Abstract

This research examined the level of equity of the public school funding system in Texas that in September of 2004 was held to be unconstitutional by a state district judge. The study also introduces a mechanism, referred to as the Revenue-to-Population Index or RTP Index, which compares funding equity within the unconstitutional system among 1031 public school districts in Texas. The index utilizes the total funds available to the school district and the school districts’ weighted average daily attendance (WADA). Data suggest a level of inequity within the unconstitutional funding system with regards to accessibility of state funds for PK-12 schools within Texas, as measured by the Gini-coefficient and the coefficient of variation. Additionally, data indicates an extremely wide (0.85 to 2.91) differentiation within the RTP Index, further documenting a degree of inequity of the public school funding system. A graphical representation suggests a high correlation between property wealth per WADA and revenue per WADA. This condition indicates a violation of the central principal of fiscal neutrality. The processes cited in this paper provide a system that can be used to correct disproportionate funding levels for PK-12 students across Texas, in compliance with legislative objectives and in full-compliance with the directives of the courts.

Funding Public Schools in Texas: How Do We Quantify Inequity?

On Wednesday, September 15, 2004, State District Judge John K. Dietz in the West Orange Case, declared the Texas system for funding its public schools to be unconstitutional. Judge Deitz noted that the $30 billion-a-year system was both inequitable and inadequate. (Stutz, Sept. 16, 2004). A review of newspaper articles, press releases, and reports on meetings held around the state regarding public school finance would indicate that Texas is on the verge of “plowing new ground” in school finance. If, as Keller (2004) proposes, “. . . every Texas school will be accountable for closing achievement gaps among subpopulations of students as a result of The No Child Left Behind Act of 2001,”and “. . . nearly three-quarters of Texas public school students live in districts that levy property taxes at or near the statutory cap of $1.50 per $100 of valuation” (p. 93) then the challenge becomes reviewing every aspect of school financing and available resources in hopes that this review might yield an appropriate methodology to address equity and access issues.

Background of the Problem

Historically, the development of a funding system for Texas public schools has been characterized by a series of starts and stops, primarily driven by economic conditions and political considerations. Though this has largely been an evolutionary process, it became more revolutionary in nature with the filing in the federal court system of Rodriquez v. San Antonio ISD (1971)which challenged the constitutionality of the Texas public school funding system. This effort was unsuccessful and was followed by Edgewood v. Bynum (1984) which challenged the Texas system in state court. The case was filed again as Edgewood v. Kirby (1985) and in 1989 the Texas Supreme Court reversed the appeals court decision and affirmed the trial court's decision that found the Texas system of public school finance unconstitutional (Walker & Casey, 1996). The basis of the ruling was that the Constitution calls for an "efficient system" and the Court found "an implicit link between efficiency and equality" (Edgewood v. Kirby, 1989). Not unlike other states, this ruling was followed by a series of legislative attempts to remedy the problems within the system. These attempts lead to successful legal challenges to subsequent legislative proposals. Finally, in 1993 with the passage of Senate Bill 7, the legislature was able to pass a funding bill that met constitutional muster. Senate Bill 7 provided the framework for the revised Texas school funding system, but still carried the title of the previous Foundation School Program.

The method provided in Senate Bill 7 for funding maintenance and operations consisted of a two-tiered system. Tier I is a Minimum Foundation Program and Tier II is a Guaranteed Yield component. This system is built on a partnership between the local district and the state and it relies heavily on local property taxation. The unique and controversial feature of this system is the provision for recapture of all local property taxes collected above a legislatively determined cap, called the Equalized Wealth Level (Texas Education Code, Title 2, Chapter41, 42, and 46).This program is commonly referred to as a “Robin Hood” plan because, effectively, it recaptures funds from property wealthy districts and reroutes that funding indirectly to property poor districts.

Within the recent Foundation School Program, Tier I required that local districts levy a $0.86/$100 valuation tax rate to provide the local share of the total cost of Tier I and guaranteed that the district would be able to access funds of $295,000 of property wealth per weighted student. Tier II allowed districts to levy an enrichment tax rate of up to $0.64/$100 valuation since M&O rates are legislatively limited to $1.50/$100 valuation. This helps ensure access to a property wealth level of $271,400 per student in Weighted Average Daily Attendance (WADA). The Equalized Wealth Level was set at $305,000 property wealth per WADA. Also built into the Foundation School Program are adjustments for differing educational needs of students through a weighted pupil approach and for varying local economic conditions by way of a Cost of Education Index (CEI) and size and sparsity adjustments.

A major addition to the original Senate Bill 7, relating to state school finance, has been the addition of assistance for funding for instructional facilities. This assistance is comprised of two parts. The first is the Instructional Facilities Allotment (IFA), which requires applications for assistance in building proposed new facilities. These applications are approved based on greatest need (determined by per-pupil local property wealth) until allocated funds are expended. The second part consists of the Existing Debt Allotment (EDA) and is used to assist districts with debt retirement requirements on old debt. The allotment for both IFA and EDA is a guaranteed yield at $35 per ADA per penny on the debt service tax rate. The provision of recapture does not apply to local funds for building new facilities or to the retirement of current debt (Texas Statutes, Texas Education Code, Title 2, Chapter 46). Although not widely known, and thus not often discussed, this is seemingly a critical point in assessing equity across the current funding system.

