Burnt Orange Report

Supreme Court Hears School Finance Case...And, Oh Yes, I'm Back

By Vince Leibowitz

After a far-too-long hiatus from the Blogsphere (and a nice, extended July 4th holiday sitting around a pool), I have returned.

But please, hold your applause.

It only seems fitting that my first post upon my return would just happen to be on one of my favorite topics: public school finance in Texas.

For those of you who didn't know, the Texas Supreme Court took up school finance yesterday in oral arguments. Though it's received quite a bit of ink across Texas today, it has been shadowed by the Special Session.

At any rate, the school finance saga that began with the Edgewood lawsuit in the 1990s and came to a head last summer in the West Orange Cove case where a state district judge ruled the Share-the Wealth system of school finance doesn't adequately fund Texas schools, went before the high court yesterday.

The Houston Chronicle noted:

Attorneys for hundreds of school districts told Texas Supreme Court justices today that the state has failed in its duty to educate 4.3 million public school students, while state lawyers argued that the Legislature — not the courts — should repair Texas' troubled school finance system.

The justices weren't expected to rule for several weeks or months after hearing oral arguments from both sides in the ongoing battle over how Texas pays for public education.

The case is an appeal brought by the state of last summer's ruling in which state District Judge John Dietz sided with the more than 300 districts that sued Texas, saying the way the state funds public education is unconstitutional. The districts argued that Texas doesn't spend enough money on schools to provide a "general diffusion of knowledge."

Buck Wood, an attorney representing some of those districts, reiterated that point Wednesday.

"Is the state providing a general diffusion of knowledge to its students when over 30 percent of its students never graduated from high school?" Wood asked the court.

The state, which quibbled with the dropout figure, argued that it was the Legislature's responsibility to determine school funding policy. The state also argued that the plaintiff districts failed to prove a link between money spent and student achievement.

The share-the-wealth system relies heavily on local property taxes, causing many of the state’s more than 1,000 independent school districts to complain that the $1.50 cap on the maintenance and operations tax rate is unconstitutional because it prevents the districts from generating additional revenue needed to operate schools.

For those of you who are unfamiliar with some of the issues in the case, here's some background, which I believe I've posted before, but is worth posting again:

The Share The Wealth plan, commonly called "Robin Hood," is codified in Chapter 41 of the Texas Education Code, and defines property wealthy school districts as those districts in which the taxable value of all property in the district divided by the number of students using a sometimes mind-numbing formula for "weighted average daily attendance" (WADA), exceeds a threshold set by the state (currently set at about $305,000). Local tax values above that amount become subject to equalization, and schools subject to giving up revenue (referred to as a "recapture payment") are frequently referred to as "Chapter 41″ schools. Wealth is not determined by a district’s tax rate or the revenue it generates.

The law (SB 7) was created in 1993 by the Texas Legislature to equalize funding among school districts across the state following litigation resulting from the great disparity between property rich and property poor districts.

Currently, 134 Texas school districts–-roughly 12 percent–-are considered Chapter 41 schools that must make recapture payments. On the other hand, 889 Texas schools are recipients of the recapture funds.

In 2003, the newly Republican Texas Legislature voted to do away with Robin Hood as soon as an alternative plan could be developed.

Over the past 20 years, courts have declared the state’s system of school finance inequitable and unconstitutional. The most well-known of these court battles is the series of Edgewood lawsuits that began in 1989. This series of suits confronted the issue of how to resolve inequalities between districts related to revenue-raising capacities and funding between property wealthy and property poor districts. After courts ruled the state’s system wasn’t equitable, the state legislature developed SB 7 in 1993 which created the share-the-wealth system. The plan was upheld by the Supreme Court in 1995.

Under share-the-wealth, property-wealthy districts are defined as those districts with $271,400 or less in taxable property value per weighted student. Revenue earned above this level is subject to recapture under Chapter 41. About 12 percent of Texas schools fall in this category.

Property-poor districts are designated as those with $271,400 or less in taxable property value per weighted student. Districts in this catergory receive "Tier 2″ aid from the state that allows them to raise the "guaranteed yield" of $27.14 per student per penny of tax effort. About 85 percent of Texas schools fall in this category.

So-called "gap districts" are those with less than $305,000 but more than $271,400 in taxable property value per weighted student. These districts receive no Tier 2 aid, and their tax revenue isn’t subject to recapture. About two percent of Texas’ ISDs are gap districts.

