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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

II. The Foundation School Program

The state’s Foundation School Program funds public schools through a series of formulas prescribed by the Legislature that determines how much local and state funding each school district receives. Districts with low property values require more state support, while districts with higher property values require less.

It’s important to note that high property value isn’t necessarily a function of residential real estate values. Some property-wealthy districts in Texas have relatively low residential property values and much higher commercial property values, due to the presence of assets such as a nuclear power plant or manufacturing center.

At the local level, the FSP is funded primarily by M&O property taxes levied by individual school districts. State FSP funding comes from state tax revenue (including that deposited into the state’s Property Tax Relief Fund), the state lottery and the Permanent School Fund, an endowment established by the Texas Constitution.17 Every Texas public school district must participate in the FSP and must raise local property tax revenue before receiving state funds.

FSP funding is delivered under two separate “tiers,” Tier I and Tier II, for basic program costs and program enrichment, respectively. A district’s Tier I entitlement is based on certain district and student characteristics, such as its share of students needing special services. An optional Tier II entitlement is based on local “tax effort,” the tax rate levied above the minimum rate required by law.18

Once these entitlements are established, the FSP calculates how much state funding a district will receive for each tier based on the amount of local revenue it can supply. The FSP also offers an Instructional Facilities Allotment and an Existing Debt Allotment to help school districts pay debt service on existing facilities.19

The amount of state aid a school district receives under both tiers depends largely on three key variables: its number of students, property values and property tax rates.20 In general, as a school district’s enrollment increases or its property tax base shrinks, a district will receive more in state aid; if its need decreases or its tax base expands, it will receive less.

Tier I and the Basic Allotment

The Legislature establishes the central component of Tier I funding, the basic allotment, for each school district per student based on its average daily attendance (ADA). The basic allotment then is adjusted for each district based on its size, regional cost differences, instructional programs offered and additional resources needed.21

Over the years, lawmakers have increased the basic allotment from $1,290 per student in fiscal 1985 to $5,140 in fiscal 2019 (Exhibit 1). Increasing the basic allotment is an effective approach to improve equity among districts.22

Exhibit 1
Basic Allotment per Student, Fiscal 1985 to 2019

Basic Allotment per Student Fiscal 1985 to 2019
Fiscal Year Basic Allotment Percent Change
1985 $1,290 -
1986 $1,350 4.7%
1987 $1,350 0.0%
1988 $1,350 0.0%
1989 $1,350 0.0%
1990 $1,426 5.6%
1991 $1,910 33.9%
1992 $2,300 20.4%
1993 $2,300 0.0%
1994 $2,300 0.0%
1995 $2,300 0.0%
1996 $2,387 3.8%
1997 $2,387 0.0%
1998 $2,396 0.4%
1999 $2,396 0.0%
2000 $2,537 5.9%
2001 $2,537 0.0%
2002 $2,537 0.0%
2003 $2,537 0.0%
2004 $2,537 0.0%
2005 $2,537 0.0%
2006 $2,537 0.0%
2007 $2,748 8.3%
2008 $3,135 14.1
2009 $3,218 2.6%
2010 $4,765 48.1%
2011 $4,765 0.0%
2012 $4,765 0.0%
2013 $4,765 0.0%
2014 $4,950 3.9%
2015 $5,040 1.8%
2016 $5,140 2.0%
2017 $5,140 0.0%
2018 $5,140 0.0%
2019 $5,140 0.0%

Note: Basic allotments for fiscal 1985 through 1995 are the minimum amounts set in statute and may not reflect the actual amounts appropriated by the Legislature.

Sources: Texas Legislature Online (1985-1995) and Texas Education Agency (1996-2019)


Tier II and Guaranteed Yield

The FSP determines Tier II funding through the guaranteed yield formula, which includes two levels, the second added in fiscal 2007.

