school finance litigation: post-trial court decision … dietz on state property tax hb1, the...

Janet L. Horton Merri Schneider-Vogel Thompson & Horton LLP 3200 Southwest Freeway, Suite 2000 Houston, Texas 77027 [email protected] 713-554-6746 [email protected] 713-554-6749

School Finance Litigation: Post-Trial Court Decision Update

J. David Thompson

Philip D. Fraissinet

Thompson & Horton LLP

3200 Southwest Freeway, Suite 2000

Houston, Texas 77027

Holly McIntush


400 W. 15th Street, Suite 1430

Austin, Texas 78701

[email protected]

512-615-2351

Texas Constitutional Provisions

ARTICLE VII, SECTION 1

A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools.

ARTICLE VIII, SECTION 1-e

No State ad valorem taxes shall be levied upon any property within this State

2

The Ruling

State Property Tax

Districts do not have “meaningful discretion” over their tax rates

because they are being forced to tax at or near the cap in order to

achieve a general diffusion of knowledge

Adequacy

The system is not providing a general diffusion of knowledge

Suitability

The system is not structured, operated, and funded so as to

achieve a general diffusion of knowledge

Equity

Districts cannot raise the funds necessary to achieve a general

diffusion of knowledge at similar tax rates

3

Supreme Court on State Property Tax

Meaningful Discretion

“An ad valorem tax is a state tax … when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion.”

Need for Local Supplementation

• Local Districts must be able to provide local supplementation to fund programming beyond state educational requirements.

• “The State cannot provide for local supplementation, pressure most of the districts by increasing accreditation standards in an environment of increasing costs to tax at maximum rates in order to afford any supplementation at all, and then argue that it is not controlling tax rates.”

4

Judge Dietz on State Property Tax

HB1, the legislature’s “solution” to the WOC II state property

tax ruling, actually reduced tax capacity in the long run.

Tax compression created a structural deficit which has kept the

State from properly funding Tier I

TRE requirement and the low yield from additional pennies

above $1.06 has kept many districts from being able to access

Tier II to make up the difference much less provide enrichment

Insufficient facilities funding is causing increasing I&S rates

which further reduces district control over M&O rates,

especially for fast-growth districts.

The State continues to use local property value growth to fund

“increases,” further increasing state control.

5

Figure F-4. Increased Appropriations for Public Education for the 2014-2015 State Fiscal

Biennium (Amounts in Billions)

Element

Legislated

Increases

General

Revenue

Impact Other Funds

FSP Formula Increase $3.40 $1.63

ISD Property Value

Growth $3.77

Enrollment Growth $2.20 Property Tax Relief Fund $0.20

Other Programs (e.g. IMA, SSI,

Pre-K) $0.29 $0.09 PSF Payment $0.20

TRS – FY 15 Revenue Offset $0.33 $0.33

Total $6.22 $2.05 $4.17

Source: MCA Analysis of SB 1 and HB 1025 Appropriations for the 2014-15 Biennium

Source: Lynn Moak 2014 Trial Presentation, Ex. 6618

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84th Texas Legislature

Comptroller’s January 12th Revenue Estimate

• $18B GR above current biennium

• Sales tax growth – 8.9%

• Rainy Day Fund

• $8.5B at end of current biennium

• $11B at end of next biennium, after transfer to transportation

• Property value increases - $4.5B

7

Ending Revenue Compared to Appropriations

• Unspent GR - $6.4B

• Appropriations Below Spending Limit - $2.9B

8

Funding For Public Education

• Enrollment growth - $2.3B

• Basic allotment - $1.2B

($5,140 both years)

• Austin ISD Guaranteed Yield

• $74.28 (2016)

• $77.53 (2017)

• IFA (2017) - $55.5M

• NIFA - $47.5M

• Instructional Materials - $1.04B

($200M increase)

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Funding For Public Education Cont.

