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Senate School Finance Plan Provides Less Flexibility Than House

May 13, 2019

House Bill 3 Impact

Please note this story has been updated to reflect revised 2018 property values based on findings from the Texas Comptroller’s Property Value Study.

The Texas Senate has passed its own version of House Bill 3, the legislation that would overhaul the school finance system and lower property tax bills across the state.

The Senate committee substitute varies significantly from the House version, and the differences must now be worked out in a conference committee over the next few weeks. Both chambers have to pass the same bill before May 27, or in a specially-called session, for it to become law.

While both versions significantly reduce recapture or “Robin Hood” and provide school districts with increased funding, the House version allows for greater flexibility about how those funds can be spent.

Overall, the Senate plan would result in an estimated $25.8 million increase in total funding for for Frisco ISD in 2019-20 compared to current law, after factoring in recapture savings. However, a total of approximately $23.7 million would be needed for required raises for teachers and librarians. The remaining $2.1 million could be used on expanding Pre-Kindergarten to full day, a requirement of the bill, and/or other priorities such as raises for staff, smaller class sizes, enhanced staff benefits or improved programs and services.

By comparison, the House version would mean an estimated $36.7 million for Frisco ISD in 2019-20 compared to current law, after factoring in recapture savings. Required raises would cost approximately $8.6 million, leaving about $28.1 million that could be used on Pre-Kindergarten, additional pay raises and/or other District priorities.

The Senate version also reduces property tax rates more than the House version by reallocating funds from existing revenue sources to a new fund created for the purpose of decreasing school district maintenance and operations (M&O) tax rates. An earlier proposal included a one-cent sales tax increase, but that was stripped from the bill before passing the Senate.

The Senate’s proposed tax cut would reduce Frisco ISD’s total tax rate from the current $1.44 per $100 valuation to $1.30471, a decrease of nearly 14 cents. That would reduce property taxes on the average Frisco ISD home valued at $422,364 by about $538 this year, after factoring in the current homestead exemption.

In addition, the Senate plan includes a mechanism to limit the growth of future tax collections. This would further compress school districts’ tax rates automatically to keep local revenue from growing more than 2.5-5.5% over the previous year, depending on inflation. That would serve to further reduce Frisco ISD’s tax rate when values rise above the cap.

By comparison, the House plan would reduce Frisco ISD’s total tax rate by about 7 cents, saving the average homeowner about $280 in 2019. It does not include a cap on revenue growth.

Other major differences between the two versions include:

  • The Senate plan includes outcomes-based funding tied to third-grade reading and college, career and military readiness. For third grade reading, this would be determined by results on the State of Texas Assessments of Academic Readiness (STAAR) or an alternative assessment adopted by the Texas Education Agency for this purpose. Funding for college, career and military readiness would be determined by performance on the ACT or SAT and enrollment in a postsecondary school, performance on the ACT or SAT and receipt of an industry-based certificate and performance on the ASVAB and enrollment in the military.

  • The Senate plan requires school districts provide a $5,000 raise for all classroom teachers and librarians, as well as implement a system to provide additional merit-based pay. This would require school districts include student performance as part of the teacher evaluation system. By comparison, the House plan requires school districts spend at least 25 percent of additional funds received through the basic allotment on salary increases for all employees other than administrators. This provision would provide a mechanism for guaranteed staff raises in the future.

  • To achieve its proposed revenue cap for school districts, the Senate plan proposes calculating state aid based on current-year property values as opposed to prior-year property values, which is the current practice. This change would present significant budgeting challenges due to the fact that school districts would not know the actual amount of state aid or recapture until late in the budget cycle. It would also have a $36 million negative impact to Frisco ISD in the first year due to historical property value growth in the District, though that loss would be offset by other changes in the bill as outlined above.

  • The Senate plan also includes several changes related to STAAR. It would combine the reading and writing assessments into a single assessment beginning in the 2021-2022 school year, allow End-of-Course exams to be administered over several days and require that STAAR be administered electronically by the 2022-23 school year. It would also create a pilot program to evaluate the potential of moving from STAAR to an integrated formative assessment program.

Click here to read the written testimony Frisco ISD submitted to the legislature regarding the Senate committee substitute for House Bill 3.

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