As the Texas state legislature attempts to revamp the state’s school funding system, here are seven key problems with Texas’ school finance system that policymakers need to address.
#1 Funding Is Not Tied to Student Needs
The state adjusts each district’s basic allotment by factors that aren’t tied to student need. Astoundingly, the Cost of Education Index hasn’t been adjusted since it was implemented in 1991 despite the fact that demographics have evolved rapidly in Texas. In total, about $2.36 billion of funding is dispersed to districts annually based on this outdated index that does not reflect current realities. Similarly, the diseconomies of scale adjustments that provide additional funding for small and midsize districts are also problematic. While district size can bring about economies of scale, research has shown that these economic benefits diminish as size increases and that per-pupil expenditures actually increase when an optimal district size is breached. A comprehensive study of Michigan districts indicates that the most cost-effective size is about 2,900 students, suggesting that Texas’ funding system overestimates the cost savings of its larger districts while providing additional funding to others based on non-existent or exaggerated disadvantages related to scale. As a result of these adjustments, there were a total of 223 different basic allotments for 1,019 districts in 2014–15, and students with identical needs often receive varying levels of financial support.
#2 Obsolete Provisions Favor Students in Some Districts Over Others
Various hold-harmless provisions in the state’s funding formula have caused inequities for decades. Most notably, a Target Revenue system was overlaid on Foundation School Program formulas after local tax rates were compressed by House Bill 1 in 2006, which essentially set a per-pupil funding floor for districts. Even though it was intended to be a temporary measure to help districts transition to a new system, 24% of districts are still funded by this mechanism.
Target Revenue has arbitrarily benefited some districts over others, as it bases funding on historical factors rather than a district’s current students. According to the Equity Center, “When a segment of districts receives funding outside a cost-based formula system, other districts and their taxpayers are footing the bill to keep such non-cost based funding in place.
Non-privileged districts with taxpayers taxed at higher rates are in effect subsidizing the higher funded, lower-taxing districts.” Equity Center estimates that continuing this failed policy beyond its scheduled expiration date in 2017 will shortchange students in over 75% of districts including Houston ISD, Dallas ISD and El Paso ISD. In fact, Houston ISD alone stands to lose an astounding $14.1 million as a result of allowing Target Revenue to persist.
#3 Unequalized Tax Revenues
The current system provides districts with access to unequalized revenues through both M&O and I&S taxes, which ultimately creates funding disparities that are unrelated to tax effort and student need while enabling districts to waste tax dollars. This problem is especially acute with I&S taxes of which no portion is subject to recapture. Katy ISD’s $70.3 million football stadium is a monument to this problem, with similar venues in Allen ISD and McKinney ISD.
It is true that Texas’ Instructional Facilities Allotment and Existing Debt Allotment programs provide districts with a guaranteed yield of facilities funding, but this level of support hasn’t been updated since 1999 and many districts have become ineligible for state funds at this threshold. As a result, the average high- wealth district raises more than three times as much I&S revenue as the average low-wealth district, even at a lower average tax rate. And when M&O and I&S taxes are combined, the funding gap between the highest and lowest wealth districts is about $3,400 per pupil, despite the fact that the latter taxes at higher rates.
Some property-wealthy districts are also gaming the system by purchasing things that are typically paid for with M&O revenue—such as furniture, buses and computers— with I&S revenue. By forgoing M&O tax rates that are subject to recapture (i.e. “Copper Pennies”), districts can raise the same level of revenue with I&S taxes at lower rates or raise more revenue at the same rates. This places students and taxpayers in property-poor districts at a significant funding disadvantage relative to their counterparts in wealthier districts. Policymakers should view this as a systemic flaw and be wary of technocratic tweaks that only serve as temporary patches.
#4 Intradistrict Funding Policies
Texas’ school finance system ultimately funds districts rather than students. Even though the Foundation School Program uses a weighted-student formula that promotes equity, there is no guarantee that funds are spent on the students they’re intended for as district-level policies often lead to inequitably allocated resources. This is because FTE budgeting allocates staffing-positions based on district-wide average teacher salaries instead of sending actual dollars to principals. In this system, not only do schools in disadvantaged neighborhoods have less access to talented teachers than affluent schools, but they’re also forced to subsidize their more expensive staffs.
An analysis by Marguerite Roza examined numerous districts, including Austin and Dallas, and found that “…teacher salaries are an average of $1,000 to $5,000 higher in schools with fewer poor students than in the highest-poverty schools in the same district.” Because schools in these districts are given resources based on staffing positions with equalized salaries, principals aren’t permitted to realize these savings and apply them to specific resources that would benefit students. In a separate study, Roza and Paul T. Hill found that the average gain or loss within four districts evaluated ranged from $72,576 to $120,612 with one school losing an astounding $959,730 due to district policies.