• Math and Reading Academies - $40.6M

• PreK - $118M

• (plus existing $30M supplemental funding)

• SSI (down from $60.5M) - $31.7M

• Fractional funded districts - $200M

Also included in Article III:

• 25% reduction in franchise tax - $2.6B

• $10,000 increase in state homestead exemption - $1.2B

10

M&O Tax Rates for Texas School Districts 2007-08 and 2012-13

M&O Tax Rate

# Districts

2007-08

%

Districts

2007-08

ADA

%

ADA

# Districts

2012-13

%

Districts

2012-13

ADA

%

ADA

<$1.00 98 9.55 165,709 3.92 54 5.29 80,452 1.78

$1.00 to <$1.04 108 10.53 994,860 23.52 39 3.82 292,556 6.46

$1.04 699 68.13 2,680,939 63.38 607 59.45 3,046,938 67.29

$1.04 to <$1.17 24 2.34 217,130 5.13 74 7.25 505,855 11.17

$1.17 and

Above 97 9.49 171,294 4.05 247 24.19 602,429 13.30

Total 1,026 100 4,229,933 100 1,021 100 4,528,231 100

Source: Moak, Casey & Associates data files (original source data from the State Comptroller of Public

Accounts Self-Report Property Value File and TEA reports of student counts by district)


11

I&S Tax Rate Changes

1999-2000

665 districts levied I&S taxes

34 districts: $0.30 or above


2012-13

821 districts levied I&S taxes



Source: Dan Casey 2014 Trial Presentation, Ex. 6621

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Supreme Court on Adequacy

•There is “substantial evidence . . . that the public education system has reached a point where continued improvement will not be possible absent significant change.”

•Characterized the situation as “an impending constitutional violation.”

•Warned that it remains to be seen whether Legislature will reverse the “predicted drift toward constitutional inadequacy.”

13

$7,128 $7,415

$6,816

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pre-K through 12 Public Education Revenue per Student

Federal State Local


14

Judge Dietz on Adequacy

Student performance expectations have

dramatically increased since WOC II.

Student performance is not improving on STAAR

like it did on TAKS

Economically-disadvantaged and ELL students

are not meeting standards and performance gaps

are not closing

After 6 tries, 34% of this year’s E-D seniors still had not

passed the required EOC exams

After 3 tries, 44% of this year’s E-D juniors still had not

passed the required EOC exams.

15

Graduation Tests at Level II Phase-In I Standard

Graduation Tests at Level II Final Recommended Standard

Economic Disadvantaged # Districts ECON DIS % Met

Level 2 at Phase-in I

NON-ECON DIS % Met Level 2 at

Phase-in I

ALL STUD % Met Level 2 at Phase-

in I

ECON DIS % Met Level 2 on ALL EOCs Taken, at Lvl II FINAL

Recommend

NON-ECON DIS % Met Level 2 at FINAL

Recommend

ALL STUD % Met Level 2 FINAL Recommend

Under 30% 77 49.6% 77.2% 71.7% 21.4% 49.0% 43.5%

30% to less than 50% 243 41.0% 66.9% 57.5% 15.1% 36.8% 29.0%

50% to less than 70% 449 35.9% 60.1% 47.2% 12.2% 30.4% 20.7%

70% to less than 90% 273 33.9% 54.1% 38.9% 11.8% 26.5% 15.4%

90% and Over 61 31.3% 47.7% 32.2% 11.7% 22.6% 12.4%

Unknown 8 32.3% 52.9% 40.6% 26.8% 31.2% 28.6%

Grand Total 1,111 36.1% 65.0% 49.5% 12.9% 35.9% 23.5%

Grade 3-8 Tests at Level II Phase-In I Standard

Grade 3-8 Tests at Level II Final Recommended Standard

Economic Disadvantaged # Districts ECON DIS % Met

Level 2 at Phase-in I

NON-ECON DIS % Met Level 2 at

Phase-in I

ALL STUD % Met Level II Phase-In

I Standard ECON DIS % Met Lvl II

FINAL Recommend

NON-ECON DIS % Met Lvl II FINAL

Recommend

ALL STUD % Met Level II Final Recommend

Under 30% 93 56.6% 84.0% 77.9% 17.3% 46.8% 40.3%

30% to less than 50% 257 53.0% 78.2% 67.7% 14.7% 37.9% 28.3%

50% to less than 70% 467 48.0% 72.2% 57.3% 12.5% 32.6% 20.2%

70% to less than 90% 291 46.3% 67.2% 50.2% 12.1% 28.8% 15.2%

90% and Over 81 42.6% 59.7% 43.5% 10.8% 23.3% 11.5%

Unknown 12 29.7% 58.0% 48.0% 6.2% 25.3% 18.6%

Grand Total 1,201 47.9% 76.2% 59.3% 12.7% 37.2% 22.5%

Source: MCA analysis of the TEA confidential student-level data files via Litigation Discovery and TEA Analyze Categories

Percent of Students Passing Spring 2013 STAAR Tests by District Percentage of Economically Disadvantaged Students

Source: Moak Casey Analysis, Ex. 6620 16

Supreme Court on Suitability

“[T]he Legislature may [not] define what constitutes a general diffusion of knowledge so low as to avoid its obligation to make suitable provision imposed by article VII, section 1.”

