Texas School Finance: Doing the Math on the State’s Biggest Expenditure

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Published January 2019

II. The Foundation School Program

The state’s Foundation School Program funds public schools through a series of formulas prescribed by the Legislature that determines how much local and state funding each school district receives. Districts with low property values require more state support, while districts with higher property values require less.

It’s important to note that high property value isn’t necessarily a function of residential real estate values. Some property-wealthy districts in Texas have relatively low residential property values and much higher commercial property values, due to the presence of assets such as a nuclear power plant or manufacturing center.

At the local level, the FSP is funded primarily by M&O property taxes levied by individual school districts. State FSP funding comes from state tax revenue (including that deposited into the state’s Property Tax Relief Fund), the state lottery and the Permanent School Fund, an endowment established by the Texas Constitution.¹⁷ Every Texas public school district must participate in the FSP and must raise local property tax revenue before receiving state funds.

FSP funding is delivered under two separate “tiers,” Tier I and Tier II, for basic program costs and program enrichment, respectively. A district’s Tier I entitlement is based on certain district and student characteristics, such as its share of students needing special services. An optional Tier II entitlement is based on local “tax effort,” the tax rate levied above the minimum rate required by law.¹⁸

Once these entitlements are established, the FSP calculates how much state funding a district will receive for each tier based on the amount of local revenue it can supply. The FSP also offers an Instructional Facilities Allotment and an Existing Debt Allotment to help school districts pay debt service on existing facilities.¹⁹

The amount of state aid a school district receives under both tiers depends largely on three key variables: its number of students, property values and property tax rates.²⁰ In general, as a school district’s enrollment increases or its property tax base shrinks, a district will receive more in state aid; if its need decreases or its tax base expands, it will receive less.

Tier I and the Basic Allotment

The Legislature establishes the central component of Tier I funding, the basic allotment, for each school district per student based on its average daily attendance (ADA). The basic allotment then is adjusted for each district based on its size, regional cost differences, instructional programs offered and additional resources needed.²¹

Over the years, lawmakers have increased the basic allotment from $1,290 per student in fiscal 1985 to $5,140 in fiscal 2019 (Exhibit 1). Increasing the basic allotment is an effective approach to improve equity among districts.²²

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Tier II and Guaranteed Yield

The FSP determines Tier II funding through the guaranteed yield formula, which includes two levels, the second added in fiscal 2007.

The first level of guaranteed funding is equal to the district’s wealth per student counted in weighted average daily attendance, or WADA, for each penny of property tax levied per $100 valuation — a “tax effort” — between $1.00 and $1.06. (WADA is ADA after adjustment for various factors.) The second level is a fixed amount set by state law — $31.95 per student counted in WADA — for each penny of property tax levied between $1.06 and $1.17.²³

The first level of Tier II has risen from $41.21 per student in fiscal 2007 to $106.28 per student in fiscal 2019, with recent, significant increases (Exhibit 2). The second level of Tier II has remained fixed at $31.95.²⁴

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Wealth Equalization and Recapture: “Chapter 41”

School districts with high property values can raise more money per student for each penny of tax effort than can those with low property values. Some school districts can raise their entire Tier I entitlements with local property taxes alone.

The wealth disparity between districts can be extreme (Exhibit 3). For example, both Cotulla ISD and Buna ISD have comparable enrollment, but radically different levels of wealth per student counted in ADA.

Cotulla ISD, between San Antonio and Laredo, had one of the highest levels of wealth per student during fiscal 2018, at about $3.7 million.²⁵ Cotulla ISD’s high per-student property wealth is largely the result of nearby natural gas processing plants and crude oil pipelines with high taxable values.²⁶ By contrast, Buna ISD, north of Beaumont, had about $222,000 of property wealth per student in the same year.²⁷

In fiscal 2018, the state’s median property wealth per student was $379,066.

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