Budget Drivers: The Forces Driving State SpendingArticle III: Education

Cost drivers — enrollment, tuition and property values

Article III appropriations support public schools and state colleges and universities.

For this analysis, GRR funding for Article III is combined with revenue from the Property Tax Relief Fund (PTRF), created in 2006 to boost state aid for public education and ease the burden on property taxpayers. This led to the growth in appropriations seen in Exhibit 8 during fiscal 2008 and 2009. Then, during the 2009 session, the Legislature used federal funds from the American Recovery and Reinvestment Act to fund part of the state’s obligations under the school finance system. This resulted in the declining state appropriations seen in 2010.

In all, the Legislature appropriated $62.9 billion in combined GRR and PTRF revenue for Article III in the 2018-19 biennium; All-Funds appropriations totaled $81.1 billion, including $10.8 billion in federal funds and $7.4 billion in other funds.

Increases in Article III appropriations are driven primarily by the number of Texas children enrolled in school districts and charter schools and the number of credits taken by students enrolled in Texas public colleges and universities.  In the last 23 years, the state has supplied a decreasing share of funding for both public and higher education.

Exhibit 8 compares appropriations for Article III against the general cost index and personal income growth. Since 1996, adjusted GRR+PTRF and All-Funds appropriations have risen less than the general cost index and much less than personal income.

Exhibit 8: Article III Appropriations vs. General Cost Index and Personal Income,
Fiscal 1996-2019 (1996=100)

Exhibit 8: Article III Appropriations vs. General Cost Index and Personal Income, Fiscal 1996-2019 (1996=100)

Fiscal Year	General Revenue-Related and Property Tax Relief Fund Index	All Funds Index	General Cost Index	Personal Income Index
1996	100.0	100.0	100.0	100.0
1997	99.4	99.7	104.8	108.6
1998	120.3	112.4	108.7	118.7
1999	120.9	112.7	113.0	125.7
2000	138.6	130.6	118.8	136.5
2001	140.8	132.2	124.9	146.4
2002	142.7	144.0	128.9	148.9
2003	133.6	138.1	134.1	153.4
2004	143.1	153.2	139.5	159.3
2005	138.6	154.9	146.6	172.1
2006	143.0	162.1	155.8	189.5
2007	169.1	183.3	162.6	202.3
2008	206.6	215.0	173.2	223.6
2009	204.6	215.5	176.1	217.4
2010	175.0	230.5	182.4	221.6
2011	217.5	229.1	190.2	242.3
2012	207.7	226.6	198.0	260.1
2013	206.2	222.5	204.5	270.9
2014	215.5	216.5	211.4	285.9
2015	222.4	222.8	216.0	301.9
2016	232.3	234.2	221.6	304.3
2017	224.7	230.6	229.5	310.2
2018	239.6	243.5	238.3*	323.1*
2019	226.0	235.3	245.9*	340.7*

* Estimated

Sources: U.S. Bureau of Labor Statistics, IHS Markit, Legislative Budget Board, Texas Comptroller of Public Accounts and Texas Education Agency

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K-12 education

Cost drivers — enrollment and property values

The Texas Education Agency (TEA), which oversees the state’s public education system, is the largest single recipient of Article III funding, at $40.2 billion in GRR and PTRF and $55.4 billion in All Funds for the 2018-19 biennium, or about 63.9 percent and 68.3 percent of the Article III total, respectively.

Due to the nature of the Texas school finance system, the primary cost drivers for state appropriations to TEA are public school enrollment and local property values. As more students enroll in public schools, the need for state appropriations rises; as local property values and tax collections increase, the state’s funding formulas supply less state money. The data indicate that the latter factor has been more important since 1996 (Exhibit 9).

Since 1996, GRR and PTRF appropriations have risen by an annual average 3.5 percent, while All-Funds appropriations have risen by 4.1 percent annually — both considerably less than the growth in personal income and the education cost index. This is primarily because taxable property values have risen by an estimated 6.1 percent annually since 1996.

