ÁùºÏ±¦µä ISD Chief Financial Officer Nicole Conley was invited to testify before the House Public Education Committee on Feb. 28. Below is a transcript of her testimony.
Good afternoon, Chairman Huberty and members of the Committee. My name is Nicole Conley and I serve as the Chief Financial Officer for the ÁùºÏ±¦µä. I appreciate the opportunity to come before you to discuss school finance, and in particular recapture and its effect on ÁùºÏ±¦µä ISD and ÁùºÏ±¦µä taxpayers.
When recapture was initiated in 1993, it was intended to ensure equity for school districts across the state. Though not originally designed to serve as a revenue stream, recapture has grown to $2 billion statewide—coming in at nearly double what the Texas Lottery brings in for education on an annual basis.
Nowhere is the impact of this ballooning obligation more visible than here in Central Texas, where they have absolutely skyrocketed. While school districts in the area comprise less than 8 percent of the state’s student population, we pay more than 28 percent of the state’s total recapture amount. This amounts to more than $583 million each year.
ÁùºÏ±¦µä ISD is the single largest payer of recapture in the state. Our payment alone comprises 13 percent of all state collections. During the next five years—between fiscal years 2016 and 2020—ÁùºÏ±¦µä ISD is projected to pay almost $2.6 billion in recapture payments to the state. By 2019, more than half of every tax dollar collected in ÁùºÏ±¦µä will go to the state. As part of our testimony, we have included charts and data that demonstrate the severe financial effect of recapture on our district and ÁùºÏ±¦µä taxpayers.
ÁùºÏ±¦µä is in a unique and unfortunate circumstance. We are taxing people out of their homes in ÁùºÏ±¦µä and pushing them out to surrounding school districts. As a result, the district is losing enrollment, which further exacerbates our recapture obligation.
Also, our students and families face many challenges. We require additional resources to help them overcome those barriers to ensure students can learn. Nearly 55 percent of our students live in poverty, 28 percent are English-language learners, and more than half are considered to be at risk of dropping out or not meeting the state’s academic standards. Though we are considered to be a property wealthy community, the families we serve are not.
As property values increase, so do the costs to operate schools. Texas school districts are left to struggle to find ways to absorb inflationary costs while the state benefits from changes in market conditions, namely increasing property values. Our leaders must recognize that the state’s over-reliance on recapture means that local taxpayers are paying more when the state pays less by reducing its share of funding for Texas education. This puts financial pressure on school districts to absorb increasing inflationary costs because there have been no significant adjustments to the state’s outdated formula indexes, which were developed more than 30 years ago.
We have few options to deal with the increasing cost of operating our schools, as well as paying our teachers’ salaries comparable to other urban and Central Texas school districts. Raising tax rates when the district has to pay a large percentage of any increase to the Robin Hood system is a hard sell with voters, who see more and more of their local tax dollars siphoned off by the state. If our district were to increase its tax rate, we would send more than 60 percent of any new revenue to the state. Other districts would send 90 percent.
In effect, there is no local discretion to support additional programming. Simply put: We need more of our local dollars to stay in our local schools.
To put it in perspective, ÁùºÏ±¦µä ISD could lower its tax rate by 35 cents if it were not for the $406 million we must pay in recapture this year. For our average homeowner, that would amount to about $1,400 in lower taxes per year. That would make our district a lot more affordable for many who have been forced to move. Without some kind of relief in recapture for our taxpayers, we will continue to face many challenges.
- We cannot afford to pay a competitive wage, and teachers cannot afford to live in ÁùºÏ±¦µä.
- We are one of a handful of districts in Texas that must pay social security. This $33 million-per-year expense is not incurred by most other districts.
- We are putting programs proven to improve student achievement like full-day Pre-K at risk of elimination.
- We don’t receive the transportation allotment. It costs us $28 million per year to transport 22,000 students on more than 600 routes, which covered more than 6.5 million miles during the 2015-16 school year. Sixty percent of our bus routes are affected by toll roads. ÁùºÏ±¦µä ISD must pay these tolls—unlike many other public entities that are exempt from tolls.
- Every year we must dip into our fund balance and are projected to nearly double the fund balance draw between 2017 and 2019, which could have the potential to harm the district’s excellent bond rating – resulting in yet another potential hit to our taxpayers.
We would like to offer a few solutions that all districts should be able to support:
- At a minimum, tie property value increases to an increase in the basic allotment.
- Update the cost of education index – if you don’t update it, eliminate it and run the roughly $2.8 billion annually through the basic allotment to be distributed equally among all districts.
- Allow Chapter 41 districts to receive the transportation allotment as a credit against recapture.
Even some measure of relief would have a tremendous, positive impact for our children. If ÁùºÏ±¦µä ISD's recapture payment were reduced by $11.12 million, our teacher-student ratio in Pre-K classes could be reduced from 18:1 to the TEA-recommended 11:1 ratio.
Also, if our recapture payment were reduced by $17 million, we could expand our mental health clinics from 19 to 130 campuses. Investing in our children early saves money in the long run, as the cost of incarceration and inpatient mental or behavioral care is far more costly.
Unfortunately, the state’s over-reliance on recapture is leading to an unintended, inequitable burden for some communities’ taxpayers who are shouldering much more of the expense to educate our state’s children.
We know there are districts throughout the state that need additional funds to educate their students, but it is the duty of the state to provide those funds, not local property taxpayers.
Thank you for the opportunity to testify. I’m happy to answer any questions.