The only bill that must pass the Legislature is the two-year state budget, and more often than not it turns into a test of will between the House and Senate leadership—and if the preliminary budget proposals laid out by the chambers on Tuesday are any indication, the game is once again afoot. But this time House Speaker Joe Straus put pressure on the tax-cutting reputation of Lieutenant Governor Dan Patrick by including $1.5 billion in the House plan for potential property tax relief.
The catch? The money only becomes available if lawmakers overhaul the state’s clunky system of property tax recapture and redistribution, popularly known as Robin Hood. Straus wants to tackle the topic this session, but Patrick has said it is too complex and needs a special legislative session all its own.
Robin Hood is designed to take excess property tax money from wealthy school districts and give it to property poor districts to equalize education spending in the state. The problem is that rising real estate values have turned many school districts that once were in the middle of the pack into statistically wealthy ones.
That trend would allow the state to cut the money it is putting into public education over the next two years by $1.5 billion because it is offset by higher local property values. In other words, that cost of educating the state’s children is shifted from the state to the local taxpayers.
Faced with an overall budget shortfall, the Senate’s starting plan takes that $1.5 billion windfall and puts it back into the budget. The House plan, however, makes that reinvestment contingent on overhauling Robin Hood. The money would not necessarily result in a property tax cut, but it would relieve some of the pressure on local districts.
Putting school finance off to later this year might be fine were it not for several pending funding crises for some local school districts.
The first major problem is wealth redistribution among the state’s school districts. Austin has growing complaints that the city’s housing is becoming unaffordable. Austin’s wealth comes from rapidly rising property values in the city, not necessarily from a growth of income among its citizens. As a result, the state’s Robin Hood system, which looks just at property values, considers the Austin school district wealthier than it actually is. So Austin sends $175 million in much-needed local property taxes to the state for redistribution to other districts.
Houston Independent School District is facing a similar problem. This year it owes the state $162 million for redistribution. Houston voters last fall followed Mayor Sylvester Turner’s lead and voted against writing a check to the state for redistribution. Instead, the Texas Education Agency now will take high-dollar properties off the HISD tax roll and give it to another school district to tax. That means HISD not only will lose the property for maintenance and operations expenses but also for the taxes collected to pay off school construction bonds. Plus, the business property owners might face higher tax rates in another district. The point of the vote was to create a crisis that forced the Legislature to act before the property is transferred on July 1. Essentially, Houston voters took themselves hostage with a demand that the Legislature save them from themselves.
Former state officials, Governor Rick Perry and Speaker Tom Craddick, knew one way to bring property taxes under control, even if only for a short time, is to increase the state’s share of funding for public schools. When they passed their property tax overhaul in 2006, the state was paying only 34 percent of the cost of education, with local districts picking up the rest of the tab, but the state’s share rose to 48 percent after they used state funds to replace local property taxes. State budget cuts in 2011, drove the state’s share down to about 45 percent, but that is expected to drop even farther in the next budget cycle because the state funding formula reduces state spending due to robust property value growth in parts of Texas.
While Patrick and other Republicans might be inclined to cast a side eye on the Democratic strongholds of Austin and Houston, another part of the school funding scheme, known as Additional State Aid for Tax Reduction is set to expire on September 1 and will hit some school districts in Republican areas the hardest. This is money paid to school districts to make up for revenue lost due to the state-mandated property tax cuts. Frisco, in fast-growing Collin County, will lose $36 million in state funding, while another Collin County district, Prosper, will lose $15 million; Round Rock north of Austin, $17 million. And poor Austin, on top of the Robin Hood money it pays, will lose $12 million in state property tax offsets. Frisco voters in August rejected a local property tax increase to make up for the lost state money. The district already is looking for budget cuts for the next school year.
There is one other major difference in the base budgets of the House and Senate, though. The Senate version spends $103.6 billion of the $104.9 billion Comptroller Glenn Hegar has estimated that lawmakers will have to spend over the next two years. The House budget, though, starts at $108.9 billion. To balance the budget, the House would have to use accounting tricks such as deferring payments to the next budget cycle, make cuts or dip into the state’s $11.1 billion rainy day fund.
Both the House and Senate budgets outlines include substantial increases for Child Protective Services: $268 million in the House plan and $260 million in the Senate’s.
“We keep overall spending low while making investments in children and our future,” Straus said in a news release. “We put an emphasis on public education, child protection and better mental health care.”
A side-by-side comparison of the two plans was not immediately available, but Senate Finance Chair Jane Nelson said her plan will provide $2.65 billion to cover a projected student enrollment growth in Texas of 80,000 students, but the House plan released by Straus’ office showed an enrollment growth of 165,000 students.
“This base budget is a starting point,” Nelson said in her announcement. “I look forward to working with my colleagues to develop a balanced budget.”