EXHIBIT 9: TEA APPROPRIATIONS VS. EDUCATION COST INDEX, PROPERTY VALUES AND PERSONAL INCOME, FISCAL 1996-2019
(1996=100)

Exhibit 9: TEA Appropriations vs. Education Cost Index, Property Values and Personal Income, Fiscal 1996-2019 (1996=100)

Fiscal Year	TEA All-Funds Appropriations Index	TEA GRR+PTRF Appropriations Index	Education Cost Index	Taxable Property Values Index	Personal Income index
1996	100.0	100.0	100.0	100.0	100.0
1997	99.1	98.9	105.0	102.3	108.6
1998	112.1	112.1	109.7	108.1	118.7
1999	112.4	112	115.3	114.4	125.7
2000	132.2	130.9	123.9	125.1	136.5
2001	134.5	133.2	130.9	138.6	146.4
2002	140.2	132.5	136.1	146.4	148.9
2003	136.8	126.7	145.2	152.6	153.4
2004	145.7	127.1	152.3	162.1	159.4
2005	149.0	122.4	164.0	175.6	172.1
2006	158.8	129.3	176.6	197.7	189.5
2007	189.7	168.1	187.7	219.1	202.3
2008	226.8	217.0	204.3	242.3	223.6
2009	223.1	210.5	209.1	245.1	217.4
2010	240.1	159.0	217.1	241.1	221.6
2011	238.5	223.2	229.0	243.9	242.3
2012	237.1	214.5	223.7	255.1	260.1
2013	231.7	190.5	242.4	270	270.9
2014	241.7	222.6	255.9	293.7	285.9
2015	244.8	223.7	262.9	306.4	301.9
2016	259.3	237.4	269.3	321.6	304.3
2017	250.3	222.1	278.6	344.7	310.2
2018	263.5	237.2	290.2*	368.0*	323.1*
2019	254.1	219.9	306.0*	390.1*	340.7*

* Estimated

Sources: U.S. Bureau of Labor Statistics, IHS Markit, Legislative Budget Board and Texas Education Agency

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Higher Education

Cost drivers — credit hours taken and tuition

Texas public higher education institutions receive a little more than a third of the amount devoted to K-12 education: $20.1 billion in All Funds for the 2018-19 biennium, of which GRR represented about $17.5 billion or 87 percent. The largest share of Texas’ higher education spending goes to “general academic institutions,” or four-year public universities.

Since 1996, state funding for these institutions has risen by an average 3.6 percent annually; in fiscal 2017, they received $4.3 billion (Exhibit 10 is based on data from the Texas Higher Education Coordinating Board and 2018-19 figures are not yet available).

EXHIBIT 10: GENERAL ACADEMIC INSTITUTION FUNDING VS. TUITION, THE HIGHER EDUCATION COST INDEX AND PERSONAL INCOME, FISCAL 1996-2017*
(1996=100)

Exhibit 10: General Academic Institution Funding vs. Tuition, the Higher Education Cost Index and Personal Income, Fiscal 1996-2017* (1996=100)

Fiscal Year	State Appropriations Index	Net Tuition and Fees Index	Higher Education Cost index	Personal Income Index
1996	100.0	100.0	100.0	100.0
1997	99.1	115.6	105.1	108.6
1998	107.8	127.9	109.5	118.7
1999	107.2	139.2	114.2	125.7
2000	122.1	153.0	120.4	136.5
2001	124.0	170.4	126.8	146.4
2002	129.2	191.9	130.3	148.9
2003	134.4	213.4	139.2	153.4
2004	131.7	248.5	147.3	159.3
2005	133.6	285.9	153.2	172.1
2006	144.0	309.7	160.6	189.5
2007	147.0	344.5	165.0	202.3
2008	166.8	371.3	174.7	223.6
2009	171.3	395.1	176.8	217.4
2010	177.3	424.1	188.4	221.6
2011	172.4	461.5	200.7	242.3
2012	163.4	502.5	208.2	260.1
2013	164.9	514.2	214.8	270.9
2014	178.9	543.4	221.6	285.9
2015	183.7	586.1	229.2	301.9
2016	203.0	623.3	237.8	304.3
2017	209.5	645.2	249.4	310.2

* General academic institution credit hours for 1996-2001 are estimated. Estimates of tuition and credit hours for 2018 and 2019 were unavailable.

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, IHS Markit, Legislative Budget Board, Texas Comptroller of Public Accounts and the Texas Higher Education Coordinating Board

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The growth of this funding, however, has not kept pace with inflation or the rapid increase in enrollment, leading to a decline in per-student state contributions. Consequently, net tuition and fees rose by an average annual 9.3 percent in the study period. Interestingly, net tuition and fees rose faster before tuition deregulation than after (11.4 percent annually from 1996 to 2003 and 8.2 annually thereafter).

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