West Orange-Cove Consolidated School District in Southeast Texas was the initial plaintiff in the suit heard by the Supreme Court Wednesday, styled West Orange-Cove Consolidated Independent School District vs. Alanis, et al. Since then, more than three hundred school districts have joined in the suit in three sepatate groups, which now constitutes a "class action." The largest districts include Austin ISD (78,000 enrollment) Dallas ISD (160,00 enrollment), and Houston. The "Alanis" is Texas Education Commissioner Felipe Alanis, who is being sued along with Comptroller Carole Keeton Strayhorn, the State Board of Education, and some involved with the lawsuit that started the school finance battle, Edgewood ISD v. Kirby.

When West Orange-Cove was filed in 2001, property wealthy districts asserted they were or would soon be levying local property taxes at the maximum cap set by the state for maintenance and operations–$1.50–and that they had lost local discretion in setting the M&O rate, although districts can utilize a separate tax rate–Interest and Sinking–for facilities construction and improvement. The plaintiffs asked the 250th District Court to declare that the system constituted a state property tax. State District Judge Scott McCown dismissed the case, noting that fewer than half of the state’s districts had reached the cap–an insufficient number for the court to consider whether the state has established a state property tax through compelling ISDs to tax at a specific level to meet minimum standards required for accreditation.

The local-option homestead exemption was also considered by the court, which noted that districts had the discretion to continue or eleminate the cap locally, thus being able to free up additional revenue.

Austin’s Third Court Of Appeals upheld McCown’s decision based on different reasoning, specifically that the threshold for determining whether the tax cap constitutes a cap isn’t the number of districts at the cap but rather whether any district has no choice but to tax at the cap to meet minimum accreditation.

The all-Republican Texas Supreme Court reversed the two lower court decisions and remanded the case to the district court for trial, and reaffirmed its previous decisions in the Edgewood cases.

The suit essentially seeks six things:

+Maintain–and increase if possible–the overall equity of Texas school finance system.

+Establish a system that truly reflects the cost of educating students.

+Ensure that the system preserves local control;
Ensure that the system has capacity to grow over time, as the State’s population continues to grow and change.

+Ensure that the state funding system reflects the true cost of educating limited-English-proficient students, and other high-cost students, to meet State performance standards.

+Eliminate or reducing the reliance of the current school finance system on “recaptured” local property taxes, while maintaining the overall equity of the system.

In December 2003, a group of property-poor districts entered a separate challenge in the West Orange-Cove lawsuit. These plaintiffs, referred to as the Alvarado plaintiffs, include many districts who have been involved in school finance litigation since 1984, intervening on behalf of the original plaintiffs in the Edgewood suit and on behalf of the state in the original West Orange-Cove lawsuit. A third group of districts, led by Edgewood ISD near San Antonio, again including many of the original Edgewood plaintiffs, also intervened in the laswuit on behalf of the state in February of this year. These 16 property-poor districts are involved as a cross-petitioner because they support and opposes certain aspects of both sides.

Both the Alvarado and Edgewood districts defend the equity of share-the-wealth while also claiming the system does not provide sufficient funding to guarantee a “general diffusion of knowledge” as required by the state constitution. On the flip side, although the West Orange-Cove plaintiffs don’t directly challenge the recapture aspect of share-the-wealth that gives it the “Robin Hood” moniker, they do ask the court to block the state from enforcing Chapter 41 and Chapter 42 of the Texas Education–both of which include the recapture provisions–and from distributing any funds under the current system until the constitutioonal questions have been resolved.

Though the lawsuit only challenged the constitutionality of the $1.50 cap when it was filed, it has evolved into a massive case revolving around the question of whether the current funding system meets constitutional standards for providing an adequate education.

West Orange-Cove plaintiffs include:

West Orange-Cove, Alamo Heights, Allen, Argyle, Austin, Beckville, Carrolton-Farmers Branch, Carthage, College Station, Coppell, Dallas, Darrouzet, Deer Park, Fairfield, Graford, Grapevine-Colleyville, Hallsville, Highland Park, Houston, Humble, Katy, Kaufman, LaPorte, Lake Travis, Lewisville, Lubbock, Marble Falls, McCamey, Miami, Northeast, Northside, Northwest, Palo Pinto, Pearland, Plano, Port Neches-Groves, Pringle-Morse, Richardson, Round Rock, Round Top-Carmine, Spring Branch, Spring, Stafford, Sweeny, Terrell, and Texas City

Edgewood Plaintiffs include:

Edgewood, Brownsville, Edcouch-Elsa, Harlendale, Kenedy, Laredo, LaVega, Los Fresnos, Monte Alto, Pharr-San Juan-Alamo, Raymondville, San Elizario, Sharyland, Socorro, South San Antonio, Ysleta

The Alvarado Plaintiffs include 223 school districts the largest of which are El Paso, Mesquite, and Amarillo. Other medium-to-large school districts among these plaintiffs are Sulphur Springs, Mabank, Athens, and Gainsville.