Many of us have enjoyed Charles Dickens’s opening lines in “A Tale of Two Cities” which describe the political and human turmoil occurring at the time of the French Revolution.  We shuddered at the confluence of events in the movie “the Perfect Storm”, where a cold front, remnants of a hurricane and a Nor’easter, combined to produce a hundred year storm resulting in tragedy.  We have taken pride that America and its allies were able to strike at the critical moment on D-Day, in spite of threatening weather, to take action that contributed to victory in World War II.

A similar confluence of events is taking place now in school finance that presents an unusual opportunity for many school districts to take action now that will result in  significant additional funding.

What events are occurring now that present this opportunity?

1. The basic allotment has increased from $5,040 to $5,140, a 2% increase
2. The yield of the six Austin pennies has increased from $61.86/WADA to & 74.28/WADA, an increase of 20% and will increase again next year to $77.53.
3. The funding for fractionally funded districts whose compressed rate is lower than $0.98 will see the yield of many of their $31.95 pennies increase to $51.40, an increase of 60%.
4. For chapter 42 school districts, there has never been a larger difference between the yield of the debt pennies (ADA times $35) and the Tier I and Tier II pennies, which is why many districts have done a tax rate swap to make more money without increasing the total tax rate.
5. The state will give taxpayers an additional $10,000 homestead exemption on school taxes, thereby reducing their school taxes.
6. The state will replace the local tax funds lost with additional state aid.  The additional state aid will be delivered by lowering the Comptroller’s 2014 T2 values used in the school finance formulas for state funding.  It will also provide hold harmless funding.
7. Omar Garcia, of BOSC, Inc., has produced his third version of the funding template on August 5th, to enable districts to explore their funding opportunities.
8. The Texas Supreme Court will hear oral arguments in the school finance case on September 1.  The possibility of a new system of school finance system may be in our future.
9. Joe Smith’s compilation of TRE and Bond Election results prove that, more often than not, voters are willing to approve a local school district election to raise taxes if it is the smart and right thing to do.

These are the positive factors facing school districts as they prepare budgets and set tax rates.

Now, what are the negative factors?

1. The Comptroller is working very hard to the get the current school district appraisal rolls which will allow them to adjust the 2014 PTAD values, but they have not yet delivered the values needed to calculate state and local funding for the 2015-2016 school year.
2. Omar’s template needs the local district to estimate the adjusted 2014 PTAD value, until the Comptroller delivers the adjusted T2 values.
3. The M&O rollback rate for many districts with M&O rates above $1.04, who have already had a TRE approved by voters, will be reduced because of the additional revenue they will receive.
4. If a TRE is needed to keep the M&O tax rate at the previous levels, it must be called by August 24, in order to conduct the election on the November 3 uniform election date
5. The Notice of Public Meeting to Discuss Budget and Proposed Tax Rate must be published at least 10 days before a budget and tax rate may be adopted, as required by Truth-In-Taxation.
6. Next year, homeowners will not see a decrease in the taxes on their homestead.
7. Many view $1.04 as a cap on M&O tax rates.
8. Conventional wisdom states that voters will not approve a tax increase.  

What are some of the opportunities districts may have right now?

1. Set your M&O rate at $1.17.  The cap on M&O tax rates is $1.17.  If you set a rate above $104, all you have to do is win a TRE.  86% of districts that have tried a TREs have been successful.  If 86% are successful, then we shouldn’t view $1.04 as a cap, and TREs as something we’re never going to do.  It’s just the only way to obtain significant additional funds.
2. Any increase in the M&O rate will result in significant additional dollars for the school district.
3. It is possible to increase the M&O rate without increasing the tax bill on the average homestead, because of the increased homestead exemption.
4. An increased M&O rate does not necessarily result in an increased total tax rate, because of the possibility of a TRE tax rate swap.
5. A district’s second TRE that does not increase the tax rate is likely to be approved by voters.
6. Increased funding now will likely result in increased funding under a new system.

In summary, an opportunity to obtain significant additional funding presents itself now.  I urge districts to at least explore the possibility.  How do you explore the possibility?

Use Omar’s template.

1. Estimate the new reduced PTAD T2 value.  
2. Enter $1.17 in the M&O tax rate.  
3. Enter the $1.17 tax collections.
4. See what your new total revenue number is.
5. Convince the board that this is the time to act.  

There is still time, but you must act now.

In the movie “Patton”, General Patton had the opportunity to drive on an end run into the heart of Germany and end the war a year early, but the Allied commanders took his fuel to support the Market Garden campaign which failed.  An important opportunity was missed.

I have been a student of school finance for a long time, focused on how to help districts maximize their state funding.  You should explore what is possible right now, given the current unusual situation.  

Great Challenges are also Great Opportunities!  Don’t be a day late and a dollar short!  Strike while the iron is hot!

Finally, what are you going to do?

John Walch, Ph.D.
Walch Educational Consulting, LLC
212 Honeysuckle Lane, San Antonio, TX 78213
Cell (210) 414-0826            Home (210) 979-8461
jwalch@johnwalchconsulting.com
www.johnwalchconsulting.com