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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

Texas School Finance: Doing the Math on the State’s Biggest Expenditure


Published January 2019

IV. Cost Drivers and State/Local Shares

Texas school funding needs are driven primarily by enrollment, but other factors are important as well, including household income and inflation as well as various state and federal mandates.44

Enrollment Growth

Today, the Texas public school system serves more than 5 million students.45

Enrollment growth is a direct consequence of Texas’ rapid population growth. The state led the nation in population growth in each year between 2010 and 2016, adding more than 3 million residents in just six years.46

Between the 1993 and 2017 school years, enrollment in Texas public schools rose by 51 percent or more than 1.8 million students.47 The student count has risen by more than 519,000 since 2010.

Economically Disadvantaged Students

Household income is another factor driving school funding needs. The number of Texas students identified as “economically disadvantaged” — eligible for free or reduced-price meals — is rising (Exhibit 11), and many of them qualify for compensatory education funding and other resources.

From fiscal 2007 to 2017, the share of Texas students classified as economically disadvantaged rose from 55.5 percent to 59 percent. In this period, the number of economically disadvantaged students rose faster than the overall student population, by 24.2 percent versus 16.8 percent.

In fiscal 2017, the share of the student population classified as economically disadvantaged fell among African Americans, Hispanics, Asians and multiracial students, but increased for Anglo students.48

Exhibit 11
Texas Student Enrollment by Economic Status, Fiscal 1994 to 2017

Texas Student Enrollment by Economic Status, Fiscal 1994 to 2017
School Year Economically Disadvantaged Non-Economically Disadvantaged
1994 1,623,108 1,978,731
1995 1,699,612 1,970,584
1996 1,753,371 1,986,889
1997 1,841,185 1,987,790
1998 1,886,926 2,004,951
1999 1,914,547 2,030,820
2000 1,955,012 2,036,771
2001 2,001,697 2,057,922
2002 2,093,511 2,053,142
2003 2,201,534 2,038,377
2004 2,277,901 2,033,601
2005 2,394,001 1,989,870
2006 2,503,755 2,001,817
2007 2,540,888 2,036,045
2008 2,572,093 2,079,423
2009 2,681,474 2,046,730
2010 2,848,067 1,976,711
2011 2,909,554 2,002,831
2012 3,008,464 1,969,656
2013 3,054,741 2,004,198
2014 3,092,125 2,043,755
2015 3,068,820 2,146,462
2016 3,118,758 2,165,494
2017 3,155,117 2,188,717

Sources: Texas Education Agency and Texas Comptroller of Public Accounts


Inflation

Public education funding and expenditures are affected by inflation, the steady increase in prices of goods and services over time.

From fiscal 2000 to 2018, total per-student revenue for Texas public schools rose by 70 percent, from $5,711 to $9,694. Per-student revenue from state sources rose by 34 percent, from $2,605 to $3,488, while revenue from local sources rose by 100 percent, from $3,105 to $6,206 (Exhibit 12).

After adjusting for inflation, however, total and local per-student revenue rose by 16 percent and 29 percent, respectively, but state per-student revenue actually fell by 8 percent.

Exhibit 12
Average Per-Student Revenue in Texas Public Schools,
Fiscal 2000 to 2018

Average Per-Student Revenue in Texas Public Schools,
Fiscal 2000 to 2018
Fiscal Year Total Revenue Per Student (Current Dollars) Total Revenue Per Student (Constant 2017 Dollars) State Revenue Per Student (Current Dollars) State Revenue Per Student (Constant 2017 Dollars) Local Revenue Per Student (Current Dollars) Local Revenue Per Student (Constant 2017 Dollars)
2000 $5,710.70 $8,389.10 $2,605.50 $3,827.40 $3,105.30 $4,561.70
2001 $5,928.50 $8,471.80 $2,532.90 $3,619.60 $3,395.60 $4,852.30
2002 $6,245.40 $8,781.00 $2,455.00 $3,451.80 $3,790.40 $5,329.30
2003 $6,375.00 $8,759.30 $2,324.90 $3,194.50 $4,050.10 $5,564.80
2004 $6,556.60 $8,779.30 $2,320.90 $3,107.70 $4,235.70 $5,671.60
2005 $6,683.50 $8,655.10 $2,229.50 $2,887.20 $4,454.00 $5,768.00
2006 $6,826.00 $8,559.80 $2,084.00 $2,613.40 $4,742.00 $5,946.50
2007 $7,733.00 $9,434.30 $2,862.90 $3,492.70 $4,870.10 $5,941.50
2008 $7,985.60 $9,383.10 $3,688.50 $4,334.00 $4,297.10 $5,049.10
2009 $8,219.10 $9,690.40 $3,474.00 $4,095.90 $4,745.10 $5,594.50
2010 $8,398.80 $9,742.60 $3,712.50 $4,306.50 $4,686.30 $5,436.10
2011 $8,414.70 $9,458.10 $3,828.40 $4,303.20 $4,586.30 $5,155.00
2012 $8,102.90 $8,921.30 $3,480.50 $3,832.10 $4,622.30 $5,089.20
2013 $8,209.90 $8,916.00 $3,442.30 $3,738.40 $4,767.60 $5,177.60
2014 $8,670.20 $9,259.80 $3,659.70 $3,908.50 $5,010.50 $5,351.20
2015 $9,061.00 $9,668.10 $3,664.80 $3,910.30 $5,396.30 $5,757.80
2016 $9,359.20 $9,864.60 $3,776.90 $3,980.90 $5,582.30 $5,883.70
2017 $9,467.60 $9,770.60 $3,617.10 $3,732.90 $5,850.50 $6,037.70
2018 $9,694.10 $9,694.10 $3,488.40 $3,488.40 $6,205.70 $6,205.70