The first level of guaranteed funding is equal to the district’s wealth per student counted in weighted average daily attendance, or WADA, for each penny of property tax levied per $100 valuation — a “tax effort” — between $1.00 and $1.06. (WADA is ADA after adjustment for various factors.) The second level is a fixed amount set by state law — $31.95 per student counted in WADA — for each penny of property tax levied between $1.06 and $1.17.23

The first level of Tier II has risen from $41.21 per student in fiscal 2007 to $106.28 per student in fiscal 2019, with recent, significant increases (Exhibit 2). The second level of Tier II has remained fixed at $31.95.24

Exhibit 2
Guaranteed Yield History: Tier II, Levels One and Two, Fiscal 2007 to 2019

Guaranteed Yield History: Tier II, Levels One and Two, Fiscal 2007 to 2019
Fiscal Year Level One Level Two
2007 $41.21 $31.95
2008 $46.94 $31.95
2009 $50.98 $31.95
2010 $59.02 $31.95
2011 $59.97 $31.95
2012 $59.97 $31.95
2013 $59.97 $31.95
2014 $59.97 $31.95
2015 $61.86 $31.95
2016 $74.28 $31.95
2017 $77.53 $31.95
2018 $99.41 $31.95
2019 $106.28 $31.95

Source: Texas Education Agency


Wealth Equalization and Recapture: “Chapter 41”

School districts with high property values can raise more money per student for each penny of tax effort than can those with low property values. Some school districts can raise their entire Tier I entitlements with local property taxes alone.

The wealth disparity between districts can be extreme (Exhibit 3). For example, both Cotulla ISD and Buna ISD have comparable enrollment, but radically different levels of wealth per student counted in ADA.

Cotulla ISD, between San Antonio and Laredo, had one of the highest levels of wealth per student during fiscal 2018, at about $3.7 million.25 Cotulla ISD’s high per-student property wealth is largely the result of nearby natural gas processing plants and crude oil pipelines with high taxable values.26 By contrast, Buna ISD, north of Beaumont, had about $222,000 of property wealth per student in the same year.27

In fiscal 2018, the state’s median property wealth per student was $379,066.

Exhibit 3 School District Property Wealth per ADA: Highest and Lowest, Fiscal 2018

Districts with Most Property Wealth
School District Property Wealth per ADA
Westhoff ISD $16,942,635
Kenedy County-Wide CSD $12,490,913
Fort Elliott CISD $9,135,596
Kelton CISD $9,099,338
Glasscock County ISD $8,085,851
Districts with Least Property Wealth
School District Property Wealth per ADA
Boles ISD $30,537
Olfen ISD $58,184
San Elizario ISD $62,088
Edcouch-Elsa ISD $63,865
Tornillo ISD $65,476

Source: Texas Education Agency


To address such inequalities, in 1993 the Legislature’s SB 7 (see Appendix I) established a system to limit M&O revenues going to districts with high property wealth per student and use some of them to increase aid to districts with low property wealth. SB 7 describes “property-wealthy” districts as those exceeding certain Equalized Wealth Levels (EWLs), thresholds set in Texas Education Code Chapter 41.28

If a district’s property value is so high that local taxes can supply revenue per student beyond these state-set thresholds, the state takes the surplus and redistributes it to districts with lower property wealth. This transfer is called recapture or, by many, “Robin Hood.”

Chapter 41 defines two EWLs, one for Tier I and another for Tier II. The original threshold for recapture on Tier I, set in 1994, was $280,000 per student, raised from the $1.00 statutory minimum M&O tax rate. (Chapter III of this report discusses minimum and maximum tax rates.) Today it’s $514,000 (Exhibit 4).29 For Tier II, the threshold is $319,500, raised from a rate of between $1.06 and $1.17. The current Tier II EWL took effect in fiscal 2007 and has not changed since.30

Exhibit 4
Equalized Wealth Level History,
Fiscal 1994 to 2019

Equalized Wealth Level History,
Fiscal 1994 to 2019
Fiscal Year Equalized Wealth Level
(Tier I)
Equalized Wealth Level
(Tier II)
1994 $280,000 -
1995 $280,000 -
1996 $280,000 -
1997 $280,000 -
1998 $280,000 -
1999 $280,000 -
2000 $295,000 -
2001 $295,000 -
2002 $300,000 -
2003 $305,000 -
2004 $305,000 -
2005 $305,000 -
2006 $305,000 -
2007 $319,500 $319,500
2008 $364,500 $319,500
2009 $374,200 $319,500
2010 $476,500 $319,500
2011 $476,500 $319,500
2012 $476,500 $319,500
2013 $476,500 $319,500
2014 $495,000 $319,500
2015 $504,000 $319,500
2016 $514,000 $319,500
2017 $514,000 $319,500
2018 $514,000 $319,500
2019 $514,000 $319,500

Source: Texas Education Agency


In fiscal 2017, 194 school districts paid into the recapture system under Chapter 41; 10 districts accounted for 57 percent of all recapture revenue as well as 54 percent of the total student population in districts paying recapture. In all, these 10 districts educated more than 442,000 students and sent nearly $1 billion in M&O tax revenue to the state (Exhibit 5).31

