TO:	Honorable Jimmie Don Aycock, Chair, House Committee on Public Education
FROM:	Ursula Parks, Director, Legislative Budget Board
IN RE:	HB1759 by Aycock (relating to the public school finance system.), Committee Report 1st House, Substituted

The bill would make formula and structural changes to the Foundation School Program. The bill contains a number of elements that would be anticipated to improve equity among Texas school districts relative to current law.

The bill would repeal several funding streams that either flow outside the Foundation School Program's (FSP) equalized system or are not fully realized by all school districts. Among these provisions are: aid provided for the purpose of paying nonprofessional staff wage supplements which currently flows entirely outside the equalized system; the high school allotment which is codified as a Tier 1 FSP allotment but, per statute, flows outside of the operation of the Tier 1 equalized system; and the transportation allotment which also is codified as a Tier 1 allotment but stops short of functioning fully since its lack of inclusion in the calculation of weighted average daily attendance (WADA) prevents a reduction in recapture similar to that experienced for standard Tier 1 allotments, such as the regular program allotment. Flowing similar or increased levels of funding through the basic allotment in place of the existing structures would move the revenue inside the equalized system of the FSP.

Beginning in fiscal year 2016, the bill would provide FSP entitlement for more than 90% of school districts and 98% of students through the equalized FSP formula system rather than the target-revenue based hold harmless structure for property tax relief that expires at the end of fiscal year 2017.

The bill would provide uniform access to the basic allotment through a mechanism designed to remedy the effects on entitlement caused by the use of 2005 tax rates in the calculation of Tier 1 entitlement. A school district's compressed tax rate is 66.67 percent of its 2005 adopted maintenance and operations (M&O) tax rate. Districts that adopted the maximum M&O rate of $1.50 in 2005 have compressed rates of $1.00, while districts that adopted rates below the maximum have compressed rates below $1.00. Under current law, the 472 districts (46 percent) with compressed rates below $1.00 receive proportionally reduced entitlement under Tier 1. For example, a district with a compressed rate of $0.90 receives Tier 1 formula entitlement on the basis of 90 percent of the basic allotment and a local share of $0.90. Current law does not provide a means for districts receiving prorated entitlement to increase Tier 1 participation to $1.00 (100%) because the proration is a function of the district's 2005 tax rate, which cannot be changed.

The bill would repeal statute that results in a higher equalized wealth level for certain districts based on the district's 1992-93 revenue per student plus the indexed change between the current equalized wealth level and the level established in 1993. Having a higher equalized wealth level allows a district to keep more revenue per WADA than an equally wealthy district that is held to the statutory equalized wealth level. The repeal of Section 41.002(e)-(g), Education Code, proposed under the bill would eliminate this access to additional unequalized revenue by ensuring that the standard equalized wealth level applies to all districts.

Beyond the elements noted above that would be expected to improve equity among school districts, comparisons of change in revenue between districts subject to recapture and those that are not subject to recapture are complicated by the interaction of various aspects of the bill affecting the determination of district property wealth per weighted student. For example, the bill assumes a significant increase in the Tier 1 equalized wealth level.  However, it also would repeal the cost of education index, which reduces WADA, while concurrently increasing the flow of revenue through the equalized system which increases WADA. Since cost of education index values vary by district, the reductions in WADA that would result from repeal of the index also would vary by district. The result of changes such as these in combination is that the group of districts that would be subject to recapture under the bill would feature some key differences from the group of districts that are subject to recapture under current law. For example, the group of districts anticipated to be subject to recapture under current law in fiscal years 2016 and 2017 includes Houston ISD, while the group of districts that would be subject to recapture under the bill does not include Houston ISD.  Because of significant differences in the composition of groups of districts, direct comparisons of revenue for these categories are not addressed in this analysis.