Sources: Texas Education Agency, Texas Comptroller of Public Accounts and U.S. Inflation Calculator


Due to inflation, school districts have to spend more simply to provide the same resources to the same number of students. Exhibit 13 shows Texas school district operating expenditures per student from all sources for fiscal 2007 through 2017. In terms of current (2017) dollars, unadjusted for inflation, operating expenditures per student rose by 21 percent in that period, from $7,824 to an all-time high of $9,500. In constant 2017 dollars, however, operating expenditures per student rose by just 3 percent, from $9,239 to $9,500.

Fiscal 2017 spending was lower than in several previous fiscal years.

Exhibit 13
Texas Operating Expenditures per Student, All Sources,
Fiscal 2007 to 2017

Texas Operating Expenditures per Student, All Sources,
Fiscal 2007 to 2017
Fiscal Year Current Dollars Constant 2017 Dollars
2007 $7,824.00 $9,239.00
2008 $8,340.00 $9,346.00
2009 $8,569.00 $9,748.00
2010 $8,799.00 $9,896.00
2011 $8,715.00 $9,445.00
2012 $8,274.00 $8,818.00
2013 $8,324.00 $8,738.00
2014 $8,690.00 $8,970.00
2015 $9,061.00 $9,335.00
2016 $9,370.00 $9,552.00
2017 $9,500.00 $9,500.00

Note: Expenditures for debt service and capital outlays are excluded.

Sources: Texas Education Agency, U.S. Bureau of Labor Statistics and Texas Comptroller of Public Accounts


State and Local Shares

In Texas, there’s a fairly common perception that the cost of public education is, or should be, divided more or less equally between the state and local school districts — even though the state share averaged 40 percent from 2000 to 2018. Due to the funding formulas, however, there’s an inverse relationship between state and local funding — as local revenue rises, state funding generally decreases (Exhibit 14). Between fiscal 2000 and 2018, the state and local shares of total education funding averaged 40 percent and 60 percent, respectively. During this period, the state’s share fell as low as 30.5 percent in 2006, the year of the HB 1 reforms.

Exhibit 14
Shares of Texas Public Education Funding, Fiscal 2000 to 2018

Shares of Texas Public Education Funding, Fiscal 2000 to 2018
Fiscal Year State Share Local Share
2000 45.6% 54.4%
2001 42.7% 57.3%
2002 39.3% 60.7%
2003 36.5% 63.5%
2004 35.4% 64.6%
2005 33.4% 66.6%
2006 30.5% 69.5%
2007 37.0% 63.0%
2008 46.2% 53.8%
2009 42.3% 57.7%
2010 44.2% 55.8%
2011 45.5% 54.5%
2012 43.0% 57.0%
2013 41.9% 58.1%
2014 42.2% 57.8%
2015 40.4% 59.6%
2016 40.4% 59.6%
2017 38.2% 61.8%
2018 36.0% 64.0%

Sources: Texas Education Agency and Texas Comptroller of Public Accounts


The compressed tax rate introduced by HB 1 slashed M&O rates to provide property tax relief. As a result, the state and local shares came close to parity in 2008, at 46.2 percent and 53.8 percent, respectively. Since then, however, rising property values and the local-first formulas have returned the system to its prior trajectory, with the local share growing to 64.0 percent in fiscal 2018, or by an average of 1 percent annually since 2009.49

Texas’ property values have more than tripled since 1997, from $800.8 billion to about $2.8 trillion, a 248 percent increase. Even after adjustment for inflation, property values rose by 128 percent.

With those increases, recent TEA projections indicate that the state’s share of total funding will continue to fall.50 Texas’ public education funding formulas thus have ensured increasing dependence on local property taxes — and a growing burden on homeowners and businesses.