Exhibit 5

Top Chapter 41 Districts by Recapture Revenue,
Fiscal 2017
District Student Enrollment Recapture Revenue
Austin ISD 82,766 $403,324,244
Plano ISD 53,931 $105,270,174
Houston ISD 215,408 $93,080,703
Highland Park ISD 7,024 $90,029,741
Eanes ISD 8,116 $83,305,989
Spring Branch ISD 35,016 $51,059,269
Midland ISD 24,642 $45,806,661
Cotulla ISD 1,365 $37,619,362
Lake Travis ISD 9,791 $36,913,866
Alamo Heights ISD 4,838 $33,888,357
Total 442,897 $980,298,366
Chapter 41 District Total 818,737 $1,714,100,494

Note: Totals may not add due to rounding.

Source: Texas Education Agency


In fiscal 2017, Austin ISD paid the most in recapture by a wide margin. Eanes ISD and Lake Travis ISD — two Travis County districts bordering Austin ISD — also were among the top 10.

Houston ISD first began making recapture payments in 2017. In that year, the district contributed the third-highest amount of recapture revenue. Harris County’s Spring Branch ISD also was among the top 10 Chapter 41 districts.

Plano ISD and Highland Park ISD, near Dallas, ranked second and fourth, respectively, in recapture revenue paid. Dallas ISD has been designated as a Chapter 41 district and TEA expects it to begin making recapture payments in fiscal 2019.32

In fiscal 2017, Chapter 41 school districts had 818,737 students in attendance, or about 15 percent of the state’s total student population, up from about 12 percent in fiscal 2016.33

The share of all state and local revenue represented by recapture rose to a peak of 4.2 percent in 2006 and then began to fall due to the effects of tax rate compression legislation (see below). The upward trend for recapture revenue began again in 2014. In fiscal 2018, school districts paid $2.1 billion in recapture, or about 3.9 percent of total state and local funding (Exhibit 6).34 Current trends suggest that the 4.2 percent peak of 2006 will be exceeded in the next three to five years.35

Exhibit 6

Total State and Local Revenue and Recapture Revenue, Fiscal 2000 to 2018
Fiscal Year State Share
(in billions)
Local Share
(in billions)
Recap­ture
(in billions)
Recap­ture Share of Total
2000 $10.4 $11.9 $0.5 2.1%
2001 $10.3 $13.3 $0.5 2.2%
2002 $10.2 $15.0 $0.8 2.9%
2003 $9.9 $16.2 $1.0 3.6%
2004 $10.0 $17.2 $1.1 3.8%
2005 $9.8 $18.4 $1.1 3.8%
2006 $9.4 $20.1 $1.3 4.2%
2007 $13.1 $20.9 $1.4 4.0%
2008 $17.2 $18.9 $1.1 3.1%
2009 $16.4 $21.0 $1.4 3.7%
2010 $17.9 $21.5 $1.1 2.6%
2011 $18.8 $21.5 $1.0 2.5%
2012 $17.3 $21.9 $1.1 2.7%
2013 $17.4 $23.1 $1.1 2.6%
2014 $18.8 $24.5 $1.2 2.7%
2015 $19.1 $26.7 $1.5 3.1%
2016 $20.0 $27.9 $1.6 3.2%
2017 $19.3 $29.5 $1.7 3.4%
2018 $18.8 $31.4 $2.1 3.9%

Sources: Texas Education Agency and the Texas Comptroller of Public Accounts


Austin ISD and Recapture


Since fiscal 2007, the Austin Independent School District has paid more in recapture than any other Texas school district.36 In fiscal 2017, about 38 percent or $403 million of the district’s total M&O revenue was recaptured (Exhibit 7). Austin ISD expects recapture to cost it nearly 46 percent of its M&O revenue in fiscal 2018; if no changes are made to the school finance system, recapture could claim more than 60 percent in fiscal 2021.37

Exhibit 7

Austin ISD General Fund, Fiscal 2017 and 2018
Description Fiscal 2017 Fiscal 2018
M&O Tax Revenue $1,056,123,159 $1,185,798,360
Less Chapter 41 Payment -$403,324,244 -$540,290,792
M&O Taxes Retained $652,798,915 $645,507,568
Percent Share AISD Retained M&O 61.8% 54.4%
Percent Share State Recapture of M&O 38.2% 45.6%

Note: Data for fiscal 2018 are projected.
Source: Austin Independent School District


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