By George Christian 
From 1949 to 1991, poor school districts had largely driven the debate over reform of the Texas school finance system. They had provided the initial impulse for Gilmer-Aiken, unsuccessfully sued the state in federal court, and ultimately triumphed at the Texas Supreme Court. Successive legislatures had responded to litigation and public campaigns by increasing total funding to public education and distributing that funding in a more equitable manner. Since 1991, however, the worm has turned. Stung by a succession of school plans that progressively eroded their independence to tax and spend as they pleased, wealthy districts took a page from their less fortunate compatriots’ book. They began to use the court system themselves.
Following legislative enactment of the 1991 share-the-wealth plan, wealthy districts, seeking to kill “Robin Hood” once and for all, beat a path to the courthouse and argued that the new system imposed an unconstitutional state property tax. Travis County District Judge Scott McCown disagreed and upheld the CEDs (county educational districts). Unfortunately for the Governor and Legislature, however, the Texas Supreme Court concurred with the districts. The CED tax, the court determined in the Edgewood III opinion, constituted a state property tax in violation of the Texas Constitution, which prohibits the imposition of a state property tax. The Legislature responded during the 1993 session by sending a constitutional amendment to the voters validating the CED system. On May 1, 1993, Texas voters went to the polls and, despite a desperate campaign by Governor Richards, rejected the constitutional amendment.
Forced back to the drawing board, the Governor and Legislature devised the so-called “Local Option” plan, allowing school districts to choose among various options for sharing their property tax wealth with poor districts. Although both poor and wealthy districts challenged the plan in court, this time the state won (although Governor Richards had in the interim gone down to electoral defeat at the hands of George W. Bush). On January 30, 1995, the Texas Supreme Court issued the fourth—and last—Edgewood opinion, holding that the system met the state’s constitutional obligation to provide an efficient system. For a brief moment, and after two decades of unremitting controversy, litigation, legislation, and political wrangling, Texas’ school finance system met constitutional muster.
But that didn’t last long. Texas law has long capped school district maintenance and operation tax rates at $1.50 per $100 assessed property value. For more than a century, most school districts had taxed well under the cap, so it never became a constitutional issue. But in April, 2001, four rich school districts decided that it had. They filed suit in Travis County district court, alleging that the school finance system was unconstitutional because, similar to the CED plan before it, imposed a state property tax because so many districts now taxed at the $1.50 cap that it became a de facto state tax. The district court and court of appeals dismissed the appeal, but the Texas Supreme Court took the case and reversed the lower courts. In West Orange Cove C.I.S.D. v. Neeley (November, 2005), the court threw out the system devised in 1995 on the basis that the state gave school districts no “meaningful discretion” in the setting their own tax rates.
Governor Rick Perry called the Legislature back into session in the spring of 2006 to deal with the West Orange Cove ruling. With the Governor’s backing, the Legislature enacted a complex system of revenue targets for each school district (based on 2005-2006 funding levels) and tax compression, whereby school tax rates were reduced by one-third (i.e., a district at the $1.50 cap had to reduce its rate to $1.00). School districts were given the option of imposing an additional 4 cents of local enrichment taxes, with the option to impose up to 13 additional cents with voter approval (equalling a cap of $1.17 per $100 assessed property value). The tax rate compression was paid for by a new business tax, other additional taxes and fees, and surplus state revenue. The entire package resulted in a net tax cut, though most taxpayers did not see a major difference in their property tax bills as a result of rapidly increasing property values in tax years 2006-2008.
This system is still in operation today, though it is showing signs of considerable strain, exacerbated by the general revenue shortfall that threatens school districts with a multi-billion reduction in state funding. Because of the revenue target system that holds wealth districts harmless at high funding levels, many poor districts believe that the current system is nearly as inequitable as the one the first Edgewood court rejected in 1989. Moreover, as more districts approach the current $1.17 tax rate cap, the argument that the cap is a state property tax is likely to recur. And many wealthy districts have never liked the “Robin Hood” aspects of the share-the-wealth system to begin with. Many legislators agree with one or all of these criticisms and have filed various reform plans. One legislator has even proposed doing away with Supreme Court oversight of the system altogether, leaving the legislature free to devise whatever system it deems fit. One thing seems certain: the future of Texas school finance will be decided in the courts as well as in the political arena.
Sources:
State Library and Archives Commission (accessed March 14, 2011)
Cynthia E. Orozco, Rodriguez v. San Antonio ISD, Texas State Historical Association (accessed March 14, 2011)
Sheryl Pace, An Introduction to School Finance in Texas, Texas Taxpayers and Research Association Research Foundation, May, 2010
For More on state financing of education, you can read:
The Texas Legislature: Online
Current Events in Texas Public Education at The Texas Tribune
Gene B. Preuss, To Get a Better School System: One Hundred Years of Education Reform in Texas (2009)
Larry Cuban, As Good As It Gets: What School Reform Brought to Austin (2010)
Previous installments of George on the Lege:
Part 5:1 School Finance, 1949-1991
Part 4: Concealed Weapons
Part 3: Redistricting
Part 2: Cutting Spending
Part 1: Budget Crises, Today and Yesterday
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