TEXAS SCHOOL FINANCE: WHERE DO WE GO FROM HERE? Presented by: - PowerPoint PPT Presentation

TEXAS SCHOOL FINANCE: WHERE DO WE GO FROM HERE? Presented by: David Thompson Thompson & Horton LLP May 19, 2014

CAUSE NO. D-1-GV-11-003130 IN THE DISTRICT COURT OF TEXAS TAXPAYER & STUDENT § FAIRNESS COALITION, et al., § Plaintiffs , § § VS. § § MICHAEL WILLIAMS, et al., § Defendants. § § TRAVIS COUNTY, TEXAS Consolidated Case § § FORT BEND INDEPENDENT § SCHOOL DISTRICT, et al., § Plaintiffs, § § VS. § § MICHAEL WILLIAMS, et al., § 250 th JUDICIAL DISTRICT Defendants . §

OVERVIEW OF TEXAS SCHOOL FINANCE LITIGATION Court Decision Legislative Response San Antonio ISD v. Rodriguez, 411 U.S. 1 (1973) House Bill 1126 (1975) House Bill 72 (1984) Edgewood I, 777 S.W.2d 391 (Tex. 1989) Senate Bill 1 (1990) Edgewood II, 804 S.W.2d 491 (Tex. 1991) Senate Bill 351 (1991) Edgewood III, 826 S.W.2d 489 (Tex. 1992) Proposition 1 (1993) – voted down Senate Bill 7 (1993) Edgewood IV, 917 S.W.2d 717 (Tex. 1995) System Found Constitutional West Orange-Cove CISD v. Alanis, 107 S.W.3d 558 (Tex. 2003) (WOC I) None West Orange-Cove CISD v. Neeley, 176 S.W.3d 746 (Tex. 2005) (WOC II) House Bill 1 (2006) House Bill 1 and House Bill 4 (2011) Senate Bill 1 and House Bill 102S (2013)

Figure 2. Annual Growth in Public School Enrollment: 2007-08 through 2011-12 Source: TEA AEIS database, various years. PEIMS membership counts for 2011-12. October 2012 Enrollment 2007-08 2008-09 2009-10 2010-11 2011-12 Total Public School Enrollment 4,651,516 4,728,204 4,824,778 4,912,385 4,978,120 Charter School Enrollment 89,829 102,491 119,137 133,697 154,278 Percent Charter School Enrollment 1.9% 2.2% 2.5% 2.7% 3.10% Moak, Casey & Associates Low Income/Economically Disadvantaged 2,572,093 2,681,474 2,848,067 2,909,554 3,008,464 Percent Low Income/Ec. Disadvantaged 55.3% 56.7% 59.0 59.2% 60.4% English Language Learners 774,719 799,801 815,998 830,795 837,536 Percent English Language Learners 16.7% 16.9% 16.9% 16.9% 16.8% White 1,619,426 1,608,515 1,607,212 1,531,757 1,520,320 Percent White 34.8% 34.0% 33.3% 31.2% 30.5% Hispanic 2,193,345 2,264,367 2,342,680 2,468,574 2,530,789 Percent Hispanic 47.2% 47.9% 48.6% 50.3% 50.8% African American 663,705 669,371 676,523 635,400 637,934 Percent African American 14.3% 14.2% 14.0% 12.9% 12.8% 80

Ex. 6618 Figure F-2 Pre-K – 12 Public Education Revenue per Student, in 2004 Dollars Pre-K through 12 Public Education Revenue per Student $8,000 $7,415 $7,128 $6,816 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Federal State Local Source: MCA Analysis of Figure 181 from LBB Fiscal Size-Up and Moak, Casey & Associates estimates for 2014 and 2015. Adjusted for payment delays and enrollment. 7 Moak, Casey & Associates 1/21/2014

82 nd Texas Legislature (2011) Cuts in State Spending HB 1 and HB 4  Total - $15.2B  Public Education - $5.4B  FSP - $4B  Other $1.4B  HHS - $3.1B  Higher Education - $1.3B  Medicaid underfunded - $4+B

83 rd Texas Legislature (2013) Increased Pub Ed Funding SB1 and HB1025  FSP increase - $3.4B  SB1 - $3.2B  HB1025 - $201.7M  Grants & Allotments - $292M Growth in Property Values  FSP increase - $1.4B  Net FSP State increase - $2B

