Eanes ISD

School Finance 101 and the Correlation to the Penny Swap & Drop

Governor Abbott stated at the beginning of the 85th Texas Legislature that one of the main focuses of this session would be public education and reforming the system that is described by some as lawful but awful. Texas schools are funded through three sources: local tax dollars, state funding and federal funding. Local taxes represent the largest portion of school funding and are generated through two different types of tax rates, Interest and Sinking (I&S) taxes and Maintenance and Operations (M&O) taxes. Each cover very specific expenditures.

I&S, known as the debt fund, is like a mortgage and pays for construction and remodeling of schools with bonds. M&O, known as the operating fund, is used to pay salaries, utilities, and other daily operational needs. The actual amount of state funding a school district receives is determined through a series of funding formulas that includes a wealth equalization provision, or "Robin Hood" which is now called recapture. Eanes ISD is one of the many Austin school districts subject to recapture and since 1995, has paid more than $1 billion in payments to the state.

The complex state funding formulas also include provisions on setting tax rates and requires voter approval to set the M&O tax rate above $1.04 per $100 valuation, known as a Tax Ratification Election. Additionally, funding formulas calculate different yields on locally collected taxes. Every penny collected does not generate the same amount of funding. Disparities in local taxable property values directly affect how much a penny of M&O taxes can generate.

House Bill 21 was introduced during the 85th Texas Legislative session and was meant to tackle the overwhelmingly complex school funding system. A scaled back version of the original HB 21, which plans to inject $351 million into the public education system compared to the original $1.5 billion, was passed. However, despite our efforts to voice strong and compelling legislative priorities, Eanes ISD will not receive a single penny from HB 21 legislation. In fact, Eanes ISD will instead pay over the next two years an additional $30 million in recapture money.

Eanes ISD maintains one of the lowest M&O tax rates in Central Texas. The District's $1.04 M&O tax rate has not changed in nine years even though operating costs have risen due to inflation. District leaders have worked hard to efficiently manage finances. Since 2013, the district has redeemed more than $11.6 million in bonded debt early. This has saved taxpayers more than $8.3 million in bond interest and provides greater flexibility to lower the district's I&S tax rate, which would also result in a lower overall tax rate.

To maximize local funds, the district has proposed a Penny Swap & Drop that, if approved by voters, would lower the I&S tax rate by 3.25 cents and would move two of the three pennies (the swap) to the M&O tax rate. The remaining 1.25 cents would be dropped. The Penny Swap & Drop, if approved by voters, would change the current I&S tax rate of $0.1725 to $0.14 and the current M&O tax rate of $1.04 to $1.06 for an overall proposed tax rate of $1.20, which is 1.25 cents less than the current rate. If voters do not approve the Penny Swap & Drop, the overall tax rate will remain at the current higher rate of $1.2125 (consisting of an M&O rate of $1.04 and an I&S rate of $0.1725).

On November 7 voters will be asked to consider the Penny Swap & Drop proposal. Swapping two pennies from the I&S to the M&O tax rate and returning the 1.25 cents to the taxpayers would generate $3 million in new non-recapturable operating funds for the M&O budget. Accessing the $3 million and keeping these dollars in Eanes ISD would help address budget constraints that are impacting reasonable class sizes and competitive teaching salaries. For more information, visit the Penny Swap & Drop website at www.eanesisd.net/pennyswap.

Interested in learning more about funding for Texas Public Schools? Visit the below resources: