Overview

SB 1, the state budget bill, allocates $217 billion in all funds for the next two years.  The approved budget was a compromise between both chambers and passed May 26, 2017.  The Senate passed the budget 30-1, and the House passed the budget 135-14.  All of the “no” votes were Democrats.  Five members of HISD’s delegation voted against the budget: Sen. Sylvia Garcia, Rep. Harold Dutton, Rep. Alma Allen, Rep. Armando Walle and Rep. Shawn Thierry.  The remaining thirteen members of HISD’s delegation voted for the budget.

SB 1 provides over $55 billion to K-12 public education during the 2018-19 biennium.  There are pluses and minuses for K-12.  However, the budget continues the trend of the state shifting its constitutional obligation to local taxpayers.  School districts will see a cut in state general revenue, which means the local share of funding public education will increase.  That is a concern for HISD and districts around the state.

On a positive note, HISD is pleased to see an increase in the Austin Yield and additional funding for E-Rate (or classroom connectivity) in this budget.  The Austin Yield increase will provide some indirect relief on HISD’s recapture payments, and digital learning was a priority for HISD this legislative session.

SB 1 Highlights – Public Education

• SB1 does NOT increase the basic allotment, which means higher recapture payments.
• SB 1 funds enrollment growth (80,000 students per year).
• SB 1 continues to shift the state’s constitutional obligation to fund public education to local taxpayers.
• SB 1 does NOT fund high-quality pre-K with state dollars – districts will have to use their own funds.
• SB 1 funds programs like Teach for America, Communities In Schools and P-TECH grants for early college high schools focused on technology.
• SB 1 funds digital learning statewide by investing in the E-Rate program.
• SB 1 requires school districts to pay a larger share of the health care costs for retirees (TRS-Care).

What’s in the state budget (SB 1) for public education?

• The basic allotment stays the same (@ $5,140 per student) for both years of the 2018-19 biennium. This is a concern.  The basic allotment is the one part of the formula that benefits all schools.  When the basic allotment remains flat, that causes more school districts to enter recapture and causes districts paying recapture to write larger checks to the state.  The death of HB 21 (the school finance bill) meant there would be less impetus to raise the basic allotment.
• There is an increase in the Austin Yield, which will indirectly take some of the sting out of HISD’s recapture payments. That’s a good thing.
• $2.65 billion for enrollment growth (an increase of 80,000 students per year in Texas).
• $350 million will go toward the Teacher Retirement System (TRS) to continue health care benefits for retirees; however, school districts will have to increase their contribution rate from .55 to .75. This change will cause a $3 million cost increase for HISD.
• After much back and forth on high-quality pre-K funding, the budget conferees agreed to shift the burden to school districts. Therefore, the state is encouraging school districts to use part of their pre-K money from the state to cover high-quality pre-K at the campus level. School districts are not getting any money from the state for high-quality pre-K during the 2018-19 biennium.
• Digital learning received $25 million for the 2018-19 biennium, and the federal government will match that with $250 million to improve classroom connectivity statewide (E-Rate). The $25 million is funded with a one-time withdrawal from the state’s Rainy Day Fund in FY 2018.  Digital learning was a priority for HISD this session.
• The New Instructional Facilities Allotment (NIFA) was funded at $47.5 million.  The NIFA funds are for “fast growth” districts and charter schools.  HISD is not a fast growth district.  Our student population is pretty steady.  However, with the passage of HB 1081, HISD should be able to qualify for these funds this biennium.
• P-TECH was funded at $5 million for the next biennium.  HISD can apply for the grant.  This program is for early college high schools focused on technology.  This was a priority for the Texas Urban Council (TUC) and HISD is a member the TUC.
• Educational Service Centers (ESCs) were cut by $1.25 million. The ESCs service school districts statewide.  The Region 4 ESC services Houston ISD and surrounding districts.
• Communities in Schools maintains its current level of funding ($31 million). HISD works with Communities in Schools.
• Teach for America will receive $11 million for the biennium. TFA is one of HISD’s partners.  HISD hires their teachers.

How does the budget impact local school property taxes?

In SB 1, state funds drop substantially and are replaced with local school property taxes:

• The Legislature cuts state general revenue funds for school districts by more than $1.218 billion from the FY 2016-17 biennium to the FY 2018-19 biennium.
• The last time the Legislature cut general revenue to school districts was in 2011 (when Texas had a large budget shortfall), which was slightly more than 2017, at $1.275 billion rather than $1.218 billion.
• The drop to state funds equates to an average drop statewide of more than $250 per district student over the biennium. ($1.218 billion/4.8 million ISD ADA; no state funds are cut for charter schools) or roughly $5,500 per 22-student classroom. (Compared with $339 nine-year drop in state aid per student from 2008-17, the two-year $250 drop is drastic.)
• Local school property taxes will be increased substantially. The Legislature provides in Rider 3: “Property values, and the estimates of local tax collections on which they are based, shall be increased by 04 percent for tax year 2017 and by 6.77 percent in tax year 2018.”  The percentages have been increased a lot from those in the appropriations bills passed earlier in session in March and April, and the total 13.8 increase for the biennium is substantially higher than in the past five biennia and could set up funding cuts in future years if the Legislature’s forecast higher property values do not materialize.
• The Legislature is increasing reliance on recapture by $725.9 million for the biennium. It was $3.845 billion in the FY 2016-17 biennium and will rise to $4.57 billion in the FY 2018-19 biennium – comprising more than 10 percent of the appropriation to the Foundation School Program.  In FY 2018, recapture will be almost double the amount that comes from the state lottery. 

Houston ISD’s Projected Recapture Payments:

• 2016-17: $83 million (current biennium)
• 2017-18: $210 million
• 2018-19: $285 million

Note: these are rough estimates