Ex. 6618 Figure F-4. Increased Appropriations for Public Education for the 2014-2015 State Fiscal Biennium (Amounts in Billions) General Legislated Revenue Element Increases Impact Other Funds ISD Property Value FSP Formula Increase $3.40 $1.63 Growth $3.77 Enrollment Growth $2.20 Property Tax Relief Fund $0.20 Other Programs (e.g. IMA, SSI, Pre-K) $0.29 $0.09 PSF Payment $0.20 TRS – FY 15 Revenue Offset $0.33 $0.33 Total $6.22 $2.05 $4.17 Source: MCA Analysis of SB 1 and HB 1025 Appropriations for the 2014-15 Biennium 4 Moak, Casey & Associates 1/21/201 4

Ex. 6618 Figure F-12. Comparison of Impact of 2010-11 Formulas to Formulas in Effect in 2013-14 and 2014-15 2013-14 2014-15 # Districts 533 604 Better Off # WADA 3,265,725 3,715,204 % WADA 53.7% 61.1% # Districts 488 417 Worse Off # WADA 2,813,410 2,363,976 % WADA 46.3% 38.9% Source: Moak, Casey & Associates litigation model 10 1/21/2014 Moak, Casey & Associates

TEXAS CONSTITUTIONAL PROVISIONS • ARTICLE VII, SECTION 1 -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 public free schools. • ARTICLE VIII, SECTION 1-e - No State ad valorem taxes shall be levied upon any property within this State

• MUST provide an adequate and equalized funding system that provides for a general diffusion of knowledge and allows districts to meet State curriculum, assessment, and other legal requirements • MAY rely, in part, upon local property taxes to fund the system • MAY NOT rely so heavily upon local property taxes that system operates as a State property tax

Supreme Court on State Property Tax Meaningful Discretion “An ad valorem tax is a state tax … when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion .” Need for Local Supplementation • Local Districts must be able to provide local supplementation to fund programming beyond state educational requirements. • “The State cannot provide for local supplementation, pressure most of the districts by increasing accreditation standards in an environment of increasing costs to tax at maximum rates in order to afford any supplementation at all, and then argue that it is not controlling tax rates.”

Supreme Court on Efficiency • “Constitutional efficiency under article VII, section 1 requires only that districts must have substantially equal access to funding up to the legislatively defined level that achieves the constitutional mandate of a general diffusion of knowledge . ” • “The effect of [holding otherwise] is to ‘level down’ the quality of our public school system, a consequence which is universally regarded as undesirable from an educational perspective.”

Supreme Court on Adequacy • Warned that it remains to be seen whether Legislature will reverse the “predicted drift toward constitutional inadequacy.” • Characterized the situation as “ an impending constitutional violation .” • There is “ substantial evidence . . . that the public education system has reached a point where continued improvement will not be possible absent significant change .”

Supreme Court on Arbitrariness • “It would be arbitrary, for example, for the Legislature to define the goals for accomplishing the constitutionally required general diffusion of knowledge, and then to provide insufficient means for achieving those goals.”

Supreme Court on Suitability • “[ T]he Legislature may [not] define what constitutes a general diffusion of knowledge so low as to avoid its obligation to make suitable provision imposed by article VII, section 1 .” • “‘[S] uitable provision’ requires that the public school system be structured, operated, and funded so that it can accomplish its purpose for all Texas children.”

Figure 58. Scatter Plots of the Relationship between Performance and Percent Economically Disadvantaged 2010-11 % Economic Disadvantaged vs. % 2010-11 % Economic Disadvantaged vs. % At or Above Commended - Math Criterion - SAT/ACT Districts > 1,000 ADA Districts > 1,000 ADA 120 120 % Economic Disadvatnaged October 2012 % Economic Disadvatnaged 100 100 80 80 60 60 40 R² = 0.6097 40 20 20 R² = 0.5736 0 0 Moak, Casey & Associates 0 20 40 60 80 100 0 20 40 60 80 % Commended - Math % At or Above Criterion - SAT/ACT 2010-11 % Economic Disadvantaged vs. % Commended - 2010-11 % Economic Disadvantaged vs. % Commended - ALL Reading Districts > 1,000 ADA Districts > 1,000 ADA 150 % Economic Disadvatnaged 120 % Economic Disadvatnaged 100 100 80 60 50 40 R² = 0.7567 0 20 R² = 0.6291 49 0 20 40 60 80 0 % Commended - Reading 0 20 40 60 % Commended - All

Moak, Casey & Associates Exhibit 6620

Ex. 5797 19

Ex. 5797 20