“‘[S]uitable provision’ requires that the public school system be structured, operated, and funded so that it can accomplish its purpose for all Texas children.”

17

Judge Dietz on Suitability

Despite a statutory mandate, the State has made no

attempt to calculate the cost of adequacy or meeting

its own standards

Most of the district and student level formula

adjustments have not been updated since before the

fall of the Berlin Wall.

The school districts presented three credible estimates

of the cost of accomplishing a GDK.

The lowest of these - based off a number the

Supreme Court found to be adequate in Edgewood IV,

under an easier accountability system - shows that the

State needs to spend $800 more per student to fund a

GDK at $1.04 tax rates.

18

Supreme Court on Efficiency

• “Constitutional efficiency under article VII, section 1 requires only that districts must have substantially equal access to funding up to the legislatively defined level that achieves the constitutional mandate of a general diffusion of knowledge. ”

• “The effect of [holding otherwise] is to ‘level down’ the quality of our public school system, a consequence which is universally regarded as undesirable from an educational perspective.”

19

Judge Dietz on Efficiency

The vast majority of school districts do not have

access to the level of funding that achieves a

general diffusion of knowledge at any tax rate.

888 districts cannot raise the adjusted Edgewood

IV adequacy estimate this school year at $1.17.

73 districts can raise the adjusted Edgewood IV

adequacy estimate at $1.

The actions of the 2011 and 2013 Legislatures

have combined to level down funding in direct

contravention to the Supreme Court’s prohibition.

20

Next Steps

Estimated

Judge Dietz issued final judgment and findings of fact

August 28, 2014

Appeal filed (30 days, up to 90) September 29, 2014

Supreme Court takes case January 23, 2015

State files initial brief April 13, 2015

School Districts file briefs July 2, 2015

State files reply brief August 11, 2015

Oral Argument November or December 2015

Supreme Court Ruling Spring 2016

Legislative response Summer 2016 Special Session

21

State’s Arguments to Texas Supreme Court

Texas is trapped in a litigation vortex with “no end in

sight.”

Claims under Article VII, Section 1 are non-justiciable

political questions.

System is adequate in terms of results.

System is efficient.

System is achieving GDK and is therefore suitable.

Districts have meaningful discretion, therefore no

State property tax.

22

Charter’s Arguments to Texas Supreme Court

Charter schools receive at least $1,000 less than

school districts, and less than the constitutional

minimum to achieve GDK.

This disparity in funding has caused charter student

performance to suffer.

23

Calhoun County ISD’s Arguments to Texas Supreme Court

Supreme Court has rejected financial efficiency

challenges to facilities funding twice in the past.

Funding cuts and subsequent adjustments since 2011

have narrowed funding disparities.

Current system is a least as equitable as in WOCII,

which was found to be constitutional.

24

Intervenor’s Arguments to Texas Supreme Court

System is qualitatively inefficient because it fails to

achieve results with little waste.

School district plaintiffs have failed to show that

system is not producing GDK because of inadequate

funding and not other reasons.

System fails to tie any funding to any educational

results, and is therefore inefficient.

25

84th Texas Legislature

• SB 455 • Attorney General may request Texas

Supreme Court Chief Justice to appoint three-judge panel for school funding and redistricting challenges

• Original district court judge, another elected district court judge, an elected court of appeals justice

• State pays costs • Any appeal is direct to Texas Supreme Court • Signed by Governor May 28, 2015, effective

September 1, 2015

26

Janet L. Horton Merri Schneider-Vogel Thompson & Horton LLP 3200 Southwest Freeway, Suite 2000 Houston, Texas 77027 [email protected] 713-554-6746 [email protected] 713-554-6749

J. David Thompson

Philip D. Fraissinet


3200 Southwest Freeway, Suite 2000

Houston, Texas 77027

Holly McIntush


400 W. 15th Street, Suite 1430

Austin, Texas 78701

[email protected]

512-615-2351

School Finance Litigation: Post-Trial Court Decision Update

27

school finance litigation: post-trial court decision … dietz on state property tax hb1, the...

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