To be sure, teachers and principals should be empowered to drive the hiring process, even if it still results in an uneven distribution of talent across a district. What matters is that schools receive the funding allotment their students are entitled to, which is currently not the case in most districts. A district budgeting system that allocates actual dollars and provides principals with autonomy to make tradeoffs with scarce resources would help ensure that all schools get a fair shot at hiring talented teachers without forcing those with less expensive staffs to subsidize the others. Just as Pell grants easily follow students across postsecondary institutions, the same should be true of K-12 funding allotments. This is the only way to guarantee that funding allotments reach the students they’re intended for.
#5 District Enrollment Policies Restrict Parent-Driven Accountability
Texas parents have little say in how their child’s education dollars are spent. Because virtually all districts use residential assignment—the practice in which a family’s address determines what school they attend—it can be difficult for dissatisfied parents to enroll their child in a public school that better fits their needs.
Overall, Texas districts fared poorly in Brookings Institution’s Education Choice and Competition Index, which evaluated 112 large districts based on 13 factors, such as alternatives to traditional district schools, access to information for parents and performance data transparency. Even Houston Independent School District, which was rated as the sixth best choice system in the U.S., falls well short of the nation’s frontrunners, as it still gives students default school assignments based on geographical zones and lacks a streamlined enrollment process that accounts for parental preferences.
And while the district boasts popular magnet schools, there were 71,743 applications for only 18,569 seats in the 2015–16 school year. As a result, Houston ISD families must navigate disjointed processes, and their options are often limited by a lack of available seats.
#6 Funding Failure Instead of High-Quality Options for Low-income Students
Texas’ funding policies have not kept pace with parental demand as nearly 130,000 students remain on waiting lists for charters throughout the state, despite the fact that research has proven their effectiveness in serving low-income students. Nationally, all four randomized controls trials—the “gold standard” of social science research— on charters indicate that they effectively serve urban students. And in a study of Texas charters, Stanford University’s Center on Research on Education Outcomes found that in a school year students in poverty who attended charters had a 14-day learning advantage in reading and a 22-day learning advantage in math compared to the same group attending district schools.
The Texas Legislature compounded this problem in 2013 when it passed Senate Bill 2 (SB2). While SB2 will raise the charter cap to 305 by 2019, it also transferred authorization authority from the State Board of Education to the Commissioner of Education and required the Commissioner to adopt additional application standards. These changes have frustrated applicants and seem to have discouraged out-of-state operators from entering the state.
According to Carpe Diem Learning Systems CEO Robert Sommers, the onerous application can take years to complete. And a study by American Enterprise Institute found that of 15 state education agency authorizers, Texas’ application requires the greatest number of tasks—more than double what’s required by Massachusetts, which is renowned for its high-performing charter sector.
In 2016, only two of 26 applicants for Texas charters were granted and the states’ 183 charters is well below even the previous cap of 215. Clearly, the obstructive red tape is the greatest hindrance to charter school proliferation after facilities funding.
To be sure, SB2 supporters had good intentions as they sought to increase the number of high-quality operators in Texas, but research suggests that the state’s low-regulation environment effectively fostered quality at a time of rapid growth. One study found that between 2001 and 2011 the average charter school made substantial improvements relative to districts schools, concluding “Our analysis clearly indicates that charter school quality has improved over time in Texas.”
And since SB2 also included strict provisions that rapidly close underperforming charters, Texas’ authorization requirements are especially unwarranted and only serve as bureaucratic hurdles to providing more choice for families who are stuck on waiting lists. American Enterprise Institute estimates that the typical application could be shortened by at least one-third, saving applicants more than 700 hours of work—all while maintaining the same level of quality.
Such bureaucratic obstacles prevent high-quality options, such as charter schools, from proliferating in Texas, despite strong parental demand. This is especially troubling as students in Texas’ low-income communities disproportionately attend failing schools. In 2015, more than one in 10 schools with low-income populations of 50% or greater were rated “Improvement Required” by the Texas Education Agency, whereas less than one in one hundred schools with low-income populations of less than 50% received the same rating.
#7 Lack of Transparency
Texas’ financial reporting system falls short of maximizing transparency.Currently, key school-level financial data are publicly available but difficult to access since they’re warehoused in separate reports. For example, the Texas Academic Performance Report shows metrics such as a school’s average teacher salary but links to more comprehensive information are only available in the Public Education Information Management System. And while Texas’ School Report Cards that summarize school performance provide a financial snapshot and links to the two aforementioned reports, they don’t highlight some of the key metrics that all parents should be informed of. Texas should be commended for making this information available, but end-users are forced to piece together financial data by navigating several reports, which makes it difficult for stakeholders to make valuable comparisons across districts, schools and demographics.
For more on this issue, please read the policy brief: Fixing the School Financing System in Texas: Creating an education funding system that puts students first.