for schools, but until the House and Senate agree on a final school finance plan, it's hard for districts to hire with unguaranteed money. "The idea that we would be able to hire hundreds of teachers in June or July is difficult to imagine," Conley Johnson said. And until the Legislature finishes its work and guarantees new revenue, Austin ISD has to proceed with an austerity budget, which it previewed to the Board of Trustees Monday night (see sidebar at left).

All Eyes on the Senate

For now, public education observers are watching with fingers crossed, hoping the Senate won't screw up the work done by the House. The Senate's own finance bill, SB 4, was filed with minutes to spare before last month's deadline, and contains placeholder text throughout; Sen. Larry Taylor, R-Friends­wood, who chairs the Senate Edu­ca­tion Com­mittee, said he would rely on HB 3 as the main vehicle for school finance legislation in the upper chamber.

For many, an outcomes-based funding plan based solely on STAAR results represents a line in the sand. “If [the plan is] going to tie outcomes-based funding to one test on one day,” one Democratic lawmaker said, “we’re not going to support that.”

One main point of contention between the two chambers is teacher pay: Patrick's $5,000 teacher pay raise (SB 3) passed the Senate unanimously back on March 3. It has yet to even have a hearing in the House, which has little appetite for what many observers consider little more than a bribery plan to appease the political demands of teachers, whose support helped energize Democratic gains in the 2018 elections, including the stiff challenge Patrick received from Mike Collier. It's unclear if the Turner amendment satisfies the objectives Patrick had in mind, but as drafted by Huberty's committee, HB 3 placed no requirements on districts at all concerning salaries.

Similar tensions between the chambers may arise over another concept favored by Patrick and GOP leaders, "outcomes-based funding," also termed "merit pay" or "pay for performance." The initial version of HB 3 included a limited amount of funding, about $140 million, for merit-pay programs that reward teachers for producing high-achieving students. Depending on what the Senate proposes, several House members told the Chronicle, an outcomes-based funding plan could make it to the final bill; but for Democrats, at least, how those outcomes are defined is important. For many, basing those metrics solely on STAAR results represents a line in the sand, especially as the standardized test has fallen under increased scrutiny this session, with academic studies suggesting STAAR reading exams could be using material that's beyond the testing students' grade level. "If [the plan is] going to tie outcomes-based funding to one test on one day," one Democratic lawmaker said, "we're not going to support that."

Perhaps the biggest wild card yet to be played is how – or if – Patrick, Abbott, and House Speaker Dennis Bonnen will craft consensus around a plan to deliver the property tax relief the zealots in their caucus have demanded. Right now, HB 3 itself provides the most substantive property tax relief of any measure that's been passed, in that it actually "compresses" current tax rates instead of limiting their future growth. The Big Three have endorsed a late-breaking plan to increase the state sales tax rate by one penny and use the additional funding to buy down school district property taxes. If adopted, the local max sales tax rate in any jurisdiction – that is, the state's tax plus that levied by cities, transit agencies, and others allowed by law – would be 9.25%.

“A perfect bill is impossible, but HB 3 gets pretty damn close to perfect.” – Rep. James Talarico, D-Round Rock

This idea has left few people with much enthusiasm, except for supply-side economics proponents on the right, who would like, on principle, to tax wealth less and consumption more. Democrats oppose a sales tax hike for exactly that reason, since it's thoroughly regressive and would (according to an analysis by The Texas Tribune) translate into a tax increase for all but the richest 20% of Texas households. At the same time, tax zealots like Sen. Paul Bettencourt, R-Houston, are not at all supportive of any kind of tax increase in a biennium where the state is running a revenue surplus. Introduced by Huberty in April as House Joint Resolution 3, a one-cent increase would generate about $5 billion in revenue for the state, 80% of which would offset reductions in school district property taxes; the remaining 20% would add another $200 to HB 3's basic-allotment increase. This plan would require voter approval as a constitutional amendment in November, which now requires two-thirds approval in both chambers, which requires Democratic votes in the House.

Those are long odds, but it shows how far lawmakers are prepared to go to make a real difference, right now, on school finance. The system is simply too big, complicated, and expensive to fix in one legislative session, but that isn't discouraging lawmakers. Freshman Rep. James Talarico, D-Round Rock – a former classroom teacher who serves on House Public Education – sees it this way: "A perfect bill is impossible, but HB 3 gets pretty damn close to perfect."

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