Tax Volatility

Exhibit 15 compares annual changes in Texas property values with those in sales tax revenues. The general sales tax is the most important state tax in terms of revenue, averaging 60.5 percent of state tax collections since 1993.

Exhibit 15
Annual Change in Texas Property Values and Sales Tax Revenue, Fiscal 1997 to 2017

Annual Change in Texas Property Values and Sales Tax Revenue, Fiscal 1997 to 2017
Year Property Value Change in Property Value from Previous Year State Sales Tax Base (In Billions) Change in State Sales Tax Base from Previous Year
1997 $800.80 - $11.3 -
1998 $848.00 0.1% $12.5 0.1%
1999 $899.50 6.1% $13.0 4.7%
2000 $988.20 9.9% $14.0 7.6%
2001 $1,097.80 11.1% $14.8 5.6%
2002 $1,160.00 5.7% $14.6 -1.7%
2003 $1,207.70 4.1% $14.3 -1.8%
2004 $1,282.10 6.2% $15.5 8.0%
2005 $1,385.20 8.0% $16.4 5.8%
2006 $1,547.50 11.7% $18.3 12.2%
2007 $1,722.70 11.3% $20.4 11.0%
2008 $1,904.00 10.5% $21.7 6.5%
2009 $1,922.60 1.0% $21.1 -2.8%
2010 $1,889.10 -1.7% $19.7 -6.6%
2011 $1,913.70 1.3% $21.5 9.4%
2012 $1,998.20 4.4% $24.2 12.5%
2013 $2,107.80 5.5% $26.0 7.2%
2014 $2,295.90 8.9% $27.5 6.1%
2015 $2,462.60 7.3% $29.1 5.7%
2016 $2,598.10 5.5% $28.5 -2.2%
2017 $2,786.20 7.2% $29.1 2.3%

Note: Property value calculations are for tax years 1997 to 2017; sales tax calculations are for fiscal 1997 to 2017.

Sources: Texas Education Agency and Texas Comptroller of Public Accounts


Collections from both sales and property taxes can vary dramatically from year to year, but sales tax revenue is much more vulnerable to economic downturns. The exhibit shows sales tax revenue over time as the estimated amount of sales tax collections that would have been received if the Tax Code had not changed during the study period (i.e., since 1996). This removes the effects of legislative changes to capture only volatility induced by the economy. Property values saw only one annual decrease from 1997 to 2017, while sales tax revenue declined five times.

State severance taxes levied on oil and gas production are even more volatile than sales taxes (Exhibit 16), experiencing double-digit changes in every year since 1997.

Exhibit 16
Annual Change in State Severance Tax Revenue, Fiscal 1997 to 2017

Annual Change in State Severance Tax Revenue, Fiscal 1997 to 2017
Fiscal Year Base Change
1996 $824,077
1997 $1,141,372 38.50%
1998 $885,403 -22.43%
1999 $728,945 -17.67%
2000 $1,139,902 56.38%
2001 $2,089,736 83.33%
2002 $994,841 -52.39%
2003 $1,542,341 55.03%
2004 $1,953,224 26.64%
2005 $2,438,425 24.84%
2006 $3,346,552 37.24%
2007 $2,864,429 -14.41%
2008 $4,307,649 50.38%
2009 $2,419,657 -43.83%
2010 $1,881,658 -22.23%
2011 $2,737,815 45.50%
2012 $3,819,099 39.49%
2013 $4,670,893 22.30%
2014 $5,913,162 26.60%
2015 $4,259,794 -27.96%
2016 $2,371,636 -44.33%
2017 $3,174,630 33.86%

Source: Texas Comptroller of Public Accounts


Between 1997 and 2017, the annual change in property values ranged from -1.7 percent to +11.7 percent, while that of sales taxes varied more broadly, from -6.6 percent to +12.5 percent. Annual changes in severance tax collections ranged from -52.4 percent to +83.3 percent. The compound annual growth rates of property values, sales tax revenues and severance tax revenues in this period were 6.4 percent, 4.8 percent and 6.6 percent, respectively (Exhibit 17).

Exhibit 17

Growth Rates of Property Values, State Sales Tax Revenue and State Severance Tax Revenue, 1997 to 2017
Growth Rate Property Values State Sales Tax Revenue State Severance Tax Revenue
Maximum Growth Rate 11.7% 12.5% 83.3%
Minimum Growth Rate -1.7% -6.6% -52.4%
Compound Annual Growth Rate 6.4% 4.8% 6.6%

Note: Tax revenues adjusted to reflect those that would have been collected if the state’s sales tax laws had not changed in the period studied. Property value calculations are for tax years 1997-2017; sales tax and severance tax calculations are for fiscal 1997-2017.

Source: Texas Comptroller of Public Accounts



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