Texas School Finance: Doing the Math on the State’s Biggest Expenditure
Published January 2019
A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of free public schools.4
With these words, the Texas Constitution orders state government to provide a free public education to the state’s schoolchildren — a single sentence representing perhaps the most difficult continuing challenge faced by generations of Texas lawmakers.
Through the years, the Legislature and our school districts have grappled to produce a system offering efficient, equitable public education funded in part by taxes assessed on property values that vary greatly throughout the state. After a long series of lawsuits, in 2016 the Texas Supreme Court finally held that our school finance system is constitutional but called for “top-to-bottom reforms.”5 The ruling ended a lengthy chapter in Texas jurisprudence, but not the array of challenges still facing the system.
In many ways, the story of Texas public education funding is the story of the litigation that shaped it.
San Antonio’s Edgewood ISD is a school district with low property wealth that happens to adjoin Alamo Heights ISD, a district with much higher property wealth. In 1984, Edgewood and 67 other Texas school districts filed a lawsuit highlighting this stark contrast as an example of the unacceptable disparity in resources among Texas’ public schools.
The Texas Supreme Court agreed, finding the school finance system unconstitutional and insisting that “districts must have substantially equal access to similar revenues per pupil at similar levels of tax effort.”6 It was the first in a series of clashes between the Texas Supreme Court and the Legislature — collectively called the Edgewood cases. Lawmakers attempted to remedy these disparities with 1989’s Senate Bill (SB) 1, using state funds to equalize wealth among 95 percent of Texas school districts. But in a ruling subsequently known as Edgewood II, the new law was struck down for still failing to provide sufficient equity across the state.7
In 1991, the Legislature passed SB 351, which established 188 county education districts (CEDs) to apportion and level out tax revenue among school districts. Wealthier school districts promptly sued, claiming the CEDs created an unconstitutional, de facto statewide property tax. In Edgewood III the court agreed, since the CEDs’ boundaries, tax rates and revenue distribution all were prescribed by state law.8
Forced back to the drawing board, the Legislature next introduced the complex “recapture” system with 1993’s SB 7. The court approved this system in its Edgewood IV ruling, satisfied that the law’s accountability and accreditation systems ensured the minimal standard of adequacy required for the “general diffusion of knowledge.”
The ruling dismissed a claim that the state was failing to make “suitable provision” for schools by providing only 43 percent of funding while the districts provided 57 percent. But it also offered a warning: if enough districts were eventually forced to tax at the maximum rate of $1.50 merely to maintain adequacy, they would no longer have meaningful discretion to set their own tax rates, resulting yet again in an unconstitutional statewide property tax.9 It was a preview of the cases to follow.
The next cases challenging the public school finance system were called West Orange-Cove I and II. In 2001, a group of wealthy school districts sued the state, alleging that the $1.50 cap on the maintenance and operations (M&O) property tax rate equated to a statewide property tax because it left them with no meaningful discretion in setting tax rates.10 In a 2005 ruling, the court sided with the plaintiffs and ordered changes, reiterating that:
The State’s control of this local revenue is a significant factor in considering whether local taxes have become a state property tax.… [We caution] that a cap to which districts are inexorably forced by educational requirements and economic necessities… will in short order violate the prohibition of a state property tax.11
The Legislature responded in 2006 with House Bill (HB) 1, which tweaked the tax system, lowering local rates by about a third and adding additional state money.12 The parties to the case and the court were satisfied with this response and the case was dissolved.
In 2014 still another suit, Texas Taxpayers and Student Fairness Coalition v. Williams, challenged Texas’ school finance system on many of the same grounds covered in Edgewood and West Orange-Cove: adequacy, equity, efficiency and “meaningful discretion” in taxation.13
This time, the diversity of the plaintiffs was noteworthy, as the case was a consolidation of several lawsuits with different perspectives and legal claims.
The array of plaintiffs eventually involved in the lawsuit — more than 600 districts, equity advocates, school choice groups and business groups — was a clear sign of the wide divergence of opinions regarding school finance, as well as increased frustration with stricter testing and accountability measures; the decreasing share of state funding in the face of rising enrollment; and the continuing rise of property tax bills in much of the state.
But the system held. The district court ruled for the plaintiffs, but in 2016 the Texas Supreme Court overruled the lower court, criticizing the “Byzantine” finance system but finding it constitutional nonetheless.14 Maintaining its Edgewood IV-era reasoning, the court ruled that disparities in funding and student achievement were not necessarily a sign of inefficiency. The court also noted that "equality of educational achievement" was a fine goal but not constitutionally required for the “general diffusion of knowledge.”15
Finally, the court found districts generally have meaningful discretion in taxation, since only 24 percent were taxing at the current maximum M&O rate of $1.17 per $100 in property value.16 As in prior decisions, however, the court explicitly acknowledged the system’s faults, strongly suggesting the Legislature chart a better course.