Additionally, this version of the Foundation School Program has been a large step forward in the equalization of funding for public school students in Texas. However, areas of contention continue to surface. The most divisive area appears to be the concept of recapture, which is a plan specifically designed to address equity in funding among the 1031 state independent school districts. Districts that have property wealth above the cap send large amounts of local revenue back into the system to be accessed by districts with less local property wealth per student. The existence and degree of contention in regard to this matter is largely a matter of perspective. The less contentious, but more pervasive area is that of capacity. The maximum tax rate for Texas school districts for funding current year operations is $1.50 per $100 valuation. For fiscal year 2004, 60% of the districts had M&O tax rates of $1.46 to $1.50 (Thompson, 2004). At this point, under the above constraints, equity becomes an issue.

Judge Dietz’s ruling of September 15, 2004 gave the legislature one year to replace the system with one that is constitutionally acceptable. At that time, the Attorney General of the State of Texas noted that the state would appeal the ruling directly to the Texas Supreme Court in order to resolve the issues raised by the trial court. In the state of Texas, the issue of funding equity has been the driving force for many changes occurring in the way the state funds its schools. The recent standard tends to focus on providing equal access to funds at substantially equal tax effort in order to address these gaps (Thompson, 2003). The numbers would indicate that there still exist considerable differences in available revenue between property-rich and property-poor school districts. For example, the system has never closed the gap to the $600 promised in Edgewood IV. The gap has actually widened to over $1,000 (Equity Center Positions of the West Orange-Cove Case, 2003). Funding policies that continue to allow and/or exacerbate the ability for some districts to have access to needed funds include the following two issues.

Though equity is the focus of many studies, this study concentrates on accessibility to the funding. Accessibility, by definition, is not how much funding school districts have but how much funding districts have access to or how much is available to them. Districts unable to access the total amount of funding allotted, for one reason or another, have little recourse but to place themselves into the inequitable arena.

Methodology

This project utilized a quasi causal-comparative research design. Specifically, the researchers, utilizing current data provided by the Texas Education Agency, set out to determine “consequences of differences that already exist between or among groups” (Fraenkel & Wallen, 2003). In the case of this research project, both school districts and WADA were considered as parts of the analysis. While this study does examine differences that have already occurred and were thus analyzed retrospectively, the term “quasi” was added to the design description because this research also attempts to formulate a method for analyzing future proposals of formula funding within the state. This final additional element takes this design out of the scope of Fraenkel and Wallen’s definition and moves it into the quasi-comparative arena.

Presentation of the Data

In this section, data are presented and discussed to address each of the research questions. The Lorenz curves, as explained in the previous section, are depicted in Figures 1 and 2. The results of the analysis are provided in Table 1 with benchmarks that are widely accepted in the research community. A graph illustrating Fiscal Neutrality is provided as Figure 3.

Findings and Conclusions

The intent of this research was to provide some insights into the relative equity of the access to funds in the Texas Foundation School Program. Based on 2004 fiscal data and regulations in place at that time, the system was providing funding for more than five million WADA and access to funds nearing thirty billion dollars ($30 Billion). The analysis of the data reveals a system that is reasonably equitable in terms of the most widely accepted methods of analysis. Enthusiasm must be tempered for the degree of equity demonstrated by the Gini coefficient in light of the wide disparity in available funding within the system by the unacceptably high levels of variance as shown in the coefficients of variation by WADA and by District. There is also a concentration of per pupil revenue in the upper 50% of that hierarchy, along with a troubling relationship between per WADA property wealth and per WADA revenue.

The processes of performing these statistical tests are quite illuminating in regard to what issues drive these variations in available per pupil revenue. Seemingly, these disparities are exacerbated by the following factors:

Any analysis of the data will reveal that the Foundation School Program is heavily reliant on local property taxes. Further examination indicates that in any school funding system that relies on property taxes to fund or supplement the system, equity and recapture are inseparable. It follows immediately that the greater the reliance on local property taxes, the more volatile the issue becomes between those who insist on equity and those who resent recapture.

The RTP Index values provided in Appendix A and Appendix B give voice to the equity and inequity of the system by providing a means of comparing and communicating the differences among districts. This index also gives key district leaders and policy-makers important data for identifying potential funding short-falls for their district in order to bring about dialog and subsequent actions for eliminating such short-falls. This index will also lead to examination of these short-falls in order to unmask issues surrounding funding availability.

Data in the study also give voice to the importance of accessing all funds available in the formula-funding system and thus the concern that some school districts may not be accessing the full funding available to them. It is a common factor for funding to be unavailable to districts due to some economic anomaly. It is of little use to districts to have available funding and not have the ability to obtain or access and use these funds. This anomaly widens the inequity gap and further complicates the problem of equitable funding for school districts. The RTP Index developed within this study can be used to simplify communications concerning the current funding system and to address its effects upon districts. It is important to note that districts not reaching equity of 1.0 on the RTP Index should seek to identify reasons for this short-fall whether it is current lack in Average Daily Attendance or disparities in taxes owed or taxes paid.

As Texas moves toward revisions in the public school funding system, the RTP Index can also be used to gauge the equity of any proposed funding systems before engagement. Further, the RTP Index gives individual school district leaders and school boards a means to compare their district’s equity position in comparison to the state funding system as well as other school districts in similar situations.

As discussed at the beginning of this article, the Texas public school finance system has been in and out of court for much of the last two decades. This reality clearly indicates the need for a new look at the funding equity questions across the system and the need for benchmarking the existing system in order to facilitate future system revisions. It is this benchmarking that becomes the major implication of this research. It is only when we completely understand the implications of changing funding formulas or continuing to use existing systems, that policy and lawmakers can chart a path for improvement. By using the RTP Index to pin-point funding availability we can vastly improve the tracking of these inequities. Hopefully the use of this technique can also reduce the likelihood that future funding systems will end up in the court system, as a result of challenges posed by individuals or districts that are perceived as not being treated fairly. Under a democratic system, fair and equitable treatment under the law is the expectation and the right of every citizen.

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Appendix A