| Texas
School Finance and the Related Special Session;
Just because the Legislature has made some progress on public school finance legislation, does not mean that we are anywhere close to the finish. Powerful political action committees and lobbyists are frantically at work to prevent any “harm”to their constituency. Mr. Brusniak’s article is more timely than ever. Following Mr. Brusniak’s article, I have listed for you some numbers worth remembering as we go through this uncertain process. And with no further delay, here is Mr. Brusinak’s article: THE DILEMMA OF SCHOOL FINANCE John
Brusniak, Jr. The History
As is evident from this quote, from the earliest days of our state’s history, payment for public education has been a contentious subject. Yet, the concept of a free public education has been deemed an inalienable right. To that end, our current state constitution, adopted in 1876, provides in Article VII § 1:
In this provision lies the root of the current problem. From the early days of statehood through the 1920s, the state of Texas bore the cost of free, public education in its entirety. During the 1920s, local school districts seeking the ability to supplement the educational programs which the legislature was funding, succeeded in amending the constitution to allow the adoption of a local property tax to provide such local educational enhancements. Over the ensuing decades as the state urbanized and pockets of extreme wealth and extreme poverty emerged, serious inequities in the quality of education resulted. School districts with significant property wealth could set a low property tax rate and provide public education which was equivalent to the state’s finest private schools, while school districts with little property wealth were forced to set their property tax rates at the maximum allowed by law, yet still could not provide their students with an adequate level of education. As a result, a string of litigation ensued, first in the federal courts, and then in the state courts. In 1973, the United States Supreme Court in San Antonio Independent School District v. Rodriguez, 411 U.S. 1 (1973) rejected a claim that Texas’funding scheme violated the constitutional equal protection rights of children living in impoverished school districts. The court found that the United States Constitution did not provide a “fundamental right”to a free, public education and that the Texas system, although inadequate, did not unconstitutionally discriminate against poor children. In so holding the court said,
411 U.S. at 58-59. With this loss, a string of Texas constitutional challenges commenced in state district court in Austin.. Five of these cases have reached the Texas Supreme Court, the first in 1989, and the most recent in 2003. In four of the five appeals, the Supreme Court found the educational financing scheme to be violative of the Texas Constitution. Alternately, the Supreme Court found the financing scheme constituted an abdication of the legislature’s responsibility to pay for public education or that the various funding mechanisms created an unconstitutional statewide property tax in violation of the specific bar against such taxation contained in Article VIII, §1-e. When the system was initially struck down in 1989, the state was paying fifty percent of the cost of public education, and the balance was being borne by the local property tax. At present, the state’s share of the cost has declined to thirty-eight percent. The most recent case to reach the Texas Supreme Court, West Orange-Cove Consolidated Independent School District v. Alanis, 107 S.W.3d 558 (Tex. 2003), was decided by the lower courts strictly on pleadings. As a result, the Supreme Court was unable to rule the current scheme unconstitutional; however, its opinion unequivocally expressed that belief. That case has been remanded to the trial court for trial in July of this year. The chief complaint in the latest appeal was that the current “Robin Hood”plan created an illegal state property tax by forcing wealthy districts to tax at levels greater than they wished to do. In essence, the wealthy school districts have reached the statutory maximum school property tax rate of $1.50 per $100 of value (i.e., 1.5% of market value), and are being forced to send ever increasing sums to the state to pay for education in poorer districts while being forced to cut programs in their own districts. Upon remand, the poor school districts intervened into the suit contending that they too were being forced to cut programs while taxing at the maximum $1.50 rate because the state is not providing them with sufficient funds. The Dilemma The state of Texas does not have sufficient tax revenues. As a result, the cost of most governmental operations are borne at the local level. In the past year, local property taxes, (city, school, county and special districts) cumulatively raised $26 billion while all state taxes accounted for only $24 billion in revenue. (Surprisingly, one-third of the monies utilized to pay for the cost of state government comes directly from the federal government in Washington.) Seventy percent of the state’s tax revenue comes from the sales tax. With a rapidly increasing population, the demand for governmental services is going up astronomically. (The state’s population increased from approximately 17,000,000 to almost 21,000,000 from 1990 to 2000 and is expected to exceed 25,000,000 by 2010.) In the interim, the federal and state government were caught up in the “no new taxes”and tax cut frenzies. As a result, the increased cost of funding governmental services was shifted even more from the federal government to the state and in turn from the state government to the local government. To keep up with these demands, cumulative local property tax rates virtually doubled from the mid-1980s to 2003 from approximately $1.50 per $100 of value (i.e., 1.5% of value) to $3.00 per $100 of value (i.e., 3%). Combined with the steady increase in the value of property, property tax revenues actually doubled from the early 1990s to date. As a result, the populace has screamed that it is being overtaxed. The reality is that Texas ranks 40th among the 50 United States in per capita state and local tax burden. To respond to the Robin Hood “crisis”, the school finance “crisis”and the property