HISD officials discuss impact of sending millions back to the state under “recapture” process

Property values in Houston are rising every year, but many of the tax dollars generated by that growth don’t stay with Houston schools. HISD must send $162 million – equal to half-a-million dollars per school – to the state of Texas this school year under a process called “recapture.”

In the latest episode of Up Close with Manuel Rodriguez, the HISD board president discusses this school funding model and its effects on HISD with Ashlea Graves, HISD director of government relations, and Glenn Reed, HISD general manager of budgeting and financial planning.

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HISD is considered a property-wealthy district and must send a portion of its property taxes to the state. Those funds are sent to other school districts, decreasing the amount the state must contribute to funding education and leaving it with more money to spend on non-education purposes.

Reed explains that the Texas Legislature each biennium sets a basic allotment that determines how much funding a school district is entitled to. A portion of the funds generated by local property taxes that exceed that allotment must be sent to the state, as in the case of HISD. If the Legislature were to increase the allotment, the state would have to put more money into public education. If the Legislature lowers the allotment or does nothing, the state would  contribute a lower share to public education.

“Because of property values growing throughout the state, it can really become a revenue-generator for the state,” says Reed.

HISD is one of more than 200 districts now subject to recapture. In 1994, when the system was created, 32 districts were paying recapture.

“We’ve seen a huge increase from 32 to 243 districts now paying recapture, mainly because of the outdated school finance system and growing economy,” says Graves.

Rodriguez points out that HISD has the lowest tax rate in Harris County, so when property tax bills rise, it is the robust economy, not the tax rate, that is responsible. And the more money HISD generates in property tax revenue, the less money the state must contribute to funding education, says Reed.

In addition, Reed says, the district’s 20 percent optional homeowner’s exemption is not recognized by the state, causing HISD’s recapture payment to be higher.

“We are paying recapture on taxes that we don’t actually collect in HISD,” says Reed.

As property wealth is projected to increase in coming years, so will HISD’s recapture payment.

Graves points out that the system is based on decades-old formulas that determine funding for student populations who require more resources in the classroom, such as economically disadvantaged, English-language learners and special needs students. Almost 80 percent of students in HISD are economically disadvantaged, and a third are learning English.

Graves’ team and the finance department are forming an agenda for the 2017 legislative session that makes recapture a priority.

Until then, HISD’s options include putting the issue to voters, who would decide whether to approve sending the $162 million to the state. The alternative is the state “detaching” properties from HISD’s tax rolls and attaching them to school districts elsewhere in Texas. Those properties, such as downtown skyscrapers, would pay the tax rate of the district to which they are attached. Since HISD has one of the lowest tax rates in the state, those properties would most likely be paying a higher rate, says Reed.

Rodriguez urges property owners and stakeholders to talk to their legislators about recapture in HISD.

More information about school finance and HISD’s budget