tax “crisis”, the governor and other legislative leaders have called for a shifting of the burden of taxation. Each of these issues in and of itself would be a horrible dilemma for an elected state official seeking re-election. Cumulatively, they are an unspeakable horror. The numbers are astronomical (and they tend to shift depending on who is proposing a solution.) In general, however, it is believed that it will take $1.2 billion in new revenue to eliminate “Robin Hood.”It will take an extra one-half billion dollars per year to deal with an ever increasing school-age populace, and it will take $1 billion of new revenue for every dime of school district property tax relief being sought. Anywhere from fifty cents to seventy-five cents of school district rate relief has been advocated. Roughly, the range of new revenue necessary to achieve these goals is somewhere between $8 billion and $16 billion depending on the proposal being advocated. The proposed solutions change from minute-to-minute, and as a result are too myriad to attempt to reiterate; however, the only item being kept off the table of discussion is a state personal income tax, the one tax capable of providing the revenue stream necessary to deal with these issues (a revenue stream possessed by most of the other states in the United States.) In context, what is necessary to accomplish the goals set forth by the state leadership is a state revenue tax increase ranging between 33% to 67%. To complicate these issues even further, the leadership in the House, Senate and Governor’s Mansion do not appear to be seeing eye-to-eye as to the underlying facets of the potential solutions. In addition to that, most advocated resolutions will require constitutional amendments (e.g., legalizing some forms of gambling, changing the school district property tax from a local tax to a state-wide tax, capping rates of growth of property taxes.) These proposals will require a 2/3 affirmative vote of each house in the legislature before submission to the voters, a daunting task for even the simplest and most non-controversial of measures. Governors Mark White, Ann Richards, George Bush and now Rick Perry have all attempted to solve this quandary of providing Texans with the free education mandated by the Constitution while not paying for it. At most, the legislature has begrudgingly placed band-aids on the system to the chagrin of the Texas Supreme Court. As Justice Hecht wrote in the West Orange-Cove case:
107 S.W.3d at 566-567. At the moment, it appears unlikely that the political will exists to do anything more than “band-aid”the system, or that the legislature will act anytime before it is specifically again mandated to fix the system by the Texas Supreme Court (which action is likely to occur more than 18 to 24 months from now). **************** Here are some interesting facts and figures you may want to keep in mind as you watch the Legislature try to do the impossible: move a tax burden from one group to another group, while at the same time increasing that burden. The average school property tax rate in Texas is $1.46. For your copy of the state’s “adequacy study”, as in how adequate is Texas’educational funding, download it at www.capitol.state.tx.us/psf/reports.htm. School property taxes make up only a little more than half of every homeowner’s local property tax. Nobody’s talking about changing the other half. About 120 school districts export about $1.08 billion in local property tax money for use by poorer districts. Of that, 90% comes from 44 school districts, and 75% of that comes from 20 districts. Two thirds of that money comes from 13 districts. The top 7 districts contribute 51.2% of all the money that goes into Robin Hood. The current 4.5% state franchise tax raises around $1.5 billion annually. For-profit companies have an estimated $295 billion combined state payroll. A 2.85% payroll tax would generate an estimated $9 billion in annual tax revenue. A 2.5% payroll tax with the first $200,000 in wages exempted would generate an estimated $5 billion in annual tax revenues. A 1% payroll tax, or $400 per employee whichever is less, with no exemptions, would generate an estimated $2.4 billion annually. Broadening the state sales tax to include real estate commissions would generate an estimated $192 million in annual tax revenue, to legal services would generate an estimated $428 million in annual tax revenue, to accounting and audit services would generate an estimated $208 million in annual tax revenue, to architectural and engineering services would generate an estimated $303 million in annual tax revenue, and to include public relations and management consulting services would generate an estimated $107 million in annual tax revenue. A $1 entertainment surcharge on professional sports, movies and other attractions, would generate an estimated $134 million in annual tax revenue. Increasing the motor vehicle sales tax from 6.25% to 7.5% would generate an estimated $491 million in annual tax revenue. A boat and motor tax of 7.5% would generate an estimated $53.9 million in annual tax revenue. An increase in the cigarette tax from $0.41 to $1.41 would generate $707 million in annual tax revenue. An increase in the smokeless tobacco tax from 34.2% to 40% would generate $20 million in annual tax revenue. If there is such a thing as having fun with a tax, it would have to be the proposed tax on folks going to strip clubs. Just naming it creates humor. It could be the “SOB Tax”for “sexually oriented businesses”, or the “Tease Tax”, the “Peeper Fee”, the “Tassel Tax or, to shorten even that, the “TT Tax.”Somebody estimates that Texans make 9 million visits a year to see the girls dance without their clothes on. That’s a very interesting estimate, don’t you think? At $5 per visit, the TT Tax would generate $45 million a year. However, as John Brusniak states in his article, the pain associated with any new tax is likely to delay the imposition of any new taxes. What does all this mean? In my opinion, don’t stop planning, movin’and groovin’just because of some uncertainty about the future, created in this instance by our Legislature. Structure and operate your businesses under today’s laws. Any change must get much closer, and become much clearer, before it should be cause for delay. Close
Window |